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AXON.COM
2022–2023
THIS IS OUR
MOONSHOT
Axon is a mission-driven company whose overarching 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 fair and effective justice system .
~AXON
J.l. J.l AXON and Axon are trademarks of Axon Enter prise . Inc ., some of which are registered in the US and other countries .
For more information. visit www.axon.com/legal. All rights reserved .© 2023 Axon Enterprise , Inc .
Fellow shareholders,
Humanity hungers for an epic story. Violence often satiates that hunger as the exemplar of struggle, perseverance and
triumph.
Culturally, whether in art, books, film or movies, we celebrate violence as if medieval trial by combat were the ultimate
expression of human achievement. We may no longer gather in stadiums to watch gladiators fight to the death, but violence
easily fulfills movie plot lines seeking conflict and meaning — from sword fights to gun fights to starfighters.
In the real world, it is tempting to let violence draw us in. Even as we detest it, we are captivated. We celebrate when the
good guys win. But we do not ask if there could be a better way. Instead, like a movie, we focus on the plotline and the
victory — why did the bad guy act badly, how did the good guys overcome? In the real world, life is more complex than
a storyline. Was the bad guy really evil? Many times we learn he was a veteran with severe mental health issues, or a teen
with addiction and a drug problem. Every person is someone’s child, relative or friend, and the storylines are so much
more complex than they are in the arts. This is not to excuse violent behaviors or accept them. But violence leads to sadness
and loss. This is our real world.
At Axon, we constantly ask if there’s a better way. We question why when someone shows up to kill, the heroes who run
in to stop the attack have to risk their own lives to save others. Today, the only way to stop a gunman is with a gunfight.
We don’t dispute that is the state of the world as it exists today. But we can equally imagine a world where we have
advanced technologies that don’t require sending our sons and daughters in uniform into harm’s way to stop a deadly
threat. It’s not inconsistent to celebrate their sacrifice and heroism today, and look to give them better capabilities that
keep everyone safer tomorrow.
How can we remove the struggle, stop the sacrifice? How can we ease the journey? Can we tip the scales and defeat
violence in such a dominant fashion that violence becomes, dare I say, no longer interesting?
We are seeing some of this occur already. A few years back I talked to a sheriff who told me that in previous years, inmates
were assaulting corrections officers multiple times per month in his jail. He explained that many inmates came from violent
backgrounds. Within that jail community, it was seen as a badge of honor to get into a fight with officers, and if you injured
them, it was a mark of achievement. You were one of the strongest warriors who stood up against the system and inflicted
pain and suffering on your captors. However, the introduction of TASER devices into the jail changed the dynamic. It was
one thing to get into fisticuffs with correctional officers where you may land some blows and “score some points,” but a
TASER exposure led to an inglorious surrender. The user deploys the probes from a safe distance, which causes the
subject’s muscles to lock up involuntarily, despite how much they want to resist or fight. Assaults on officers fell from
multiple per month to only a few per year. Everyone is now much safer and the environment less violent. We made violence
less interesting.
If we are to truly change the nature of violent encounters, we need to remove the risk of sending human beings directly
into harm’s way. One key area we are pursuing with significant promise is robotic security. If we can send a robotic
system into high-risk areas, we create more distance and time, two critical factors that can drastically change outcomes for
the better. We can create innovative new capabilities that are far safer for everyone than sending in a team of heavily
armed people, subject to their own fears and impaired by their own fight-or-flight biological reactions.
We understand the initial reservation around utilizing robotics in a public safety landscape, given the potential for misuse.
However, as we have proven with our TASER devices and body camera products, misuse of good technology can often
be mitigated with better technology and policy controls. We intend to lead the world not only in robotic security, but in
the development of ethical frameworks and technology controls in this important space.
Now, let’s turn our attention to our type of epic story. Stories that lift humanity and drive us forward. Stories that celebrate
the best of humanity — our love, care, innovation and adventure into new possibilities. The stories of space programs
going to the moon, of curing diseases, of people seeking to contribute positively during their time on this Earth.
We are writing one such positive epic story. We envision a future where attempted violence elicits no more than a yawn
— not because we’re numb to this plague, but because every single time it happens, the outcome is predictably and
dominantly neutralized. Rather than going down in their own ill-conceived blaze of glory, violent actors are
unceremoniously and ingloriously incapacitated and arrested — without struggle — taken to jail, put on trial and judged
by peers.
I’d like to make it so violence in the modern world is no longer something that’s worthy of a movie plot. Violence is not
the ultimate expression of human struggle. It’s simply bad and foolish; we should do everything we can to squeeze it out
of our society.
I am not naive about removing deadly violence from human nature — this tale is as old as time. The deeper conflict is not
with other people, or changing their instinct — but with technology that has not progressed far enough to displace violence
as the best solution to stop violence. We may not be able to stop a passionate dispute, but we can endeavor to remove
violence from the human transaction between our governments and the governed.
We are joining forces with law enforcement and community leaders in a moonshot goal to cut gun-related deaths between
police and the public in half over the next 10 years. Axon’s part in accomplishing this moonshot goal will primarily be to
approach killing as a technology problem. Gene Roddenberry, creator of Star Trek, envisioned a future where technology
elevated humanity, resolving interpersonal violence by “setting Phasers to stun,” where realtime video communication is
ubiquitous, and where computers, software and robots assist people to resolve dangerous and uncertain situations. That is
the future we are creating — with life imitating the better side of the arts.
We know technology alone is not going to solve problems that involve complex social dynamics. It is going to require
technology, training, policy, public acceptance and oversight. In this area, we are fortunate — because stakeholders from
diverse parts of society share our mission, and seek to solve it, together.
Why Axon?
We often get asked why we are the right people to be writing this story, why a cause so universally supported is being
spearheaded by a for-profit business. While we are proud to have built a profitable, growing business, profit is not our
mission — our profit is an outcome we must achieve to support our mission. Revenue growth, profitability, and cash flow
are all hallmarks of running a strong enterprise — and a healthy business model is the most powerful means to the ultimate
end of protecting life.
When you see a problem and you can wrap a business model around it, that forces you to think about focusing on
developing products that are so valuable people will buy them. When I decided I wanted to focus my life on reducing
violence, I could have started a non-profit. But, in practicality, that would mean I would spend the majority of my time
calling people asking for donations. By focusing on technologies that address the problems I care about and wrapping a
successful business model around our solutions, our mission became self-funding and could move with speed and impact
unthinkable in any other organizational model. Today, we have 3,000 employees working on our mission. We have
generated over $15 billion in wealth for our shareholders. And our products have successfully saved hundreds of thousands
of people in high-risk situations that could have otherwise escalated to deadly outcomes.
I believe with every fiber of my being that mission-driven capitalism works. Capitalism writ large has done more to lift
humanity out of poverty over the past two centuries than any other approach. And we now have the ability to focus more
of our time and energy solving higher level problems. Our mission mindset is what took us from a literal startup in a garage
to where we are today, and we have even bigger problems (yielding even greater value) in our sights going forward.
You might recall that in 2020, we made the strategic decision to accelerate our investment in further advancing TASER
technology to better serve public safety and communities. Over the course of 2021 and 2022, we invested nearly $100
million in TASER segment research and development. We are incredibly proud of the results: on January 24, 2023, Axon
unveiled TASER 10 — a game-changing, life-saving weapon that is a feat of human ingenuity and engineering.
TASER 10 represents a giant leap in innovation, with several step-function improvements compared to previous versions,
including double the range and much greater capacity. TASER 10 is the most sophisticated, accurate and effective TASER
energy weapon to date. Future generations may simply take for granted the existence of this less-lethal technology — as
if it had always existed — and like with all technological advancements that drive society forward, that is our aim. We are
proud to be innovative category creators.
Your investment in our company and mission is an important element of the broader story. We’re proud that our mission
and focus works for shareholders too. We are a “both-and” company — we don’t believe one party must win at the expense
of another. We believe true value creation helps everyone. By investing in and striving to accomplish our mission, we are
building the value of our company, our products, and our people. We leave all of our stakeholders — our employees, our
shareholders, and both our customers and the communities they serve — better off when they join our ecosystem.
To wit, in 2022, Axon delivered record revenue growth of 38% to $1.19 billion and net income of $147 million (12.4%
net income margin), supporting Adjusted EBITDA of $232 million, or 19.5% Adjusted EBITDA margin. Our Axon Cloud
software business grew 50% in 2022 on top of 38% growth the year before, and made up an increasing share of our
business. Axon Cloud revenue of $368 million represented 31% of total revenue, and drove 45% Annual Recurring
Revenue growth to $473 million.
In 2018, shareholders approved a CEO compensation plan that granted performance-based stock options, the vesting of
which was tied to growing the company 10x over a 10-year performance period. At the time, the goals were viewed as
extremely challenging. In full candor, my wife was against me taking on the challenge as she saw it as just too risky. As
I sit here writing this letter, we have grown the market capitalization almost 12x from $1.35 billion to over $16 billion
today. And, at current course and speed, we are on track to complete the final operational milestones in the next few
months. Net, we will have completed an audacious 10-year plan in a little over 5 years, having grown our stock price at a
CAGR over 50% per year over that time period. These results were far from easy. But they are the result of our mission-
driven focus, our care for our customers, the innovation and care we put into our employee recruiting and compensation,
and the value of our products that solve real problems.
What’s Next?
Looking forward, our efforts are focused on continuing to deliver strong financial results while we drive towards our
moonshot. Our initial outlook for 2023 contemplates another strong year, with 20% revenue growth and EBITDA margin
expansion. We introduced longer term targets that chart a path to $2.0 billion in revenue in 2025. We plan continued
investment in our existing products, our salesforce, and expansion into newer product areas that can further improve the
life experience for the stakeholders we serve.
We aim to pioneer, create, and invent. We believe we are the best positioned to drive the next wave of technology adoption
within public safety and beyond.
As we embark further on our journey, we thank you for your unrelenting support and empowerment. The writing of our
epic story will bear fruits and new breakthroughs over the next decade, and we are proud that you have chosen to be a part
of it. We will not let you down. In fact, we will elevate together.
Here’s to the next exciting chapters in our story,
-Rick
~AXON
AXON ENTERPRISE, INC.
17800 North 85th Street
Scottsdale, Arizona 85255
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 31, 2023
To Our Shareholders:
The 2023 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 Wednesday, May 31, 2023. 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/AXON2023. 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 directors of the Company named in this proxy statement;
2. Advisory vote to approve the compensation of the Company’s named executive officers;
3. Advisory vote to recommend the frequency of the shareholder vote to approve the compensation of the Company's
named executive officers.
4. Ratifying the appointment of Grant Thornton LLP as the Company’s independent registered public accounting
firm for fiscal year 2023;
5. To approve the 2023 CEO Performance Award;
6. Shareholder proposal to discontinue the development of a non-lethal TASER drone system; and
7. Transacting such other business as may properly come before the Annual Meeting or any continuation,
postponement or adjournment thereof.
Only shareholders of record of the Company’s common stock at the close of business on April 3, 2023 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.
If you have any questions concerning the proposals or this proxy statement, would like additional copies of this proxy
statement or need help voting your shares of Axon, please contact Axon’s proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue
New York, NY 10022
Shareholders Call Toll Free: (888) 750-5834
International Callers: +1 (412) 232-3651
Banks and Brokers Call: (212) 750-5833
By Order of the Board of Directors,
/s/ ISAIAH FIELDS
Isaiah Fields
Corporate Secretary
Scottsdale, Arizona
April 21, 2023
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
Executive Compensation
Executive Officers
Compensation Discussion and Analysis
Summary Compensation Table
Pay Ratio of Chief Executive Officer Compensation to Median Employee Compensation
2022 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 – Advisory Vote to Recommend the Frequency of the Shareholder Vote to Approve the
Compensation of the Company's Named Executive Officers
Proposal No. 4 – Ratification of Appointment of Independent Registered Public Accounting Firm
Proposal No. 5 – Approval of the 2023 CEO Performance Award
Proposal No. 6 – Shareholder Proposal to Discontinue Non-Lethal TASER Drone System
Other Matters
Annex A – 2023 CEO Performance Award Agreement
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~AXON
AXON ENTERPRISE, INC.
17800 North 85th Street
Scottsdale, Arizona 85255
PROXY STATEMENT FOR 2023 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 Wednesday, May 31,
2023. 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/AXON2023. 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 21, 2023.
What is included in these materials?
These materials include:
(cid:31) This proxy statement for the Annual Meeting; and
(cid:31) The Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (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 21, 2023 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. | 2023 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 via 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
No. 6
Electing the directors of the Company named in this proxy statement
Description
Board Recommendation
FOR
(all nominees)
Advisory vote to approve the compensation of the Company’s named
executive officers
Advisory Vote to Recommend the Frequency of the Shareholder 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 2023
To approve the 2023 CEO Performance Award
FOR
1 YEAR
FOR
FOR
Shareholder proposal to discontinue the development of a non-lethal TASER
drone system
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 (480) 991-0797.
Who may vote at the Annual Meeting?
As of April 3, 2023 (the “Record Date”), there were 73,879,573 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. | 2023 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/AXON2023 and enter the control
number found in the Notice.
By telephone. If you received or requested printed copies of the proxy materials by mail, you may vote
by calling the toll free number found on the proxy card.
By mail. If you received or requested printed copies of the proxy materials by mail, you may vote by
filling out the proxy card and returning it in the envelope provided.
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/AXON2023 and enter the control
number found in the Notice.
By telephone. If you received or requested printed copies of the proxy materials by mail, you may vote
by calling the toll free number found on the vote instruction form.
By mail. If you received or requested printed copies of the proxy materials by mail, you may vote by
filling out the vote instruction form and returning it in the envelope provided.
To attend and participate in the Annual Meeting, you will need the 16-digit control number included in your Notice, 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
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.
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
Axon Enterprise, Inc. | 2023 Proxy Statement | 3
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. 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. 4 (ratification of the appointment of Grant Thornton as the Company’s independent registered public
accounting firm for fiscal year 2023) 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. 3, No. 5, and No. 6 (election of the directors, advisory vote to approve the compensation of
the Company’s named executive officers, advisory vote to recommend the frequency of the shareholder vote to approve
the compensation of the Company’s named executive officers, the approval of the 2023 CEO Performance Award, and the
shareholder proposal to discontinue the development of a non-lethal TASER drone system) 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. 3, No. 5, and No. 6.
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.
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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 4
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, each director will be
elected by the affirmative vote of a majority of the votes properly cast for and against such nominee’s election. Abstentions
and 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
For Proposal No. 2, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for ratification.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Advisory Vote to Recommend the Frequency of the Shareholder Vote to Approve the Compensation of the
Company's Named Executive Officers (“Say-on-Frequency”)
For Proposal No. 3, a plurality of votes cast will determine the shareholders' preferred frequency for holding an advisory
vote on compensation for named executive officers. This means that the option for holding an advisory vote, which can
be every 1 year, 2 years or 3 years receiving the greatest number of votes will be considered the preferred frequency of
our shareholders. Abstentions and broker non-votes 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. 4, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for ratification.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Approval of the 2023 CEO Performance Award
For Proposal No. 5, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for ratification.
Abstentions and broker non-votes will have no impact on the outcome of this proposal if a quorum is present.
Shareholder Proposal to Discontinue the Development of the Non-Lethal TASER Drone System
For Proposal No. 6, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal in person or by proxy at the Annual Meeting is required for approval.
Abstentions and broker non-votes 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. | 2023 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 have engaged Innisfree M&A Incorporated to assist in the solicitation of
proxies for an estimated fee of up to $50,000, plus reimbursement of reasonable expenses, and we have agreed to indemnify
Innisfree M&A Incorporated against certain losses, costs and expenses. 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.
Who can help answer my other questions?
If after reading this proxy statement you have more questions about the Annual Meeting or the proposals, you should
contact Innisfree M&A incorporated, our proxy solicitor, at:
Innisfree M&A Incorporated
501 Madison Avenue
New York, NY 10022
Shareholders Call Toll Free: (888) 750-5834
International Callers: +1 (412) 232-3651
Banks and Brokers Call: (212) 750-5833
Axon Enterprise, Inc. | 2023 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 NCG 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.
In January 2022, the Board approved an amendment to our bylaws to move from a plurality voting standard to a majority
voting standard in uncontested elections. Under the new standard, an uncontested director must receive a majority of the
votes properly cast for and against such nominee, and if they do not, they must tender their resignation for Board
consideration. For contested elections where the number of director nominees exceeds the number of Board seats open for
election, each person nominated to be elected as a director shall be elected by a plurality of the votes properly cast.
If an incumbent director receives less than a majority of the votes cast with respect to such director’s election in an
uncontested election, such director shall promptly tender his or her resignation to the NCG Committee. No later than 90
days following the receipt of any such tendered resignation, (A) the Board shall, taking into account any recommendation
by the NCG Committee, take formal action with respect thereto (which action may include accepting or rejecting such
tendered resignation, or taking other action considered appropriate) and (B) the Company shall publicly disclose the
Board’s decision and, in the event that the Board of Directors does not accept such tendered resignation, the rationale for
such decision. The director who tenders his or her resignation shall not participate in the recommendation of the NCG
Committee or the decision of the Board with respect to his or her resignation. The NCG Committee, in making any
recommendation, and the Board, in making any decision, may consider any factors or other information they consider
appropriate or relevant. If the Board accepts a tendered resignation, then the Board may fill the resulting vacancy or may
decrease the size of the Board.
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, four identify as women and six identify as men, one identifies as Iranian-American, two identify as
Black, seven identify as White or Caucasian, and one identifies as a member of the LGBTQ+ community as of March
31, 2023.
Axon Enterprise, Inc. | 2023 Proxy Statement | 7
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.
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
that are a combined benefit to 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 governmental 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 2023
Adriane Brown
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
• Complex hardware and software
integration experience
• Cybersecurity experience
• Risk oversight
• Management expertise
Director since 2020
Age: 64
Board Committees: Compensation Committee, NCG Committee (Chair) and Merger and Acquisition and Capital
Structure Committee
Other Public Company Boards: American Airlines Group Inc., eBay Inc. and KKR & Co Inc.
Ms. Brown is a Managing Partner at Flying Fish Partners, a technology focused venture capital firm, beginning in 2021,
and joined as a Venture Partner in 2018. 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
Axon Enterprise, Inc. | 2023 Proxy Statement | 8
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 (“Honeywell”). 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., American Airlines Group Inc., and KKR & Co Inc. Ms. Brown also serves on the board of directors of the
International Women’s Forum. Previously, she served on the boards of Allergan Plc and Raytheon Company until 2020,
respectively, and Harman International Industries until 2017. Ms. Brown holds an Honorary Doctorate of Humane Letters
and a B.A. in environmental health from Old Dominion University, and is a winner of its Distinguished Alumni Award.
She also holds a M.A. 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
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 from Allergan plc, American Airlines Group Inc., eBay Inc.,
KKR & Co Inc., Harman, and Raytheon Company gives extensive experience
relating to public company corporate governance matters.
Ms. 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, Ms. Brown has engaged in business
and technology transformations across a number of businesses and markets.
Michael Garnreiter, Chairman
Director since 2006
Age: 71
Board Committees: Audit Committee (Chair), Compensation Committee and NCG Committee
Other Public Company Boards: Knight-Swift Transportation Holdings and 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
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. Additionally, Mr. Garnreiter has served on the board of Knight Swift Transportation Holdings
since 2003 and has also served on the board of Amtech Systems since 2007. Mr. Garnreiter holds a B.S. 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 and has extensive
knowledge of SEC rules and regulations.
Board Experience from Knight-Swift Transportation Holdings and Amtech
Systems gives extensive experience relating to public company corporate
governance matters.
Axon Enterprise, Inc. | 2023 Proxy Statement | 9
Hadi Partovi
Director since 2010
Age: 50
Board Committees: Compensation Committee (Chair), NCG Committee and Merger and Acquisition and Capital
Structure 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 Mountain. 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. 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.
Mark W. Kroll, Ph.D.
Director since 2003
Age: 70
Board Committees: Enterprise Risk and Information Security Committee, NCG Committee and 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. in Mathematics and a M.S. and a Ph.D. from the Electrical Engineering department of the University of
Minnesota and an M.B.A. 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"). Dr. Kroll has
also served on the board of Haemonetics Corporation, provider of innovative medical technology solutions, since 2006.
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 Haemonetics Corporation’s board of directors as well as leadership
positions at St. Jude Medical, Inc. provides beneficial experience in management
and oversight.
Axon Enterprise, Inc. | 2023 Proxy Statement | 10
Matthew R. McBrady, Ph.D
Director since 2016
Age: 52
Board Committees: Enterprise Risk and Information Security Committee and Merger and Acquisition and Capital
Structure 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. From 2002 to 2006 Dr. McBrady 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). After leaving academia Dr. McBrady joined the North American Private Equity group at Bain Capital,
LLC where he worked as an investment professional from January 2007 through January 2009 prior to joining Silver Creek
Capital Management, LLC as Managing Director and Head of Investment Strategy and Risk Management. In January
2014, Dr. McBrady joined 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 a Senior Advisor and co-CIO of
Callaway Capital from January 2017 to December 2019. Dr. McBrady returned to the Darden Graduate School of Business
Administration as a Professor of Practice in August 2022 where he teaches classes in Corporate Financial Strategy, and
Impact and ESG Investing. In addition to his work in the private sector and academia, Dr. McBrady currently serves as an
Adviser to a number of Impact Investing funds, and currently serves as the Chairman of the Investment Committee for
Global Partnerships, a non-profit Impact Investor that has deployed nearly $500m in concessionary loans to improve the
lives of people living at the bottom of the pyramid in Central and South America and Africa. Dr. McBrady holds a B.A.
in Economics from Harvard University, a M.Sc. in International Economics from Oxford University (U.K.), and a Ph.D.
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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 11
Graham Smith
Director since 2023
Age: 63
Other Public Company Boards: Splunk Inc and Procore Technologies, Inc.
Mr. Smith has served as Chair of the board of directors of Splunk Inc. since March 2019, and as a member of their board
of directors since 2011. He also served as the interim Chief Executive Officer of Splunk Inc. from November 2021 to April
2022. Mr. Smith has also served on the board of Procore Technologies, Inc. a provider of cloud-based construction
management software, since 2020. Mr. Smith served in various leadership positions at salesforce.com, inc. (“Salesforce”),
a provider of enterprise cloud computing software, from 2007 to 2015, including as Chief Financial Officer and most
recently as Executive Vice President. Prior to joining Salesforce, Mr. Smith served as Chief Financial Officer at Advent
Software Inc., a portfolio accounting software company, from 2003 to 2007. Mr. Smith previously served on the board of
directors of BlackLine, Inc., a provider of cloud-based solutions for finance and accounting from 2015 to 2022; Citrix
Systems, Inc., an enterprise software company, from 2015 to 2018; MINDBODY, Inc., a cloud-based wellness services
marketplace (acquired by Vista Equity Partners), from 2015 to 2019; Xero Limited, an online accounting software
company, from 2015 to 2020; Slack Technologies, Inc., a provider of cloud-based professional collaboration tools, from
2018 to 2021; and Elliott Opportunity II Corp., a special purchase acquisition company, from June to December 2021.
Mr. Smith holds a B.Sc. from Bristol University in England and qualified as a chartered accountant in England and Wales.
Specific Qualifications, Attributes, Skills and Experience:
High Level of Financial
Literacy
Risk Oversight & Management
Service as Chief Financial Officer of multiple publicly traded companies and
international chartered accountant.
Board Experience for Splunk Inc., Procore Technologies, Inc., BlackLine, Inc.,
Citrix Systems, Inc., MINDBODY, Inc., Xero Limited, and Slack Technologies,
Inc., as well as progressive leadership at Salesforce, gives extensive experience
relating to public company corporate governance matters.
Patrick W. Smith, Chief Executive Officer
Director since 1993
Age: 52
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. 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.
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 45 U.S. patents.
Axon Enterprise, Inc. | 2023 Proxy Statement | 12
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management Management and board experience as the founder of the Company and Chief
Executive Officer provides extensive expertise for public company matters and
executive leadership.
Highly skilled in technology innovation and the holder of 45 U.S. patents.
Jeri Williams
Director since 2023
Age: 57
Other Public Company Boards: None
Ms. Williams served as Chief of Police for the Phoenix Police Department from 2016 to 2022, the first female to lead the
city’s force. During her tenure with the department, she advanced a number of progressive strategies within the department,
including key areas such as community engagement and professional standards. Previously, she served nearly six years as
Chief of Police in the City of Oxnard, California. Ms. Williams has received extensive accolades for her dedication to law
enforcement, including being named one of Arizona’s Most Intriguing Women by the Arizona Centennial Legacy Project
and recognized as California’s Assembly District 44 Woman of the Year for her leadership and outstanding
accomplishments. In 2016, President Obama appointed Ms. Williams to a membership position on the Medal of Valor
Review Board.
She has also served as the first female President of the Major Cities Chiefs Association. Ms. Williams holds a B.A. in Fine
Arts from Arizona State University and a M.A. in Education from Northern Arizona University.
Specific Qualifications, Attributes, Skills and Experience:
Law enforcement experience
Relevant Political Background
Service as Chief of Police for the Phoenix Police Department and City of Oxnard,
California gives deep insight into the operational demands of our law enforcement
customers.
Service as the President of the Major Cities Chiefs Association provides valuable
insight into community engagement and enhance relationships with various
governmental agencies and law enforcement leaders.
Incumbent Directors in 2023
Julie A. Cullivan
Director since 2017
Class C
Age: 57
Board Committees: Audit Committee and Enterprise Risk and Information Security Committee (Chair)
Other Public Company Boards: None.
Most recently, Ms. Cullivan was the Chief Technology and People Officer at Forescout Technologies, Inc. (“Forescout”),
reporting to the Chief Executive Officer, 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 a
$1.5 billion valuation. In addition to focusing on scale, Ms. Cullivan led Forescout’s 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 and Ms. Cullivan left in January 2021. Prior to Forescout, Ms. Cullivan was an Executive
Axon Enterprise, Inc. | 2023 Proxy Statement | 13
Vice President of Business Operations and Chief Information Officer at FireEye Inc. and a Senior Vice President at
McAfee Corp. Additionally, Ms. Cullivan held executive roles at Autodesk, Inc., 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 Chief Technology and People Officer, EVP of Business Operations,
and Chief Information Officer where Ms. Cullivan led cross functional initiatives
and information security strategy in a high-growth environment.
Caitlin Kalinowski
Director since 2019
Class C
Age: 42
Board Committees: Audit Committee, Enterprise Risk and Information Security Committee, Merger and Acquisition and
Capital Structure Committee
Other Public Company Boards: None
Caitlin Kalinowski leads the AR Glasses Hardware team for Reality Labs at Meta. Previously, she led VR Hardware, the
division responsible for the Meta Quest 2 and Touch controllers, and the Oculus Rift, Go and Rift S. Before working at
Meta, Ms. Kalinowski 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.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Ms. Kalinowski has extensive experience in established technology organizations
such as Meta and Apple. Ms. Kalinowski led technical teams at Apple and currently
heads AR Glasses Hardware at Meta. She has tremendous insight into product design
and engineering for technology focused initiatives.
Incoming Directors in 2023
Erika Ayers
Director beginning June 1, 2023
Age: 47
Other Public Companies: None
Ms. Ayers was named Barstool Sports’ first Chief Executive Officer in 2016 and, during her tenure, it has experienced
tremendous brand and business growth as one of the fastest-growing digital innovation, sports, entertainment and lifestyle
media brands on the internet. Prior to joining Barstool Sports, Ms. Ayers held various executive roles at media platforms
such as Microsoft Corporation, AOL, Leaf Group (formerly Demand Media, Inc.) and Yahoo! Inc. She has extensive
experience in transforming start-up organizations into multi-industry operations. She was also part of two early stage start-
ups in the fashion and music industry and sits on the advisory boards of the Premiere Lacrosse League and Food52. Ms.
Ayers previously served on the board of directors of World Wrestling Entertainment, Inc. from October 2020 to September
2022. Ms. Ayers holds a B.S. in Sociology and Psychology from Colby College.
Axon Enterprise, Inc. | 2023 Proxy Statement | 14
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management
insight
Experience as an executive of media platform companies provides Ms. Ayers with
invaluable
into communication expertise, Internet-related business
development demands and brand building.
Experience as an advisor to multiple companies and as a board member on a public
company board gives experience to public company corporate governance matters.
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, 2022, the Board held eight meetings. No member of the Board attended fewer than
75% of the aggregate of the total number of meetings of the Board (held during the period for which he or she was a
director) and the total number of meetings held by all committees of the Board on which such director served (held during
the period that such director served).
Axon Enterprise, Inc. | 2023 Proxy Statement | 15
Committees of the Board of Directors
The following table summarizes the current membership of our standing non-management Board committees, and
identifies the chair of each committee and the number of committee meetings held in fiscal 2022:
Audit
Committee
5
Compensation
NCG
Committee Committee Committee Committee Committee
5
15
8
4
1
Merger and
Acquisition
and Capital
Structures Medical
Scientific
and
Enterprise
Risk and
Information
Security
X
*
X
X
X
*
*
X
X
X
X
X
*
X
*
X
X
X
*
# Meetings
Director
Adriane Brown
Julie A. Cullivan
Michael Garnreiter
Caitlin Kalinowski
Mark W. Kroll
Matthew R. 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 and advises the Board with
respect to the effectiveness of the Company’s system for monitoring compliance with laws and regulations and with the
Company’s ethics policy; reviews and considers for ratification or approval all related party transactions and/or other
transactions implicating a potential conflict of interest between the Company and any of its directors, executive officers
or other related parties if such transactions are in excess of $120,000; establishes procedures for the treatment of complaints
received by the Company regarding accounting, internal controls or auditing matters and establishes procedures for the
confidential submission by the Company’s employees of concerns regarding internal accounting controls, questionable
accounting or audit matters; discusses with management the Company’s major financial risk exposures and the steps
management has taken to monitor and control such exposures, including the Company’s risk assessment and risk
management policies; reviews with the independent registered public accounting firm , upon the completion of its audit,
the results of the auditing engagement and any other findings or 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, 2022 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, 2022 is included in this proxy
statement. See “Executive Compensation — 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
Axon Enterprise, Inc. | 2023 Proxy Statement | 16
Corporate Governance Guidelines. Recently, the Board of Directors updated Axon’s Corporate Governance Guidelines to
further strengthen our commitment to providing a director nomination process that is fair and equitable to all nominating
stockholders.
The Merger and Acquisition and Capital Structure 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. It also provides
guidance and oversight on the Company’s financing decisions.
The Enterprise Risk and Information Security Committee is responsible for the identification, monitoring, and mitigation
of operational, strategic, and external environment risks inherent in the business of the Company. The Committee is also
responsible for the design, implementation, and management of an effective information security system, including
reviewing and overseeing the Company’s policies, procedures and plans relating to cybersecurity and data protection risks
associated with the Company’s products, services, information technology infrastructure and related operations.
The Audit Committee, Compensation Committee and NCG Committee have each adopted charters that govern their
respective authority, responsibilities and operation. The charters of these committees are available on our website at
https://investor.axon.com/documents-and-charters.
Audit Committee Financial Experts
The Board of Directors determined that Mr. Garnreiter, an independent director of the Company, is an audit committee
financial expert within the meaning of that term under applicable rules promulgated by the SEC. Information about the
past business and educational experience of Mr. Garnreiter is included in this proxy statement under the heading
“Governance--The Board of Directors.” The Board has determined that each current member of the Audit Committee is
financially literate and that Mr. Garnreiter satisfies 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. For 2022, the Company determined that all Board members, other than
Patrick W. Smith and Matthew McBrady, were independent under applicable NASDAQ and SEC rules. Each of our
directors other than Patrick W. 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.
Patrick W. Smith and Matthew McBrady are not independent.
In making its independence determinations, the Board considered that Mark W. Kroll, Ph.D., provides consulting services
for the Company. The expenses related to these services, excluding travel reimbursements, were approximately $114,000
for the year ended December 31, 2022. At December 31, 2022, the Company had accrued liabilities of $19,000 relating to
these services. The Board determined that these consulting services did not impair Dr. 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.
Board of Directors’ Role in Risk Oversight
The Company’s risk management process is intended to ensure that risks are taken knowingly and purposefully. The
Board has allocated and delegated primary responsibilities for risk oversight responsibility to three committees: the
Audit Committee, the Enterprise Risk and Information Security Committee, and the Scientific and Medical Committee.
Axon Enterprise, Inc. | 2023 Proxy Statement | 17
The Audit Committee meets at least once a quarter and is responsible for oversight of the Company’s major financial
risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk
assessment and risk management policies. The Company maintains an internal audit function that reports directly to the
Audit Committee Chair and reports to the Audit Committee quarterly on the status and health of internal controls, as
well as any potential related party transactions. The Chief Legal Officer reports to the Audit Committee quarterly on
potential ethics complaints as well as the status of the Company’s pending litigation. The Audit Committee in turn
reports to the full Board on the status of financial risks and internal controls at least once a quarter.
The Enterprise Risk and Information Security Committee meets at least once a quarter and is responsible for oversight of
the Company’s compliance, information security and enterprise risks excepting the financial risks overseen by the Audit
Committee. Specifically, the Enterprise Risk and Information Security Committee provides oversight of the Company’s
compliance practices (which include but are not limited to import compliance, export compliance, FCPA and anti-
bribery and corruption compliance, ATF compliance, workplace safety, data privacy, modern slavery and anti-human
trafficking compliance, labor and employment compliance, lobbying compliance, and antitrust compliance). The
Enterprise Risk and Information Security Committee also provides oversight of the Company’s information security and
systems integrity practices and risks. Enterprise Risk and Information Security Committee meetings are informed by
management who maintain a risk dashboard to monitor companywide risks and prioritize them based on potential
likelihood and potential severity of impact to the Company. Risk mitigation strategies are tracked and reported on by
management to the Enterprise Risk and Information Security Committee at least once a quarter. Likewise, the Enterprise
Risk and Information Security Committee reports to the full Board on the highest priority risks and mitigation strategies
at least once a quarter.
The Scientific and Medical Committee typically meets at least twice a year and provides general oversight of the safety,
effectiveness and potential risks around Axon’s TASER brand electrical weapons. The Scientific and Medical
Committee also provides oversight to Axon’s Scientific and Medical Advisory Board (SMAB) which is an independent
board comprised of many of the world’s leading medical and scientific experts in the areas of electrical engineering,
cardiac electrophysiology, emergency medicine and forensic pathology as they relate to TASER electrical weapons. The
SMAB generally meets twice a year and provides feedback to the Company and the Scientific and Medical Committee
on the design, safety and effectiveness of TASER electrical weapons. The Scientific and Medical Committee in turn
report to the Board at least twice a year on the work of the SMAB to help oversee TASER weapon related 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. The Company has also adopted a Code of Ethics for Senior Financial Officers
which is applicable to the CEO, Chief Financial Officer, Corporate Controller, Vice President of SEC Reporting and others
performing similar functions. A copy of the Company’s Code of Ethics and Senior Financial Officer Code of Ethics are
published and available on the investors portion of Company’s website at https://investor.axon.com/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, excluding the newly appointed directors in 2023, attended the 2022 Annual Meeting of Shareholders.
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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 18
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 2022, the Compensation
Committee approved updated Board compensation levels. Non-employee directors of the Company are paid $10,000 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 $200,000 vesting on the one-year anniversary of the grant. 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 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 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
Mergers & Acquisitions and Capital Structure
Scientific and Medical
Enterprise Risk and Information Security
Quarterly Chair Quarterly Member
Fee
Fee
$
6,250 $
3,750
2,500
2,500
6,000
2,500
2,500
1,875
1,250
1,500
2,500
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.
In 2021, the Compensation Committee retained compensation consulting firm Compensia, which provided research, data
analyses, benchmarking and design expertise in adjusting compensation for its directors. Compensia provided director
compensation data based on its proprietary database for public technology companies with annual sales between $435
million and $1.7 billion, with market capitalization of $2.4 billion to $37.6 billion. The Committee’s compensation
philosophy is to generally set director compensation at approximately the 50% benchmark to peers, adjusted every three
years. The results were implemented in 2021 and were unchanged in 2022 and 2023.
The following table summarizes the compensation paid to non-employee directors for the fiscal year ended December 31,
2022.
Fees Earned or
All Other
Name
Adriane Brown
Julie A. Cullivan (4)
Michael Garnreiter
Caitlin E. Kalinowski
Mark W. Kroll (4)
Matthew R. McBrady
Hadi Partovi
$
Paid in Cash Stock Awards Compensation
($) (1) (3)
($)
61,000 $ 200,092 $
60,000
97,500
62,000
75,000
60,375
66,000
200,092
220,171
200,092
200,092
200,092
200,092
($) (2)
Total ($)
— $ 261,092
260,092
—
317,671
—
—
262,092
389,092
114,000
260,467
—
266,092
—
(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 received an award of 2,013 RSUs on May 20,
Axon Enterprise, Inc. | 2023 Proxy Statement | 19
2022. The awards vest on the one-year anniversary of the grant on May 20, 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 2022.
The following table shows the aggregate number of RSUs outstanding for each director as of December 31, 2022.
Name
Adriane Brown
Julie A. Cullivan
Michael Garnreiter
Caitlin E. Kalinowski
Mark W. Kroll
Matthew R. McBrady
Hadi Partovi
As of December 31, 2022
Aggregate
Restricted Stock
Units Outstanding
3,563
3,671
3,873
3,671
3,671
3,671
3,671
(2) Other compensation for Dr. Kroll represents fees for consulting services provided.
(3) Pursuant to his service as Chairman of the Board, on May 20, 2022, Mr. Garnreiter received a grant of 202 shares
which vests one year from the grant 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 and Ms. Cullivan participate in the Company’s deferred compensation plan
and elected to defer $75,000 and $60,000, respectively, of earned compensation into the plan during the year
ended December 31, 2022.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company reviews all relationships and transactions in which the Company and its 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 shareholders 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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 20
SHARE OWNERSHIP
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
The following table sets forth information, as of March 31, 2023, 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
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)
Beneficial Owners of More than 5%:
BlackRock, Inc. (4)
The Vanguard Group (5)
Capital International Investors (6)
Directors and Named Executive Officers:
Patrick W. Smith
Hadi Partovi
Michael Garnreiter
Mark W. Kroll
Julie A. Cullivan
Caitlin Kalinowski
Matthew R. McBrady
Adriane Brown
Graham Smith
Jeri Williams
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
Luke S. Larson
Jawad A. Ahsan (7)
James C. Zito
Shares
Acquirable
Beneficially Within 60
Shares
Total
Owned
Beneficial Percent of
Days (2) Ownership Class (3)
7,468,715
6,225,216
5,698,621
— 7,468,715
— 6,225,216
— 5,698,621
10.1 %
8.4
7.7
2,982,769
364,153
24,570
6,471
4,411
4,508
1,980
2,167
—
—
5,934
3,193
3,395
3,193
3,193
3,193
3,193
2,491
—
—
2,988,703
367,346
27,965
9,664
7,604
7,701
5,173
4,658
—
—
233,586
14,332
200,162
276,581
321,199
25,957
—
—
—
—
—
—
233,586
14,332
200,162
276,581
321,199
25,957
4.0
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
All directors and executive officers as a group (13 persons)
4,462,846
27,785 4,490,631
6.1 %
* 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, 2023, or
options or restricted stock units vesting within 60 days thereafter under the Company’s stock incentive plans.
(3) Based on 73,874,062 shares outstanding as of March 31, 2023. 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 31, 2023, 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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 21
(4) Represents shares of the Company’s common stock beneficially owned as of December 31, 2022, based on the
Schedule 13G/A filed on January 26, 2023 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 7,279,237
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 7,468,715 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, 2022, based on the
Schedule 13G/A filed on February 9, 2023 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 29,121 shares of the Company’s
common stock, sole dispositive power with respect to 6,225,216 shares of the Company’s common stock, and
shared dispositive power with respect to 96,146 shares of the Company’s common stock.
(6) Represents shares of the Company’s common stock beneficially owned as of December 31, 2022, based on the
Schedule 13G/A filed on February 13, 2023 by Capital International Investors. In such filing, Capital International
Investors lists its address as 333 South Hope Street, 55th Fl, Los Angeles, CA 90071, and indicates it has sole
voting power with respect to 5,532,509 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 5,698,621 shares of the
Company’s common stock, and shared dispositive power with respect to no shares of the Company’s common
stock.
(7) Represents shares held by Mr. Ahsan as of May 2, 2022.
Axon Enterprise, Inc. | 2023 Proxy Statement | 22
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
See “Governance--The Board of Directors” for biographical information for Patrick W. Smith, who is also our CEO.
Brittany Bagley
Title: Chief Financial Officer and Chief Business Officer
Joined Axon in 2022
Age: 39
Ms. Bagley, 39, joined the Company’s management team in September 2022 after serving as Chief Financial Officer of
Sonos, Inc. since April 2019. Ms. Bagley also served on the Board of Directors of Sonos, Inc. from September 2017 to
April 2019. From December 2017 to April 2019, Ms. Bagley served as a Managing Director of Kohlberg Kravis Roberts
& Co. L.P. (together with its affiliates, “KKR”), a global investment firm, and previously served in other roles at KKR
from July 2007 to December 2017. Prior to joining KKR, Ms. Bagley was an analyst at The Goldman Sachs Group, Inc.,
an investment banking firm. Ms. Bagley has served on the board of directors of Aurora Innovation, Inc., a self-driving
technology company, since July 2021. Ms. Bagley holds a B.A. in Economics, magna cum laude, from Brown University.
Joshua M. Isner
Title: Chief Operating Officer
Joined Axon in 2009
Age: 37
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 operational functions including business operation and execution. Mr. Isner was
previously the Chief Revenue Officer, 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 Chief Technology Officer
Joined Axon in 2019
Age: 48
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
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. | 2023 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 2022 Company Highlights and Compensation Overview
Our financial and business highlights for fiscal 2022 include the following:
• Full year revenue increased by 38% to $1.2 billion compared to fiscal year 2021.
• Annual net income of $147 million supported Adjusted EBITDA of $232 million(1).
• Operating cash flow increased by 89% to $235 million compared to fiscal year 2021.
• We successfully completed our first-ever convertible debt issuance, with total net proceeds of approximately
$603 million.
• Our management bench was deepened by promoting Joshua Isner to Chief Operating Officer and Jeffrey Kunins
to Chief Product Officer & Chief Technology Officer, and by the addition of Brittany Bagley as our new Chief
Financial Officer & Chief Business Officer.
• We began 2023 by unveiling a major technology advancement with the launch of TASER 10.
• We attained the eleventh operational goals under our CEO Performance Award and eXponential Stock
Performance Plan, which are described below.
(1) We define Adjusted EBITDA (most comparable GAAP measure: Net income) as - Earnings before interest
expense, investment interest income, taxes, depreciation, amortization and non-cash stock-based compensation
expense, realized and unrealized gains and losses on strategic investments and marketable securities, and certain
other pre-tax items. Adjusted EBITDA margin (most comparable GAAP measure: Net income margin)- Adjusted
EBITDA as a percentage of Net sales. Adjusted EBITDA and Adjusted EBITDA margin reconcile to Net income
and Net income margin, respectively, as follows (dollars in thousands):
Net income
Depreciation and amortization
Interest expense
Investment interest income
Provision for income taxes
EBITDA
Non-GAAP adjustments:
Stock-based compensation expense
Realized and unrealized gains on strategic investments and marketable securities, net
Transaction costs related to strategic investments and acquisitions
Loss on disposal and abandonment of intangible assets
Loss on disposal and impairment of property, equipment and other assets, net
Costs related to FTC litigation
Payroll taxes related to XSPP vesting and CEO Award option exercises
Adjusted EBITDA
Net Sales
Net income margin (Net income as a percentage of Net sales)
Adjusted EBITDA margin (Adjusted EBITDA as a percentage of Net sales)
Axon Enterprise, Inc. | 2023 Proxy Statement | 24
Year Ended December 31,
2022
$
$
$
$
147,139
24,381
488
(4,782)
49,379
216,605
106,176
(98,943)
2,368
110
5,452
545
—
232,313
1,189,935
12.4%
19.5%
The Company’s management uses Adjusted EBITDA and Adjusted EBITDA margin in evaluating the Company’s
performance in comparison to prior periods. We believe that both management and investors benefit from referring to
these non-GAAP financial measures in assessing its performance, and when planning and forecasting our future periods.
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 2022.
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.
The objectives of our NEO compensation programs include:
• Attracting and retaining highly qualified individuals who are capable of making significant contributions critical
to our long-term success;
• Promoting a performance-oriented environment that encourages Company and individual achievement;
• Rewarding NEOs for long-term strategic management and the enhancement of shareholder value;
• Strengthening 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
• Aligning long-term management interests with those of shareholders, including long-term at-risk pay.
Our Compensation Programs
CEO Performance Award
On May 24, 2018, our stockholders approved the Board of Directors’ grant of 6,365,856 performance-vesting 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 attainment 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
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 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, interest and other income (such as dividends) earned on investments in marketable securities,
provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense.
Revenue Goal (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
Achievement Status
Achieved
Achieved
Achieved
Probable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Adjusted EBITDA
(in thousands)
Goal #1 $125,000
Goal #2, $155,000
Goal #3 $175,000
Goal #4, $190,000
Goal #5 $200,000
Goal #6, $210,000
Goal #7, $220,000
Goal #8 $230,000
Achievement Status
Achieved
Achieved
Achieved
Achieved
Achieved
Achieved
Achieved
Achieved
Axon Enterprise, Inc. | 2023 Proxy Statement | 25
(1) In connection with a 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.
The first ten market capitalization goals have been achieved as of December 31, 2022. The eleventh market capitalization
goal was attained on March 23, 2023, while the related operational goal was achieved as of December 31, 2022. As of
December 31, 2022, 5.3 million stock options have been certified by the Compensation Committee and vested. As twelve
operational goals have been achieved or are considered probable of achievement, we recorded stock-based compensation
expense of $243.9 million related to the CEO Performance Award from the grant date through December 31, 2022. The
number of stock options that would vest related to the remaining unvested tranches is approximately 1.1 million shares.
As of December 31, 2022, we had $2.1 million of total unrecognized stock-based compensation expense for the
performance goals that were considered probable of achievement, which will be recognized over a weighted-average
period of 0.2 years.
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 $246.0 million.
Mr. Smith’s compensation for 2022, 2021, and 2020 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
(“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 capitalization, 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.
Incorporate 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 has been reduced until 2027 by the amount of such compensation that the employees elected to receive
in the form of the January 2019 XSU grants.
Messrs. Ahsan, Isner, Larson and Kunins 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 while
Mr. Kunins received an XSU grant of 432,000 shares on September 23, 2019. Ms. Bagley received an XSU grant of 42,996
shares with a target value of $1,000,000 prior to a 2x risk multiplier and 2.5x time multiplier on September 26, 2022. Mr.
Axon Enterprise, Inc. | 2023 Proxy Statement | 26
Zito also received an XSU grant of 4,757 shares with a target value of $100,000 prior to a 2x risk multiplier and 2.5x time
multiplier on June 2, 2022 during his service as Interim Chief Financial Officer.
The XSUs are grants of Restricted Stock Units (“RSUs”), 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. The operational revenue and Adjusted EBITDA goals are the same targets as defined for the
CEO Performance Award as set forth in the table above under “—CEO Performance Award. Beginning with the quarter
ended June 30, 2021, new XSU grants are divided into a reduced number of tranches depending on employee eligibility
and current market capitalization attainment. Ms. Bagley and Mr. Zito’s 2022 XSU grants were divided into the remaining
three tranches.
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 Performance Stock
Units (“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. As of December 31, 2022, actual shares outstanding exceeded the XSU Maximum.
Accordingly, market capitalization as calculated for the purposes of achieving additional XSPP market capitalization goals
uses the lower XSU Maximum share amount rather than actual shares outstanding
The first nine market capitalization goals have been achieved as of December 31, 2022. The first XSU tranche vested in
March 2021, the second and third tranches vested in May 2021, five tranches vested in September 2021, and one tranche
vested in December 2021. As all twelve operational goals have been achieved or are considered probable of achievement,
we recorded stock-based compensation expense of $186.2 million related to the XSU awards from their respective grant
dates through December 31, 2022. The number of XSU awards that would vest related to the remaining three tranches is
approximately 1.2 million shares. As of December 31, 2022, we had $14.7 million of total unrecognized stock-based
compensation expense, which will be recognized over a weighted-average period of 1.2 years.
Subsequent to December 31, 2022, the tenth market capitalization goal was achieved and vested in March 2023 while the
eleventh market capitalization goal was achieved in April 2023, pending certification of the Compensation Committee.
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
Axon Enterprise, Inc. | 2023 Proxy Statement | 27
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 2022 and 2023 for our NEOs (other than the CEO) consist of the following:
• Annual salary;
• Annual performance-based cash incentive plans, comprised of:
• Commissions on a combination of revenue growth and new product and new market bookings growth for
2022 for our Chief Operating Officer; and
• Payouts under the 2022 and 2023 annual cash incentive plans 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 2022 Stock Incentive
Plan and the 2022 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.
Stock Ownership Guidelines
The Board adopted stock ownership guidelines in December 2018. 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
2022, 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.
Clawback Policy
In November 2022, the SEC issued final rulemaking that directed the listing exchanges, including NASDAQ, to adopt
rules requiring listed companies to implement a clawback policy that requires recovery of incentive compensation
Axon Enterprise, Inc. | 2023 Proxy Statement | 28
erroneously paid during the three completed fiscal years immediately preceding the date on which a listed company is
required to prepare an accounting restatement to correct an error that is material to the listed company’s previously issued
financial statements. The Company intends to adopt a clawback policy that conforms to the NASDAQ’s rules when such
NASDAQ rulemaking regarding recoupment policies becomes effective.
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), Adriane Brown, and Michael Garnreiter. The Committee
makes the sole decision regarding compensation for the Chief Executive Officer and each NEO.
The Committee met 15 times in 2022.
Members of management also attended the meetings. The CEO and NEOs were not present during voting or deliberations
on his or her compensation. The agenda for this meeting was determined by the Committee members prior to the meeting.
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;
• 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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 29
The Committee’s charter reflects these responsibilities, and the Committee and the Board periodically review and revise
the charter. The full text of the Committee charter is available on our website at http://investor.axon.com/governance/
documents-and-charters.
Role of Management and Consultants in Determining Executive Compensation; Independent Compensation
Consultant
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.
The Committee’s compensation philosophy is to generally set executive and director compensation at approximately the
50% benchmark to peers, and 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, which began
in 2018. Compensation generally stays flat in the interim years between compensation studies although adjustments may
be made if appropriate based on individual performance, company performance, relative shareholder returns and other
relevant considerations.
Pursuant to the Committee’s aim to engage a compensation consulting firm every three years beginning in 2018, the
Committee retained compensation consulting firm Compensia Inc. (“Compensia”), in 2021. Compensia which provided
research, data analyses, benchmarking and design expertise in adjusting compensation for our NEOs and directors in 2021,
and this comparator group was also used in 2022 and is expected to remain the same for 2023. Compensia provided
executive compensation data for each NEO role based on its proprietary database for public technology companies with
annual sales between $435 million and $1.7 billion, with market capitalization of $2.4 billion to $37.6 billion.
Peer Comparator Group
The scope of Compensia’s review in 2021 included determining an appropriate comparator group to compare the
Company’s executive compensation to, based primarily on the following criteria: technology industry sector, revenue, and
market capitalization. Compensia selected public technology companies with annual sales between $435 million and $1.7
billion, with market capitalization of $2.4 billion to $37.6 billion.
Based on Compensia’s analysis, the Committee selected the following comparator group when reviewing executive
compensation for 2022:
Alarm.com Holdings, Inc.
Alteryx, Inc.
Aspen Technology, Inc.
Avalara, Inc.
Coupa Software Incorporates
Dynatrace, Inc.
Elastic N.V.
Fair Isaac Corporation
Guidewire Software, Inc.
HEICO Corporation
MongoDB, Inc.
Nutanix, Inc.
Paycom Software, Inc.
Paylocity Holding Corporation
Pegasystems Inc.
PTC Inc.
Tyler Technologies Inc.
Zendesk, Inc. (fka “J2 Global, Inc.”)
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 $435
million and $1.7 billion, and with market capitalization of $2.4 billion to $37.6 billion.
Axon Enterprise, Inc. | 2023 Proxy Statement | 30
The following tables show the composition of each NEO’s total target direct compensation for 2022:
Annual Salary
(1)
$
9.0
% Total
450,000
350,000
2022
Name
Patrick
W. Smith $ 31,201 100.0 % $
Joshua
M. Isner
(5)
Brittany
Bagley
Jeffrey
C.
Kunins
Luke S.
Larson
Jawad A.
Ahsan
James C.
Zito
350,000
250,000
350,000
300,000
20.8
10.5
9.1
8.0
9.2
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
$
—
— % $
—
— % $
—
— % $
31,201
800,000
450,000
300,000
500,000
500,000
100,000
20.8
1,000,000
26.0
1,700,000
44.2
3,850,000
10.5
1,000,000
23.2
2,400,000
55.8
4,300,000
9.2
1,000,000
30.8
1,650,000
50.8
3,250,000
13.0
1,000,000
26.0
2,000,000
51.9
3,850,000
11.5
1,000,000
23.0
2,500,000
57.5
4,350,000
8.3
200,000
16.7
650,000
54.2
1,200,000
(1) Annual salary effective January 1, 2022.
(2) Presented at target levels. Actual results for 2022 were above targets, resulting in a payout under the annual cash
incentive plan for Mr. Kunins in the amount of approximately $451,000, Mr. Larson in the amount of
approximately $752,200, and Mr. Zito in the amount of approximately $150,440. Ms. Bagley began her
employment in September 2022, resulting in a bonus payout of $179,910. Mr. Isner earned commissions in 2022
of approximately $1,013,583 and additional non-variable cash compensation of $300,000. See further discussion
following under “Executive Compensation — Compensation Discussion and Analysis — Annual Performance-
Based Incentive Plans.”
(3) Represents XSUs granted to Mr. Isner on January 2, 2019, Mr. Kunins on September 23, 2019 and Ms. Bagley
on September 26, 2022 which are discussed in more detail under “Executive Compensation — Compensation
Discussion and Analysis — Our Compensation Programs — eXponential Stock Performance Plan". The grants
had an annual target value of $1,000,000 prior to risk and time multipliers and were granted in lieu of traditional
performance-based RSUs. This amount is reflected above to represent the amount of 2022 target compensation
that the executives elected to receive over nine years (2019 to 2027) in the form of XSUs.
(4) Except for Ms. Bagley, reflects the grant date value of RSUs vesting in 2022, which were granted in December
2021 for Messrs. Isner and Kunins. For Ms. Bagley, reflects the annual value of the portion of her September
2022 grant received in 2022. In addition, Ms. Bagley received a grant of $3,300,000 as part of her employment
agreement, which is not reflected here.
(5) The annual target incentive compensation for Mr. Isner reflects target commission of $500,000 based on a
combination of revenue growth and new product, new market, and international bookings growth for 2022 and
$300,000 for other non-variable cash compensation. The annual long-term equity compensation for RSUs was
increased by $500,000 for Mr. Isner starting in June 2022, concurrent with his appointment to COO.
The following table shows the composition of each NEO’s total target direct compensation for 2023:
Axon Enterprise, Inc. | 2023 Proxy Statement | 31
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
$
$ 31,201
100.0 % $
—
— % $
—
— % $
—
— % $
31,201
350,000
8.0
800,000
18.4
1,000,000
23.0
2,200,000
50.6
4,350,000
450,000
10.5
450,000
10.5
1,000,000
23.2
2,400,000
55.8
4,300,000
300,000
9.2
300,000
9.2
1,000,000
30.8
1,650,000
50.8
3,250,000
2023
Name
Patrick W.
Smith
Joshua M.
Isner (3)
Brittany
Bagley
Jeffrey C.
Kunins
(1) Represents XSUs granted to Mr. Isner on January 2, 2019, Mr. Kunins on September 23, 2019, and Ms. Bagley
on September 26, 2022, 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 and 2022 in lieu of
traditional performance-based RSUs. This amount is reflected above to represent the amount of 2023 target
compensation that the executives elected to receive over nine years (2019 to 2027) in the form of XSUs.
(2) Except for Ms. Bagley, reflects the grant date value of RSUs vesting in 2023, which were granted in December
2022, which are intended as 2023 compensation awards. For Ms. Bagley, reflects the portion of her September
2022 grant intended as 2023 compensation. In addition, Ms. Bagley received a sign-on grant of $3,300,000, which
is not reflected here.
(3) The annual target incentive compensation for Mr. Isner reflects target annual cash incentive bonus of $500,000
and $300,000 for other non-variable cash compensation.
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 which may include 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.
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.
2022 Structure
The 2022 executive compensation structure included: payments under the annual cash incentive plan, and for Mr. Isner,
revenue and bookings-based commissions, paid quarterly. Each component was designed to incentivize specific Company
business goals.
Axon Enterprise, Inc. | 2023 Proxy Statement | 32
Payouts under the 2022 annual cash incentive plan were based on the achievement of the following annual financial goals
and operational metrics: revenue, adjusted EBITDA, new product and market bookings, international bookings, new
product adoption, net revenue retention, return rate reduction, and net promoter score.
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.
Metric
Threshold
Target
Maximum
Actual
Weight
Weighted
Payout
2022 Performance - Annual Cash Incentive Plans Metrics
Revenue
Adjusted EBITDA
New Product/Market Bookings
International Bookings
New Product Adoption
Net Revenue Retention
Return Rate Reduction
Net promoter score
Actual attainment/plan payout
($ in millions)
$ 977.0
$ 190.0
$ 475.0
$ 350.0
445,000
$ 1,070.0
$ 203.0
$ 522.0
$ 400.0
518,000
N/A
$
$
N/A
$ 649.0
$ 440.0
600,000
$ 1,189.9
232.3
$
649.0
$
$
373.1
766,139
110.0 %
1.00 %
66.0
119.0 %
0.76 %
68.0
122.0 %
0.67 %
70.0
121.0 %
0.70 %
62.0
20.0 %
20.0
20.0
20.0
5.0
5.0
5.0
5.0
100 % 150.4 %
45.0 %
37.3
30.0
17.3
7.5
6.6
6.7
—
The 2022 performance-based cash incentive plan metrics were measured and paid after the Company determined its annual
earnings for 2022. The revenue and adjusted EBITDA metrics each have a threshold and target goal with corresponding
base payouts of 50% and 100% of target, respectively, with no specified maximum. The new product and market bookings
international bookings, and new product adoption metrics each have a threshold, target and maximum goal with
corresponding base payouts of 75%, 100% and 150% of target, respectively. The net revenue retention, return rate
reduction, and net promoter score metrics each have a threshold, target and maximum goal with corresponding base
payouts of 50%, 100% and 150% of target, respectively. The weighted average payout achieved under the 2022
performance-based cash incentive plan was 150.4%.
Payouts under the 2022 annual cash incentive plan for Mr. Isner were based on growth of total revenue and new product,
new market, federal and international bookings for 2022 as compared to 2021, and totaled a net commission payout of
$1,013,583.
Metric
Revenue Growth
New Product Bookings
New Market Bookings
Federal Bookings
International Bookings
Gross Commission payout
Actual
Target
2022 Commission Plan
Goals
Stretch
($ in thousands)
Payout Rate
Target Stretch Actual
Payout (1)
Target Stretch Actual
($ in thousands)
$ 207,000 $ 237,000 $ 326,553 0.12 % 0.14 % 0.17 % $ 250 $ 325 $
112
232,000 320,000 488,081 0.03 0.04 0.04
88
140,000 159,000 155,438 0.04 0.06 0.05
93
150,000 170,000 181,416 0.04 0.05 0.06
132
400,000 440,000 373,107 0.02 0.03 0.02
67
50
53
80
549
198
81
116
74
$ 1,018
(1) Sales representatives may elect to withhold 2% of their third quarter earnings to distribute to operational support
employees. Mr. Isner contributed $4,582 for the year ended December 31, 2022, resulting in a net commission
payout of $1,013,583.
Other Long-Term Performance-Based Equity Compensation
Beginning in 2018, the Company discontinued its long-term performance-based RSU grants to NEOs. Instead, NEOs now
participate in the CEO Performance Award (for Mr. Smith) or the XSPP. The CEO Performance Award and XSPP are
Axon Enterprise, Inc. | 2023 Proxy Statement | 33
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 was 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. As of December 31,
2022, nine milestones were achieved and certified by the Compensation Committee for the XSPP and ten milestones were
achieved and certified by the Compensation Committee for the CEO Performance Award. The tenth milestone for the
XSPP and the eleventh milestone for the CEO Performance Award were achieved and certified by the Compensation
Committee in March 2023. The eleventh milestone for the XSPP was achieved in April 2023, but is pending certification
by the Compensation Committee.
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 2022, the Committee granted RSUs in December 2021, and in
September 2022 for Ms. Bagley, which vest over one to three years. For 2023, the Committee granted RSUs in December
2022, which vest annually 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, other than Ms. Bagley, in
December 2021 (for 2022) and in December 2022 (for 2023). Ms. Bagley received her 2022 service-based RSU awards in
September 2022.
2022 Awards
2023 Awards (1)
Named Executive
Patrick W. Smith
Joshua M. Isner (2)
Brittany Bagley (3)
Jeffrey C. Kunins
Luke S. Larson
Jawad A. Ahsan
Number of
Service-based Grant Date
RSUs Awarded
Fair Value
—
28,463
94,592
18,050
21,337
29,245
—
3,966,965
10,466,605
2,700,451
3,400,264
4,500,251
Number of
Service-based Grant Date
Fair Value
RSUs Awarded
—
—
11,857 2,200,066
—
8,893 1,650,096
—
—
—
—
—
(1) The 2023 awards vest annually over three years for Messrs. Isner and Kunins.
(2) Mr. Isner received 2 RSU awards on June 2, 2022 that were associated with his promotion to Chief Operating
Officer: (1) 4,757 RSUs which vest in equal intervals over a three-year period and (2) 2,776 RSUs which vest
two-thirds in June 2023 and one-third in June 2024.
(3) Ms. Bagley received 2 RSU awards on September 26, 2022: (1) a service-based grant of 66,214 RSUs which vest
over a three-year period and (2) a sign-on grant of 28,378 RSUs, of which one third will vest on the first
anniversary of the grant date and the remaining two thirds will vest quarterly thereafter. Ms. Bagley did not
receive an additional grant in December 2022.
Axon Enterprise, Inc. | 2023 Proxy Statement | 34
Employment Agreements and Other Arrangements
In 2019, the Company entered into revised employment agreements with Joshua M. Isner and Jeffrey C. Kunins pursuant
to their continued service and in 2022, the Company entered into an employment agreement with Brittany Bagley. The
fundamental terms and provisions of each executive’s agreement are substantially similar and, among other things, provide
that (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.
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
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 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 2022 Annual Report on Form 10-K.
The Compensation Committee:
Hadi Partovi, Chair
Adriane Brown
Michael Garnreiter
Axon Enterprise, Inc. | 2023 Proxy Statement | 35
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 2022, 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.
SUMMARY COMPENSATION TABLE
Name and Principal
Position
Patrick W. Smith
Chief Executive Officer
Joshua M. Isner
Chief Operating Officer
Brittany Bagley
Chief Financial Officer and Chief Business Officer
Jeffrey C. Kunins
Chief Product Officer and Chief Technology Officer
Luke S. Larson
Former President
Jawad A. Ahsan
Former Chief Financial Officer
James C. Zito
Former Interim Chief Financial Officer
Year
2022
2021
2020
2022
2021
2020
2022
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
$
Salary
($)
31,201 (4) $
31,201 (4)
25,004 (4)
350,000
325,000
325,000
121,023
300,000
300,000
300,000
350,000
350,000
350,000
178,326
325,000
325,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Bonus
($) (5)
Stock
Awards
($) (1)
Non-Equity
Incentive Plan
All Other
Compensation Compensation
($) (2)
($) (3)
$
—
—
2,531,425
$
$
—
—
—
2,991,859
4,306,786
900,063
1,313,583
2,129,101
738,134
2,002
1,914
2,963
31,931
29,985
35,419
$
Total ($)
33,203
33,115
2,559,392
4,687,373
6,790,872
1,998,616
13,872,891
179,910
4,191
14,178,015
1,650,096
3,138,455
600,044
—
4,576,981
1,612,573
—
5,636,410
1,512,650
451,320
440,357
288,518
752,200
447,696
293,238
—
484,393
317,274
28,452
12,665
12,223
14,399
30,312
34,754
22,882
3,766
13,885
2,429,868
3,891,477
1,200,785
1,116,599
5,404,989
2,290,565
201,208
6,449,569
2,168,809
250,000
300,000
991,100
150,440
15,024
1,706,564
(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, 2022 within our Annual Report on Form 10-K filed with the SEC.
Amounts of $2,200,066, $1,650,096, and $650,178 represent RSUs granted to Messrs. Isner, Kunins, and Zito
respectively, in December 2022 and were intended as 2023 compensation. Ms. Bagley received a service-based
grant in the amount of $7,326,579 which vests over a three-year period, in addition to a sign-on grant in the
amount of $3,140,026 which will vest one third will vest on the first anniversary of the grant date and the
remaining two thirds will vest quarterly thereafter. Ms. Bagley did not receive an additional grant in December
2022.
Other amounts of $3,406,286 and $340,922 for Ms. Bagley and Mr. Zito, respectively represent the fair value of
XSUs granted. Ms. Bagley was awarded her XSU grant on September 26, 2022 and Mr. Zito was awarded his
XSU grant on June 2, 2022.
Other amounts of $3,400,264, $4,500,251, $3,175,173, and $2,700,451 represent RSUs granted to Messrs.
Larson, Ahsan, Isner, and Kunins, respectively, in December 2021 and were intended as 2022 compensation. Of
the RSUs granted, $2,000,052 for Messrs. Ahsan, Isner, and Kunins each will vest over two to three years if a
Axon Enterprise, Inc. | 2023 Proxy Statement | 36
successor plan to the XSPP is not approved by shareholders, or if it is approved by shareholders, but the NEO
does not elect to participate at the maximum amount specified by the Compensation Committee. If a successor
plan to the XSPP is approved by shareholders and the NEO elects to participate, this service-based RSU will be
reduced by the amount of such election, thereby effectively replacing the service-based equity compensation with
performance-based equity compensation.
(2)
In 2022, Ms. Bagley and Messrs. Kunins, Isner, Larson and Zito received non-equity incentive compensation as
a result of exceeding target metrics around revenue and other operating measures. Their 2022 incentive
compensation was provided in the form of cash payouts, which were paid in February 2023. Amounts for Mr.
Isner represent commissions, and in 2022 also includes $300,000 for other non-variable cash compensation.
(3) 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.
(4) The amounts paid to Mr. Smith for 2022, 2021 and 2020 are consistent with minimum wage requirements
pursuant to the requirements of the CEO Performance Award.
(5) The amount paid to Mr. Zito for 2022 represents a fixed bonus payment for his service as Interim Chief Financial
Officer.
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 2022 annual total compensation to (ii) the median of the 2022 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 2022 was $33,203, and the
median 2022 annual total compensation of all other employees was $84,867. Consequently, the applicable ratio of such
amounts for 2022 was 0.40:1.
Our methodology for identifying the median of the 2022 annual total compensation for each of our employees other than
Mr. Smith was as follows:
• We determined that as of December 31, 2022, Axon and all of our subsidiaries had 3,365 qualifying individuals
(full-time, part-time, and temporary employees other than Mr. Smith), of which 16% were based outside of the
U.S. and 25% 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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 37
• We converted any payment earned or paid in a foreign currency to U.S. dollar using the average of the prevailing
conversion rates for 2022.
• 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.
PAY VERSUS PERFORMANCE
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and
Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive
compensation actually paid and the financial performance of our company. The following table sets forth the compensation
for our CEO (referred to as “PEO”) and the average compensation for our other NEOs. For further information concerning
our compensation philosophy and how we align executive compensation with our performance, refer to “Compensation
Discussion and Analysis.”
Compensation
Actually Paid
to PEO (2)
Summary
Compensation
Table Total for
PEO (1)
34,291 $ 13,688,395 $
33,115
2,559,392
253,610,579
278,740,704
$
Year
2022
2021
2020
Average Summary
Compensation
Table Total for
Average
Compensation
Actually Paid to
Non-PEO NEOs (1) Non-PEO NEOs
4,305,869 $
5,634,227
1,914,694
2,091,584 $
30,194,861
31,929,509
226.43 $
214.25
167.21
118.69 $
143.55
117.10
147,139 $
(60,018)
(1,724)
232,313
178,112
155,808
Value of Initial $100
Investment Based on
Total
Shareholder
Return
Peer Group
Total
Shareholder
Return (4)
Net Income (loss) Adjusted EBITDA (5)
(in thousands)
(in thousands)
(1) For each year presented, Mr. Patrick W. Smith was our principal executive officer (PEO); reflects amounts
reported in the Summary Compensation Table (“SCT”) for the respective years. Our non-PEO NEOs for 2022
were Ms. Bagley and Messrs. Isner, Kunins, Larson, Ahsan, and Zito. Our non-PEO NEOs for 2021 and 2020
were Messrs. Larson, Ahsan, Isner, and Kunins. Average compensation for the non-PEO NEOs reflects amounts
reported in the SCT for the respective years.
(2) Amounts shown for compensation actually paid (“CAP”) are computed in accordance with Item 402(v) of
Regulation S-K under the Exchange Act and do not reflect the actual amount of compensation earned by or
paid to the NEOs during the applicable year. These amounts reflect total compensation as reported in the
SCT with certain adjustments as required by item 402(v) of Regulation S-K as described in footnote (3)
below.
(3) CAP reflects the exclusions and inclusions of equity awards for the PEO and the other NEOs as set forth
below and calculated in accordance with FASB ASC Topic 718, Compensation - Stock Compensation. The
valuation methodologies and assumptions used to calculate CAP are based on the grant date fair value of
these awards as disclosed in the company’s consolidated audited financial statements filed with the SEC on
Form 10-K for the years reflected in the table below:
Summary Compensation Table Total to Compensation Actually Paid Reconciliation for the PEO and non-
PEOs:
Axon Enterprise, Inc. | 2023 Proxy Statement | 38
Calculation (a) of Compensation Actually Paid
Summary Compensation Table Total
Less grant date fair value of stock and option awards
Add change in fair value (whether positive or
negative) as of vesting date of awards granted in prior
fiscal years for which all applicable vesting
conditions were satisfied during the fiscal year
Add change in fair value (whether positive or
negative) as of fiscal year-end for unvested and
outstanding awards or forfeited awards granted in
prior fiscal years
Compensation Actually Paid
Calculation (a) of Compensation Actually Paid
Summary Compensation Table Total
Less grant date fair value of stock and option awards
Add year-end fair value of awards granted during the
fiscal year that are outstanding and unvested as of the
end of the fiscal year
Add change in fair value (whether positive or
negative) as of vesting date of awards granted in prior
fiscal years for which all applicable vesting
conditions were satisfied during the fiscal year
Add change in fair value (whether positive or
negative) as of fiscal year-end for unvested and
outstanding awards or forfeited awards granted in
prior fiscal years
Compensation Actually Paid
$
$
$
$
Year 2020
2,559,392
(2,531,425)
$
Calculation for PEO
Year 2021
33,115
$
—
Year 2022
34,291
—
405,161
227,074,553
—
278,307,576
278,740,704
$
26,502,911
253,610,579
$
13,654,104
13,688,395
Year 2020
Calculation for Average of Non-PEOs
Year 2021
1,914,694
(1,156,333)
$
5,634,227
(4,414,658)
$
Year 2022
4,305,869
(3,502,709)
469,229
3,515,309
4,596,869
220,174
21,247,901
51,093
30,481,745
31,929,509
$
4,212,082
30,194,861
$
(3,359,538)
2,091,584
(a) For the PEO and other NEOs, for each covered year, fair value of awards that are granted and vest in
the same covered fiscal year equals $0, and fair value of awards granted in prior years that are
determined to fail to meet the applicable vesting conditions during the covered fiscal year equals $0.
(b) The amount shown for 2020 represents the total stock compensation expense for modified shares related
to a PSU award for Mr. Smith. See the SCT for more information.
(4) TSR shown in this table utilizes the Russell Midcap Index which we use in the stock performance graph
required by Item 201(e) of Regulation S-K included in the company’s consolidated audited financial
statements filed with the SEC on Form 10-K for the years reflected in the table above. The comparison
assumes $100 was invested for the period starting December 31, 2019 through December 31 of the applicable
fiscal year in each of the company’s Common Stock and the Russell Midcap Index. All dollar values assume
reinvestment of the pre-tax value of dividends paid by companies included in the Russell Midcap Index. The
historical stock price performance of our Common Stock shown is not necessarily indicative of future stock
price performance.
(5) Pursuant to Item 402(v) of Regulation S-K, we determined adjusted EBITDA to be the most important
financial performance measure used to link company performance to CAP to our PEO and other NEOs in
2022. This performance measure may not have been the most important financial performance measure for
years 2021 and 2020 and we may determine a different financial performance measure to be the most
important such measure in future years. Adjusted EBITDA is defined as Adjusted EBITDA (Most comparable
GAAP Measure: Net income) - Earnings before interest expense, investment interest income, taxes, depreciation,
amortization and non-cash stock-based compensation expense, realized and unrealized gains and losses on
strategic investments and marketable securities, and certain other pre-tax items. For a reconciliation of Adjusted
EBITDA to earnings, see “Fiscal 2022 Company Highlights and Compensation Overview” above. For a
Axon Enterprise, Inc. | 2023 Proxy Statement | 39
reconciliation of Adjusted EBITDA to earnings, see “Fiscal 2022 Company Highlights and Compensation
Overview” above.
Pay Versus Performance Relationship Descriptions:
Figure 1: Relationship Between Axon’s Compensation Actually Paid for PEO and NEOs (Average) vs. Cumulative TSR
of Axon and the Peer Group
$167.:n
CAPvs.. TSR
$214.25
:u:tss
$2Ui.43
$117~.10~· - - - - - - -
$278.7M
$253.6:\11
- - - - - - - -_:$~llJ8.69
$Jl.9M
$30.2.Y
$13.'?M
$:2.Uof
2020
2021
2022
Compen!81i.ol1Acmally Paid (PEO) -compau:ali.ooAcblally Paid (NEO)
AXON TSR
-
Peer Gronp TSR.
Axon Enterprise, Inc. | 2023 Proxy Statement | 40
Figure 2: Relationship Between Axon’s Compensation Actually Paid for PEO and NEOs (Average) vs. Axon’s Net
Income
CAP vs. Net Income
$147.IM
$278.7M
S253.6M
-Sl.7M
$31.91\,1
-$60.0M
$30.ZM
$13.7M
$2.IM
2020
2021
Com.pen Yb on Actually Paid (PEO)
-
Compeuation Acrually Paid (NEO)
~ t Income (thouur:uis)
Figure 3: Relationship Between Axon’s Compensation Actually Paid for PEO and NEOs (Average) vs. Adjusted EBITDA
CAP vs. Adjusted EBITDA
$231.JM
SJ55.8M
$278.7M
S178.IM
$153.6M
$31.9M
S30.2M
Sl3.7M
$2.JM
2020
2021
2022
CompmsationAcrually Paid (PBO)
-
Compm.saionAau.ally Paid (N"EO)
AdjwtedEBiTDA
Between 2020 and 2022, we experienced record stock price appreciation and operating performance, which led to
appreciation in the value of our CEO Performance Award and eXponential Stock Performance Plan. The decline in
compensation actually paid in 2022 was attributed to a substantial portion of these awards vesting in 2021 and therefore
the pool of unvested awards in 2022 was much smaller.
Axon Enterprise, Inc. | 2023 Proxy Statement | 41
Set forth below is a list of the three most important financial performance measures used to link executive compensation
actually paid to our Named Executive Officers during 2022 to Company performance.
• Adjusted EBITDA
• Revenue
• Company stock price
The following table shows information about awards made under various compensation plans during 2022:
2022 GRANTS OF PLAN-BASED AWARDS
All other
stock
Estimated future payouts under
non-equity incentive
plan awards
awards: Grant date
number of
shares of value of stock
fair
Name
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
James C. Zito
Grant
Date
6/2/2022 (2)
6/2/2022 (3)
12/1/2022 (4)
9/26/2022 (8)
9/26/2022 (9)
9/26/2022 (7)
Threshold Target
Maximum stock or
($)
($)
($)
—
—
—
— 500,000 (6)
—
—
—
—
—
—
—
—
—
—
—
—
units (#)
4,757
2,776
11,857
—
66,214
28,378
42,996
275,625 450,000
675,000 (5)
—
awards
($) (1)
500,008
291,785
2,200,066
—
7,326,579
3,140,026
3,406,286
—
12/1/2022 (4)
—
—
183,750 300,000
—
8,893
1,650,096
450,000 (5)
6/2/2022 (7)
11/30/2022 (4)
4,757
3,533
340,922
650,178
61,250
100,000
150,000 (5)
(1) Grant date fair value of RSUs, XSUs, and options, is 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 values for option awards and XSUs are
included in Note 1 to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for
fiscal 2022.
(2) RSUs vest annually over a three-year period and become fully vested in June 2025. The award was granted in
June 2022 upon Mr. Isner’s promotion to Chief Operating Officer.
(3) Two thirds of the RSUs will vest in June 2023 and one third will vest in June 2024. The award was granted in
June 2022 upon Mr. Isner’s promotion to Chief Operating Officer.
(4) RSUs vest annually from the grant date over a three-year period. The awards granted are intended as 2023
compensation. Pursuant to the rules and principles of the SEC, however, they are treated as 2022 compensation
for purposes of this table and the Summary Compensation Table.
Axon Enterprise, Inc. | 2023 Proxy Statement | 42
(5) Payouts under the 2022 annual cash incentive plan are based on the achievement of annual financial goals,
including goals related to: revenue; Adjusted EBITDA as a percentage of revenue; new product and new market
bookings; international bookings, new product adoption; net revenue retention; return rate reduction; and net
promoter score. Adjusted EBITDA and revenue were uncapped and actual results achieved exceeded the
maximum targets. Actual awards earned in 2022 were included in the Non-Equity Incentive Plan Compensation
column in the Summary Compensation Table. See further discussion under “Executive Compensation —
Compensation Discussion and Analysis — Annual Performance-Based Incentive Plans — 2022 Structure” above.
(6) Mr. Isner was eligible for commissions based on bookings and revenue growth for the Company. There was no
minimum or maximum amount related to these commissions. Actual commissions earned in 2022 were included
in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. See further
discussion under “Executive Compensation — Compensation Discussion and Analysis — Annual Performance-
Based Incentive Plans — 2022 Structure” above.
(7) Award represents grants of the XSPP that the Company adopted in January 2019. Ms. Bagley and Mr. Zito each
received a grant for three tranches, and vesting is subject to the terms and conditions of the plan. See “Executive
Compensation — Compensation Discussion and Analysis — Our Compensation Programs — eXponential Stock
Performance Plan” above.
(8) RSUs vest annually from the grant date over a three-year period. The awards were granted to Ms. Bagley upon
her employment with the Company but are also intended as compensation through her three-year anniversary of
employment. Pursuant to the rules and principles of the SEC, however, they are treated as 2022 compensation for
purposes of this table and the Summary Compensation Table.
(9) One third of the shares will vest upon the first anniversary of the grant date and the remaining two thirds will vest
quarterly thereafter. The awards were granted to Ms. Bagley upon her recent employment with the Company but
are also intended as compensation through her three-year anniversary of employment. Pursuant to the rules and
principles of the SEC, however, they are treated as 2022 compensation for purposes of this table and the Summary
Compensation Table.
Axon Enterprise, Inc. | 2023 Proxy Statement | 43
OUTSTANDING EQUITY AWARDS AT FISCAL 2022 YEAR-END
The following table includes certain information with respect to all outstanding equity awards previously awarded to the
NEOs as of December 31, 2022.
Option Awards
Stock Awards
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)
1,376,981 (1) 1,060,976 (1) 28.58 2/26/28
Option
Expiration
Date
Option
Exercise
Price
($)
Number of
Shares or
Units
of Stock
That
Have Not
Vested
(#)
Market
Value
of Shares
or Units
of Stock
That Have
Not Vested
($)
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested
(#)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
Name
Patrick W. Smith
Joshua M. Isner
—
—
—
2,776 (5)
4,757 (6)
11,857 (7)
597 (8)
2,928 (9)
993 (10)
6,778 (11)
6,778 (12)
460,622
789,329
1,967,432
99,060
485,843
164,768
1,124,674
1,124,674
15 (2)
2,489
15 (2)
2,489
149,634 (2) 24,828,770
Brittany Bagley
—
—
—
66,214 (3) 10,986,889
28,378 (4)
4,708,762
42,996 (13)
7,134,326
Jeffrey C. Kunins
—
—
—
Luke S. Larson
—
—
—
James C. Zito
—
—
—
108,000 (2) 17,920,440
8,893 (7)
1,591 (8)
1,674 (9)
1,101 (9)
110 (10)
6,778 (11)
6,778 (12)
1,475,615
263,995
277,767
182,689
18,252
1,124,674
1,124,674
1,591 (8)
8,367 (9)
2,928 (10)
263,995
1,388,336
485,843
15 (2)
2,489
149,634 (2) 24,828,770
216 (17)
448 (17)
2,567 (14)
792 (15)
3,533 (16)
35,841
74,337
425,942
131,417
586,231
15 (2)
14,962 (2)
4,757 (13)
2,489
2,482,645
789,329
(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 Compensation Committee 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, 2022, ten tranches and have been achieved and certified by the Compensation Committee. See
Axon Enterprise, Inc. | 2023 Proxy Statement | 44
“Executive Compensation — Compensation Discussion and Analysis — Our Compensation Programs — CEO
Performance Award” above.
(2) 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
Compensation Committee 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, 2022, nine tranches have
been achieved and certified by the Compensation Committee. The remaining three tranches are shown above
assuming maximum performance. See “Executive Compensation — Compensation Discussion and Analysis —
Our Compensation Programs — eXponential Stock Performance Plan” above.
(3) This stock award vests at annual intervals over a three-year period and becomes fully vested in September 2025.
(4) This stock award vests one third in September 2023 and the remaining two thirds vest in eight equal quarterly
installments until fully vested in September 2025.
(5) This stock award vests two thirds in June 2023 and one third in June 2024.
(6) This stock award vests at annual intervals over a three-year period and becomes fully vested in June 2025.
(7) These stock awards vests at annual intervals over a three-year period and become fully vested in December 2025.
(8) These stock awards vests at annual intervals over a three-year period and become fully vested in November 2023.
(9) These stock awards vests at annual intervals over a three-year period and become fully vested in December 2024.
(10) These stock awards vested two thirds in December 2022 and vest one third in December 2023.
(11) These stock awards vest at annual intervals over a three-year period and becomes fully vested in December 2024.
(12) These stock awards vest two thirds in January 2023 and one third in December 2023.
(13) These grants are intended to compensate Ms. Bagley and Mr. Zito over the remaining term of the XSPP and will
become vested only if both market capitalization and internal operational goals are attained during such term. Ms.
Bagley and Mr. Zito were awarded three remaining tranches of the XSPP. 1/3rd of the total number of shares will
vest upon certification by the Compensation Committee 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,
2022, none of the three outstanding tranches have been achieved and certified by the Compensation Committee.
The remaining three tranches are shown above assuming maximum performance. See “Executive
Compensation — Compensation Discussion and Analysis — Our Compensation Programs — eXponential Stock
Performance Plan” above.
(14) This stock award vests at annual intervals over a three-year period and becomes fully vested in November 2024.
(15) This stock award vested two thirds in November 2022 and vests one third in November 2023.
(16) This stock award vests at annual intervals over a three-year period and becomes fully vested in November 2025.
(17) These stock awards vest at various intervals and become fully vested in November 2023.
Axon Enterprise, Inc. | 2023 Proxy Statement | 45
2022 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, 2022:
Name
Patrick W. Smith
Joshua M. Isner
Brittany Bagley
Jeffrey C. Kunins
Luke S. Larson
Jawad A. Ahsan
James C. Zito
Name
Patrick W. Smith
Stock Awards
Number of
Shares
Acquired upon
Vesting (#)
Value Realized on
Vesting ($)
$
—
9,937
—
6,401
32,687
22,197
8,296
—
1,723,473
—
959,875
5,594,034
3,288,358
1,222,281
Option Awards
Number of
Shares
Acquired on
Exercise (#)
Value Realized on
Exercise ($)
—
$
—
2022 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 participation in the DCP:
Name
Joshua M. Isner
Executive
Registrant
Aggregate
Contributions in Contributions in Earnings in Last Withdrawals/ Aggregate Balance at
FY
($)(2)(3)
(122,233)
Last FYE
($)
541,076
Distributions
($)
Last FY
($)(1)(2)
Last FY
($)(1)
Aggregate
—
—
—
(1) No executive contributions or registrant contributions were made in the last fiscal year.
(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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 46
(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 2023 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.
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 and Mr. Zito, 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) Except for Mr. Zito, the payment of 12 months’ salary includes an 11-month notice period and cash payment
equal to 1 month’s base salary. Mr. Zito is subject to 6 months’ salary which includes a 5-month notice period
and cash payment equal to 1 month’s base salary.
Axon Enterprise, Inc. | 2023 Proxy Statement | 47
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. | 2023 Proxy Statement | 48
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, 2022. The following table
excludes the deferred compensation amounts that would also be payable to Mr. Isner as described and set forth under the
heading “2022 Nonqualified Deferred Compensation.”
Voluntary
Termination
Termination Termination
By Executive for Cause
without
Cause
Change in
Control
Death or
Disability
Patrick W. Smith
Stock Awards (1)
Total
Joshua M. Isner
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
Brittany Bagley
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
Luke Larson (5)
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
Jawad A. Ahsan (6)
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
James C. Zito (7)
Severance Payments (8)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $ 119,671,184 $
— $ 119,671,184 $
—
—
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
525,000
— $ 350,000 $ 1,050,000 $
500,000
—
—
—
—
6,216,402
— $ 4,457,484 $ 23,987,187 $ 7,241,402
500,000
21,646
22,415,541
500,000
—
3,607,484
675,000
— $ 450,000 $ 1,350,000 $
450,000
—
—
—
—
15,695,651
— $ 6,286,420 $ 22,171,975 $ 16,820,651
450,000
21,646
20,350,329
450,000
—
5,386,420
450,000
— $ 300,000 $
300,000
—
—
—
—
4,467,665
— $ 3,479,051 $ 17,381,220 $ 5,217,665
900,000 $
300,000
21,646
16,159,574
300,000
—
2,879,051
525,000
— $ 350,000 $ 1,050,000 $
500,000
—
—
—
—
2,138,174
— $ 2,294,089 $ 19,908,959 $ 3,163,174
500,000
21,646
18,337,313
500,000
—
1,444,089
— $ 350,000 $ 1,050,000 $
525,000
—
500,000
—
—
—
—
— $ 850,000 $ 17,770,785 $ 1,025,000
500,000
21,646
16,199,139
500,000
—
—
375,000
— $ 125,000 $
100,000
—
—
—
—
1,253,767
— $ 225,000 $ 4,260,486 $ 1,728,767
750,000 $
100,000
21,646
3,388,840
100,000
—
—
(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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 49
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 $165.93 closing market price of shares
of the Company’s common stock on December 31, 2022 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.
(5)
In December 2022, after returning from medical leave Mr. Larson stepped down as President and transitioned to
strategic advisor.
(6) Mr. Ahsan voluntarily terminated in May 2022. Total cash compensation received by Mr. Ahsan in the form of
base salary for 2022 was $178,326. Additionally, the Compensation Committee agreed to waive the holding
period requirements for one tranche of XSUs and the forfeiture provision of the ninth tranche of vested XSUs.
All remaining unvested RSUs and XSUs were forfeited.
(7) Mr. Zito stepped down as Interim Chief Financial Officer in September 2022 upon Ms. Bagley’s hire.
(8) Represents 6 months’ base salary for Termination without Cause (comprised of a 5-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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 50
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 accounting firm 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 2022, 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.
Axon Enterprise, Inc. | 2023 Proxy Statement | 51
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
accounting firm 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, 2022. The
Audit Committee also approved the selection of Grant Thornton LLP as the Company’s independent auditor for the
fiscal year 2023.
February 28, 2023
The Audit Committee:
Michael Garnreiter, Chair
Julie A. Cullivan
Caitlin Kalinowski
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. | 2023 Proxy Statement | 52
PROPOSALS
Overview of Proposals
This proxy statement contains five proposals requiring shareholder action.
• Proposal No. 1 requests the election of the eight directors of the Company named in this proxy statement for a
term of one year 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 that shareholders vote to approve, on an advisory basis, the frequency of the shareholder
vote to approve the compensation of the Company’s named executive officers.
• Proposal No. 4 requests the ratification of the appointment of Grant Thornton LLP as the Company’s independent
registered public accounting firm for fiscal year 2023.
• Proposal No. 5 requests the shareholder approval of the 2023 CEO Performance Award.
• Proposal No. 6 is a shareholder proposal to discontinue the development of a non-lethal TASER drone system.
Each proposal is discussed in more detail below.
Axon Enterprise, Inc. | 2023 Proxy Statement | 53
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 ten directors. In 2022, shareholders approved the Declassification Amendment for
the Company’s Board of Directors, with the phased transition in motion. Historically, the directors were divided into three
classes and each class consisted, as nearly as possible, of equal number of directors and served a three year term. With the
approval of the Declassification Amendment, all director nominees, aside from those in Class C, are up for reelection.
These directors are: Adriane Brown, Michael Garnreiter, Mark W. Kroll, Matthew R. McBrady, Hadi Partovi, Graham
Smith, Patrick W. Smith, and Jeri Williams.
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 Adriane Brown, Michael Garnreiter, Mark W.
---
Kroll, Matthew R. McBrady, Hadi Partovi, Graham Smith, Patrick W. Smith, and Jeri Williams.
Vote Required
Assuming the existence of a quorum, each director will be elected by the affirmative vote of the majority of votes properly
cast for and against such nominee’s election. Abstentions 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. | 2023 Proxy Statement | 54
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 Section 14A 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 2022, 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 2022.
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. As provided below, we are seeking shareholder input on the frequency for say on pay
votes at this 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. Since 2018, 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 2019, 2020, 2021, and 2022. 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.
As of December 31, 2022, ten tranches of the CEO Performance Award and nine tranches of the XSU awards had vested.
At the 2022 Annual Meeting of Shareholders (“2022 Annual Meeting”), we presented to shareholders, for advisory
approval, the Company’s executive compensation (“Say on Pay”). Of the 54.6 million votes cast on the Say on Pay vote
(including abstentions), over 89% 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
shareholder interests. It is the Committee’s intent that the total compensation for our NEOs be competitive to attract and
retain highly qualified individuals who are capable of making significant contributions critical to our long-term success.
Axon Enterprise, Inc. | 2023 Proxy Statement | 55
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 properly cast for or against the proposal, in person or represented by proxy at the Annual Meeting. Abstentions
and broker non-votes will have no impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2023 Proxy Statement | 56
PROPOSAL NO. 3 – ADVISORY VOTE TO RECOMMEND THE FREQUENCY OF THE SHAREHOLDER
VOTE TO APPROVE THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS.
As described in Proposal No. 2 above, in accordance with the requirements of Section 14A of the Exchange Act and the
related rules of the SEC, our shareholders have the opportunity to cast an advisory vote to approve the compensation of
our named executive officers. This Proposal No. 3 affords shareholders the opportunity to cast an advisory vote on how
often we should include a say-on-pay proposal in our proxy materials for future annual shareholder meetings or any special
shareholder meeting for which we must include executive compensation information in the proxy statement for that
meeting (a “say-on-pay frequency proposal”). Under this Proposal No. 3, shareholders may vote to have the say-on-pay
vote every year, every two years, or every three years.
Our shareholders voted on a similar proposal in 2011 with the majority voting to hold the say-on-pay vote every year. We
continue to believe that say-on-pay votes should be conducted every year so that our shareholders may annually express
their views on our executive compensation program.
As an advisory vote, this proposal is not binding on the Company, the Board, or the Compensation Committee. However,
the Compensation Committee and the Board value the opinions expressed by shareholders in their votes on this proposal
and will consider the outcome of the vote when making future decisions regarding the frequency of conducting a say-on-
pay vote. It is expected that the next vote on a say-on-pay frequency proposal will occur at the 2023 annual meeting of
shareholders. Shareholders may cast their advisory vote to conduct advisory votes on executive compensation every “1
Year,” “2 Years,” or “3 Years,” or “Abstain.”
The Board of Directors recommends a vote on Proposal No. 3 to hold say-on-pay votes every 1 YEAR (as opposed
to 2 years or 3 years).
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 properly cast for or against the proposal, in person or represented by proxy at the Annual Meeting. Abstentions
and broker non-votes will have no impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2023 Proxy Statement | 57
PROPOSAL NO. 4 - 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, 2023. 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 2023 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, 2022 and 2021.
Audit fees
Audit-Related Fees
Tax Fees
All Other Fees
2022
$ 2,055,500
—
—
—
2021
$ 1,875,000
—
—
—
$ 2,055,500 $ 1,875,000
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, 2022 or 2021.
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, 2022 or 2021.
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, 2022 or 2021.
Axon Enterprise, Inc. | 2023 Proxy Statement | 58
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
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 2022.
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, 2023.
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 year 2023.
---
Vote Required
For Proposal No. 4, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal, in person or represented by proxy at the Annual Meeting. Abstentions
and broker non-votes will have no impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2023 Proxy Statement | 59
PROPOSAL NO. 5 – APPROVAL OF THE 2023 CEO PERFORMANCE AWARD
At the Annual Meeting, shareholders will be asked to approve the 2023 CEO Performance Award to our CEO and founder,
Patrick W. Smith. The 2023 CEO Performance Award was approved by the Board and granted to Mr. Smith on March 28,
2023, subject to shareholder approval at the Annual Meeting. The full text of the 2023 CEO Performance Award is attached
to this proxy statement as Annex A.
The 2023 CEO Performance Award, designed by the Compensation Committee, took into consideration direct feedback
from our shareholders and is intended to incentivize and drive the next decade of our shareholder returns. The 2023 CEO
Performance Award recognizes Axon’s global growth potential and is designed to motivate a CEO whose inspirational
creativity can uniquely unlock this potential and who continues to deliver exceptional value to Axon. As a thought leader
and technologist in public safety, Mr. Smith inspires employees and customers alike with his creativity, dynamic market-
creating innovation and lifelong dedication to Axon’s mission.
In 2018, Axon’s Board approved a performance stock option award for Mr. Smith (which we refer to for the purpose of
this Proposal as the “2018 Award”) that required Axon to achieve specified market capitalization and operational goals.
All but one of the twelve tranches under the 2018 Award has vested. In 2021, with the 2018 Award heading toward
substantial completion, our Board began preliminary discussions about how to continue to incentivize Mr. Smith to lead
Axon through the next phase of its development.
The 2023 CEO Performance Award is a grant of performance stock options composed of ten tranches (a “Tranche”), which
only vest and become exercisable upon achievement of rapidly escalating goals for growth in both our share price and
operational plan. To unlock and vest in all ten Tranches, comprised of stock options representing 5% of Axon’s outstanding
shares as of March 27, 2023, the Company would need to achieve a share price of $1,769.51 and sustain strong annual
growth on Revenue, Adjusted EBITDA or both. The Compensation Committee views these goals as rigorously challenging
but achievable over the ten-year performance period of the proposed award. While Mr. Smith will receive minimum wage
salary, the Compensation Committee expects the award to be the majority of his compensation over the next ten years.
In response to shareholder feedback and leading governance practices for special performance-based stock awards, the
2023 CEO Performance Award requires long-term ownership of earned shares, limits dilution volatility, employs stock
price goals rather than market capitalization goals and sets stringent financial performance milestones that scale at a fixed
percentage. Compared to the 2018 Award, the 2023 CEO Performance Award adopts added dilution safeguards, including
vesting speed brakes and a 15-year exercise period. These additional safeguards will help Axon meet its goal of targeting
average annual gross dilution of approximately 3% across all stock-based compensation plans (including the 2023 CEO
Performance Award) beginning in 2025.
Axon’s Growth Potential & Rick Smith, a Unique Founder CEO
Axon is poised for continued growth over the next decade – with distinctive potential among high-growth peers across the
technology industry. As Axon reaches its 30th anniversary, it is fortunate to have its founder at the helm. Mr. Smith has
been instrumental in building the public safety operating system of the future by integrating a suite of hardware devices
and cloud software solutions that lead to modern policing and help save lives. Axon’s technological innovation and strong
sales execution of disruptive technologies are already improving the landscape of safety and security.
Mr. Smith has a proven track record of successfully inventing and delivering, at scale, solutions that create enormous
shareholder and societal value. From the early days of founding the organization to today as a market leader, Mr. Smith’s
expertise has brought forth entirely new product categories, including the less-lethal TASER de-escalation platform, body-
worn cameras and cloud software that lead to modernized public safety.
Mr. Smith is seen as a visionary among customers and colleagues. His thought leadership through his book, The End of
Killing, and his partnership and public engagements with elected officials, civil rights scholars, constitutional scholars and
law enforcement leaders, has created growing global buy-in to modernize public safety, helping democratic governments
leverage technological progress to sustain their legitimacy and maintain, and even repair, trust between governments and
the public. In addition, it was Mr. Smith’s vision that brought forth a collective moonshot effort, which Axon announced
Axon Enterprise, Inc. | 2023 Proxy Statement | 60
in October 2022, to cut gun-related deaths in the United States between police and the public by 50% in the next decade.
Mr. Smith is driving efforts to convene key industry groups and sector partners to collectively solve this ambitious but
critical goal.
Mr. Smith’s executive leadership will orient Axon toward investing today in the technologies that should drive value
creation well into the next decade. Mr. Smith is driving Axon to innovate in the areas of artificial intelligence, robotics,
virtual reality and other technologies that have the potential to continue making a transformative impact on society. He is
a long-term planner and thinker. A prime example of this is the foresight Mr. Smith had more than a decade ago to start
building our software business. In 2022, Axon’s recurring, high margin Cloud revenue comprised more than 30% of our
total revenue.
Mr. Smith’s value to Axon can be best realized through a compensation plan that directly aligns his personal motivation
with Axon shareholder return, such as the 2023 CEO Performance Award. Mr. Smith remains Axon’s largest non-
institutional shareholder. He is motivated by the potential for outsized growth in Axon’s share price and by the societal
value created upon realization of Axon’s global mission to protect life, including the moonshot effort in the United States.
Over the term of the 2018 Award through market close on March 31, 2023, Axon averaged over 50% annually compounded
shareholder returns – which we believe showcases the value of aligning CEO compensation to value creation. The 2023
CEO Performance Award ensures Mr. Smith’s continued commitment and focus on creating both shareholder and societal
value over the next decade.
Performance Award Summary
Subject to shareholder approval, the 2023 CEO Performance Award grants stock options to Mr. Smith representing 5%
of Axon outstanding shares as of March 27, 2023, divided into ten equal Tranches. The Tranches are subject to three
independent vesting conditions, all of which must be satisfied prior to the ten-year anniversary of the grant date:
1. Stock price goals: Axon’s share price must appreciate 25% between each Tranche
2. Operational goals: Axon must achieve operational goals (Revenue and/or Adjusted EBITDA growth, each
increasing by 25% between each Tranche), as shown in the chart below
a. Parameters of First Five Tranches: For Mr. Smith to achieve Tranches 1 through 5, Axon must achieve
either the Revenue or Adjusted EBITDA milestone associated with that Tranche. Once a Tranche is achieved,
both the Revenue and Adjusted EBITDA milestones for that Tranche are retired and Axon must achieve
either the Revenue or Adjusted EBITDA milestone associated with the following Tranche for such following
Tranche to be achieved.
b. Parameters of Remaining Tranches: For Mr. Smith to achieve Tranches 6 through 10, Axon must achieve
any five of the ten Revenue and Adjusted EBITDA milestones associated with Tranches 6 through 10 (e.g.,
Achieving both Revenue and Adjusted EBITDA milestones associated with Tranche 6 would satisfy the
financial metric milestones for each of Tranches 6 and 7. However, the stock price goal for Tranche 7 would
still need to be achieved for Tranche 7 to be achieved.)
3. Service-based vesting conditions: Each Tranche is subject to a service-based vesting condition shown in the chart
below, providing that no Tranche may vest before February 26, 2028, which represents the completion of the
2018 Award performance period. In addition, in order to continue to vest in the award, Mr. Smith must remain
chief executive officer of the Company (or in a role performing an equivalent function) or executive chairman of
the Board (or in a role performing an equivalent function). Moreover, Mr. Smith may not serve as CEO of any
other company and must devote substantially all his working time to Axon, during the performance period.
Axon Enterprise, Inc. | 2023 Proxy Statement | 61
Tranche Stock Price
1
2
3
4
5
6
7
8
9
10
-
$237.50
$296.88
$371 .09
$463.87
$579.83
$724.79
$905.99
$1 ,132.49
$1,415.61
$1 ,769 .51
and either
and either
and either
and either
and either
and
and
and
and
and
Revenue
$1 ,513
$1 ,891
$2 ,363
$2 ,954
$3 ,693
Adj. EBITDA
$378
$473
$591
$739
$923
or
or
or
or
or
$4 ,616 (~ ) $1 ,154
$1,442
$5 ,770
$1 ,803
$7 ,212
$9 ,015
$2 ,254
$11 ,269 ~ $2 ,817
milestone
from t11is
Service Requirement
Earliest Vest Date
February 2028
Each stock price
milestone must be paired
wit/1 one of the financial
milestones in its row.
Each stock price
milestone must be paired
with any one of the
financial milestones
shown.
February 2028
February 2028
March 2028
September 2028
March 2029
September 2029
March 2030
September 2030
March 203 1
Revenue & Adj. EB/TOA in millions
Tranches subject to exercise timing limitations of no more than one tranche per six-month period.
For additional details about the 2023 CEO Performance Award, see the section entitled “2023 CEO Performance Award
Details.”
Axon CEO Award Compared to the Market
With the guidance of its independent compensation consultant, in April 2022, the Compensation Committee conducted a
competitive market assessment of other similar grants of special performance-based stock awards to founder CEOs. The
review focused on a set of public, post-IPO companies that made similar special performance-based stock awards to
founder CEOs since the beginning of 2016, excluding awards that were made in connection with CEO appointments,
M&A activity or extensions of employment agreements in heavily consolidated or regulated industries. The resulting
group reflected 12 select peers (the “Award Peer Group”)1, which were innovative and high growth companies primarily
in the technology sector.
In addition to the Award Peer Group, the Compensation Committee also reviewed special performance-based stock
awards made to founder CEOs within an IPO-related context over a similar time frame and analyzed how the
Company’s proposed award compares to receiving a normal annual compensation opportunity for a period of ten years.
The competitive market assessment provided market context for both award design, magnitude and performance
requirements. The Compensation Committee assessed the overall magnitude of the 2023 CEO Performance Award
across several lenses including share ownership (i.e., percent of shares outstanding), reported grant date fair value,
annualized grant date fair value over the performance period and total potential realizable opportunity.
The 2023 CEO Performance Award quantum, 5% of common shares outstanding and estimated annualized grant date
fair value of $40 million, as compared to awards made by companies in the Award Peer Group, is positioned in the top
quartile of the competitive market set. As of the time of the analysis, special CEO performance-based stock awards
among the Award Peer Group ranged from 2.2% of common shares outstanding (at the 50th percentile) to 7.8% (at the
90th percentile). In addition, as of the time of the analysis, CEO performance-based stock awards among the Award Peer
Group had annualized grant date fair values ranging from $23 million (at the 50th percentile) to $78 million (at the 90th
percentile).
This positioning was also considered and assessed against the relative performance requirements, which were also in the
top quartile of the competitive market set. While not a significant part of compensation, the Compensation Committee
also acknowledged that Mr. Smith would not be eligible for an annual bonus and would be receiving minimum wage
1 The peer group consisted of Broadcom Inc., DISH Network Corporation, FLEETCOR Technologies, Inc., Guardian
Health, Oracle Corporation, Paycom, Regeneron Pharmaceuticals, Inc., Robinhood Markets, Inc., Sorrento Therapeutics,
Tesla, Inc., The Trade Desk, and Veeva Systems Inc.
Axon Enterprise, Inc. | 2023 Proxy Statement | 62
salary while the vast majority of others in the Award Peer Group would receive competitive cash compensation
opportunities.
The parameters of the 2023 CEO Performance Award were thoughtfully considered and several included input from
many of our shareholders. From a “top-down” perspective, the Compensation Committee wanted to create an award that
mirrored much of the structure of the 2018 Award, which it viewed as being highly successful and a key driver of our
600%+ share price appreciation since 2018, but with significantly less dilution volatility.
Dilution Considerations
The 2023 CEO Performance Award consists of stock options covering 5% of Axon’s outstanding shares as of March 27,
2023. Based on shareholder feedback and experience with the 2018 Award, the Compensation Committee developed
provisions of the award that we refer to as “speed-brakes.” These provisions are intended to limit dilution volatility and
incentivize continued service even if milestones are achieved within the ten-year performance period and include:
• To be achieved, each Tranche includes a service-based vesting requirement based on a number of years equal
to N/2 + 3, where N represents the Tranche number in question. However, no Tranche may vest prior to
February 26, 2028, which represents the ten-year anniversary (and end of the performance period) of the 2018
Award; and
• No more than one Tranche may become exercisable in any six-month period.
The Compensation Committee designed the 2023 CEO Performance Award to further limit potential dilution volatility
by requiring Mr. Smith to retain, and not sell, at least 20% of the shares acquired upon exercise of the award (after
giving effect to any shares withheld with respect to the applicable exercise price or tax obligation attributable to such
exercise) until three years following a termination of employment, subject to limited exceptions.
In addition, the Company, along with the Compensation Committee, has recognized the concerns raised by our
shareholders regarding the dilution created by the 2018 Award and our eXponential Stock Performance Plan. In
response to those concerns, the Company and the Compensation Committee have committed to targeting average annual
gross dilution of approximately 3% across all stock-based compensation plans (including the 2023 CEO Performance
Award), beginning in 2025. Even with the grant of the 2023 CEO Performance Award, our total share count overhang
remains below 14%. Notably, with the introduction of the 2023 CEO Performance Award, the Compensation Committee
is continuing its practice of ensuring that compensation is aligned with stringent operational performance and
shareholder returns.
Additional Shareholder Friendly Provisions
The 2023 CEO Performance Award contains multiple additional improvements compared to the 2018 Award:
• The milestones are tied to share price, not market capitalization. Axon shareholders voiced a preference for
tying milestones to share price rather than market capitalization and the Compensation Committee took this
under advisement in designing the new award. In addition, the stock price goals are only met when those prices
are sustained in both the trailing six month and 30-day averages.
• Milestones are even more stringent than before — each stock price goal is 25% apart from the prior goal. In
the 2018 Award, the first tranche was unlocked when the Company achieved a market capitalization of $2.5
billion, representing a doubling of size at the time, and each subsequent tranche goal grew by a fixed amount of
$1 billion – which meant that for the later tranches, the percentage difference between each tranche goal
decreased. The 2023 CEO Performance Award, in contrast, sets each stock price goal at a fixed 25% above the
previous goal. This makes all performance thresholds equally difficult to achieve. In addition, mark-to-market
adjustments on strategic investments are not counted in assessing milestone achievement. We view the stock
price goals and operational goals as rigorously challenging but obtainable over the ten-year performance period.
Axon Enterprise, Inc. | 2023 Proxy Statement | 63
• The 2023 CEO Performance Award introduces “speed brakes” in the form of service-based vesting conditions
and exercise timing limitations. To limit dilution volatility and ensure the ten-year compensation plan truly
covers ten years of performance, even if stock price goals and operational goals are achieved rapidly, each
Tranche has a service-based vesting condition. The 2023 CEO Performance Award also introduces a
mechanism preventing more than one Tranche from becoming exercisable in any six-month period. The
exercise period lasts 15 years from the date of grant – to 2038 – so that Tranches that vest late in the ten-year
performance period may be exercised over a longer timeframe to limit dilution in any given period. In addition,
no Tranche may vest before February 26, 2028, marking the end of the performance period of the 2018 Award.
•
Shareholder friendly provisions repeated and expanded from the 2018 Award. We believe our shareholders
were pleased with several provisions of the 2018 Award and those have been repeated and expanded. For
example, Mr. Smith cannot “acquire” or “strategically invest” his way to success — acquisitions of target
companies with financial scale above pre-defined Revenue and Adjusted EBITDA thresholds move the
Revenue and Adjusted EBITDA milestone targets. In addition, the inclusion of each of (i) the stock price goals
and (ii) financial performance goals serve as a check and balance on the other to ensure that shareholders are
aligned with the fundamental business performance.
• The 2023 CEO Performance Award also includes a robust clawback provision. The 2023 CEO Performance
Award is subject to clawback in the event of a financial restatement that changes the outcome of whether a
milestone was obtained or if Mr. Smith is terminated by the Company for “Cause” (as defined in the 2023 CEO
Performance Award) due to actions or omissions after the grant date that cause material reputational harm to the
Company.
Burn Rate Table
The following table illustrates the Company’s historical burn rate for the past three years. Burn rate is calculated as (i) the
number of stock options and time-based restricted stock units (“RSUs”) granted, plus (ii) the number of performance-
based restricted stock units (“PSUs”) earned, divided by (iii) the weighted average basic common shares outstanding in
the year indicated. The Company’s burn rate was as follows:
(a)
Options
Granted (1)
-
-
-
(b)
RSUs
Granted
576,891
686,166
1,144,539
(c)
PSUs
Earned
183,540
4,345,601
78,194
Year
2020
2021
2022
(d) = (a) + (b) + (c) Weighted Average Basic
(e)
Total
Granted/Earned
760,431
5,031,767
1,222,733
Outstanding
Granted/Earned
61,782,262
66,190,528
71,092,681
3-Year Average
(d) ÷ (e)
Burn
Rate
Burn Rate
Excluding
1.23 %
7.60 %
1.72 %
3.52 %
PSUs Earned
0.93 %
1.04 %
1.61 %
1.19 %
1) Options are included in the year granted, rather than earned. Options granted pursuant to the 2018 Award are
excluded because they were granted in 2018.
Potential Value that Could be Realized under the 2023 CEO Performance Award
The potential value realizable under the 2023 CEO Performance Award is a function of modelling forward-looking
projections of the Company’s share price and operational performance and timing of vesting events and option exercises.
Due to the inherent uncertainty and variability in those forward-looking projections, it is not possible to reliably forecast
the value that would be realized under the 2023 CEO Performance Award.
Nevertheless, the table below depicts the theoretical value, assuming the attainment of all of the applicable stock price
goals and operational goals, both in dollar value and as a percentage of total value created, that could be realized by Mr.
Smith and Axon shareholders over various vesting scenarios. This table only takes into account the fully diluted share
count as of March 27, 2023. It assumes that Mr. Smith exercises options as they vest and become exercisable, subject to
the conditions of the 2023 CEO Performance Award. Accordingly, this table should only be used for illustrative purposes,
Axon Enterprise, Inc. | 2023 Proxy Statement | 64
recognizing that option exercises at different points in time or at different future share prices than those assumed in this
table could significantly change the maximum value that Mr. Smith would realize from the award over the various vesting
scenarios, both in dollar value and as a percentage of total value created.
Tranches
Earned
0
1
2
3
4
5
6
7
8
9
10
Stock
Price
Goal
$ 237.40
237.50
296.88
371.09
463.87
579.83
724.79
905.99
1,132.49
1,415.61
1,769.51
P&L
Cost of
Compensation (1)
(in millions)
CEO
Realized
Value (2)
(in millions)
Shareholder
Value
Realized (3)
(in millions)
% of
Shareholder
Value Realized By
CEO with Award
% of
Shareholder
Value Realized by
Other Shareholders
$
$
-
38
78
122
166
210
254
295
333
367
397
$
-
8
60
171
364
668
1,121
1,774
2,692
3,964
5,703
1,600
1,607
5,966
11,413
18,223
26,735
37,375
50,675
67,300
88,081
114,058
- %
0.5
1.0
1.5
2.0
2.4
2.9
3.4
3.8
4.3
4.8
100.0 %
99.5
99.0
98.5
98.0
97.6
97.1
96.6
96.2
95.7
95.2
(1) The 2023 CEO Performance Award would result in the recognition of additional stock-based compensation
expense over the term of the award as the operational goals become probable of being achieved through the
expected date such operational goals are achieved pursuant to FASB Accounting Standards Codification Topic
718, Compensation-Stock Compensation (“ASC 718”). The Company would still recognize stock-based
compensation expense based on operational goal achievement, even if stock price goals are not achieved. See
the section entitled “Accounting and Tax Considerations—Accounting Considerations”, for additional detail.
The actual P&L cost of the 2023 CEO Performance Award will not be known until the grant date for
accounting purposes, which occurs only if shareholders approve the 2023 CEO Performance Award at the
Annual Meeting. As a result, the amounts included in this column are estimates only based on information
available as of the time of this proxy statement and may materially change.
(2) The value realized by Mr. Smith is equal to the number of shares subject to the number of Tranches achieved,
multiplied by the excess of the assumed market price of the Company’s common stock over the Exercise
Price. The values shown are pre-tax values and do not estimate the amount of tax payable by Mr. Smith upon
any such exercise.
(3) The value realized by shareholders is equal to the number of estimated dilutive shares outstanding, depending
on the number of Tranches achieved, multiplied by the excess of the assumed market price of the Company’s
common stock over the Exercise Price.
Potential Ownership of Securities As a Result of the 2023 CEO Performance Award
As of March 31, 2023, Mr. Smith beneficially owned 2,988,703 shares of the Company’s common stock, including 5,934
shares issuable to Mr. Smith upon exercise of options exercisable as of such date. Based on 73,874,062 shares of the
Company’s common stock outstanding at March 31, 2023, Mr. Smith beneficially owned 4.0% of the outstanding shares
of the Company’s common stock.
For illustrative purposes only, if (i) all 3,670,030 shares of the Company’s common stock subject to stock options under
the 2023 CEO Performance Award were to become fully vested, exercised and held by Mr. Smith, (ii) estimated dilution
as a result of potential exercises or conversions from the existing employee equity pool were to be considered and (iii)
there were no other dilutive events of any kind, Mr. Smith would beneficially own 9% of the outstanding shares of the
Company’s common stock. However, as noted above in the section “Potential Value that Could be Realized Under the
2023 CEO Performance Award”, it is not possible as of the time of this proxy statement to know the exact or true
percentage of Mr. Smith’s future total ownership of the Company’s common stock upon the vesting or exercise of one or
more Tranches.
Axon Enterprise, Inc. | 2023 Proxy Statement | 65
2023 CEO Performance Award Details
Below is an overview of the 2023 CEO Performance Award. This summary is qualified by reference to the full text of the
2023 CEO Performance Award, which is attached as Annex A.
Award Terms
Details
Date of Grant
March 28, 2023
Total Size
Award Type
Exercise Price
3,670,030 shares of Axon common stock, representing 5% of total outstanding
shares as of March 27, 2023
Nonqualified stock options
$218.59, which reflects the closing price for a share of the Company’s common
stock as of the last trading day immediately preceding the Date of Grant
Vesting End Date
March 28, 2033
Expiration Date
March 28, 2038
2023 CEO Performance
Award Performance Vesting /
Goals
Stock Price Goals
a. Ten stock price goals
b. First Tranche is share price of $237.50; each Tranche thereafter requires
an additional increase in share price of 25%, up to a stock price goal of
$1,769.51 for the tenth Tranche
c. Sustained share price is required for each stock price goal to be met. For
each stock price goal to be met, both the trailing six-month average share price
and the trailing 30-day average share price must equal or exceed the stock price
goal that corresponds to each Tranche
Operational Goals
a. 20 operational goals
b. Two types of operational goals: Revenue and Adjusted EBITDA
Operational Milestone
Tier
Revenue Goals
(millions)
Adjusted EBITDA Goals
(millions)
1
2
3
4
5
6
7
8
9
$1,513
$1,891
$2,363
$2,954
$3,693
$4,616
$5,770
$7,212
$9,015
$378
$473
$591
$739
$923
$1,154
$1,442
$1,803
$2,254
Axon Enterprise, Inc. | 2023 Proxy Statement | 66
10
$11,269
$2,817
* Revenue means, as of any date, the Company’s total revenues, as reported by the
Company in its financial statements on Forms 10-Q and 10-K filed with the SEC
(but without giving effect to any rounding used in reporting the amounts in Forms
10-Q and 10-K), for the previous four consecutive fiscal quarters of the Company,
beginning with the Company’s first full fiscal quarter ending after the fiscal quarter
in which the Date of Grant occurs.
** Adjusted EBITDA means, as of any date, for the previous four consecutive fiscal
quarters, the Company’s net (loss) income attributable to common stockholders
before interest expense, interest and other income (such as dividends), adjusted for
one-time or non-recurring items, including gains and losses on investments
(inclusive of strategic and non-strategic non-controlling minority investments and
joint ventures or similar arrangements), transaction costs related to strategic
investments and acquisitions (or divestitures), gains or losses or impairments related
to dispositions of businesses, disposals and/or abandonments of intangible assets,
disposals or impairment of land, property and/or equipment, restructuring costs
(including non-recurring costs related to a reduction in force and/or to closing or
exiting facilities), (benefit) provision for income taxes, depreciation and
amortization and stock based compensation.
Vesting, Generally
Each Tranche will vest only if both a stock price goal and an operational goal are
met. Notwithstanding the foregoing, in no event will attainment of both Revenue
and Adjusted EBITDA attributable to the same Operational Milestone Tier count
toward the attainment of more than one operational goal in the case of the first five
Operational Milestone Tiers (e.g., if Revenue for Tier 1 is achieved, Adjusted
EBITDA for Tier 1 cannot count toward achievement of a different Operational
Goal; conversely, both Revenue and Adjusted EBITDA for Tier 6 can
independently count toward achievement of different Operational Goals).
A stock price goal and an operational goal that are matched together can be achieved
at different points in time and vesting will occur at the date the last goal was
obtained; provided that the minimum service condition (described below) is also
met, in all cases, prior to the Vesting End Date. Subject to any applicable clawback
provisions, policies or other forfeiture terms described in the 2023 CEO
Performance Award, once a goal is achieved, it is forever deemed achieved for
determining the vesting of a Tranche.
Vesting is contingent upon Mr. Smith continuing to serve as chief executive officer
of the Company (or in a role performing an equivalent function) or executive
chairman of the Board (or in a role performing an equivalent function), pursuant to
which Mr. Smith may not serve as CEO of any other company and must devote
substantially all his working time to Axon, during the performance period. Each
Tranche will only vest on the later of (i) the first business day on or following the
date that is a number of months after the Date of Grant equal to (A) (x) the number
of such Tranche multiplied by 12, divided by (y) two plus (B) 36 and (ii) February
26, 2028 (the “Service-Based Vesting Condition”).
Upon a termination due to death or disability, options for which the stock price
goals and operational goals (but not the service requirement) have been satisfied
will accelerate. Upon a termination without Cause, options will vest solely based
on achievement of the stock price goal, without regard to the attainment of the
operational goals, plus pro-rata vesting of one additional Tranche based on a
Axon Enterprise, Inc. | 2023 Proxy Statement | 67
Minimum Service Condition;
Service-Based Vesting
Condition
Effect of Termination of
Employment
Change in Control
Exercise Requirements
Post-Termination Holding
Period
Clawback
comparison of the six-month share price to the stock price goals. Upon any other
termination or on the Vesting End Date, all other unvested options will be forfeited.
Upon a Change in Control, options for which the stock price goal have been
achieved based on the transaction price will convert into time-based awards eligible
to vest based on the remaining service-based vesting conditions (“Converted
Awards”). Converted Awards are subject to “double-trigger” treatment upon a
termination by the Company without Cause or for “Good Reason” (as defined in
the 2023 CEO Performance Award) within 24 months following a Change in
Control.
The treatment of the 2023 CEO Performance Award upon a Change in Control is
intended to align Mr. Smith’s interests with Axon’s other shareholders with respect
to evaluating potential transactions.
A “Change in Control” is generally defined in the 2023 CEO Performance Award
to include (i) an acquisition (other than directly from the Company) by an
individual, entity or a group (excluding the Company or an employee benefit plan
of the Company) of 30% or more of the combined voting power of the then-
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); (ii) a change
during any 24 consecutive calendar months in a majority of the Company’s current
Board (excluding any persons approved by a vote of at least a majority of the
Incumbent Board other than in connection with an actual or threatened proxy
contest); (iii) the consummation of a merger, consolidation or sale of all or
substantially all of the Company’s assets (collectively, a “Business Combination”),
unless immediately following such Business Combination (A) all or substantially
all of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting from such Business
Combination, (B) at least a majority of the board of directors of the resulting
corporation were members of the Incumbent Board, and (C) no person owns 30%
or more of the stock of the resulting corporation, who did not own such stock
immediately before the Business Combination; or (iv) shareholder approval of a
complete liquidation or dissolution of the Company.
No more than one Tranche will become exercisable in any six-month period (other
than upon death or following a Change in Control). The exercise price for any
option can be satisfied in cash or such other method permitted by the Compensation
Committee in its sole discretion, including a “cashless exercise” arrangement.
20% of shares acquired upon exercise of any Tranche (after giving effect to any
shares withheld with respect to the applicable exercise price or tax obligation
attributable to such exercise) are required to be held until three years following a
termination of employment (other than upon a termination without Cause, due to
death or disability or following a Change in Control).
The 2023 CEO Performance Award and shares acquired from the exercise of
options thereunder will be subject to clawback to the fullest extent required by law,
applicable listing standard and any clawback policy adopted by the Company to
comply with Rule 10D-1 of the Securities Exchange Act. Notwithstanding whether
the Date of Grant occurs prior to the effectiveness of a clawback policy enacted by
the Company to comply with Rule 10D-1 of the Securities Exchange Act, it will be
Axon Enterprise, Inc. | 2023 Proxy Statement | 68
deemed to have been granted immediately thereafter for purposes thereof. In
addition, the 2023 CEO Performance Award will be subject to clawback in the event
Mr. Smith is terminated by the Company for Cause due to actions or omissions after
the Date of Grant that cause material reputational harm to the Company; provided
that any recovery in such case will only apply with respect to amounts paid or
received in the three-year period prior to Mr. Smith’s termination for reputational
harm.
Restrictive Covenants
Mr. Smith will be subject to restrictive covenants relating to confidentiality,
intellectual property, non-competition, non-solicitation and non-disparagement.
Administration
Adjustment
Amendment; No Repricing
Non-Transferability
The 2023 CEO Performance Award will be administered by the Compensation
Committee. The Compensation Committee shall have the sole and complete
discretion with respect to all matters under the 2023 CEO Performance Award.
In the event of any change in the outstanding shares of stock by reason of a stock
dividend or split, recapitalization, liquidation, merger, consolidation, combination,
Change in Control, exchange of shares, or other similar corporate change, the
Compensation Committee will adjust the number and class of shares subject to the
2023 CEO Performance Award, the applicable performance goals or any other
terms affected by such event. In the event of any such transaction, the
Compensation Committee may also provide in substitute for the award alternate
consideration, including a cash payment in cancelation of the 2023 CEO
Performance Award or canceling the award in exchange for the difference between
the shares subject to the option and the aggregate exercise price.
The 2023 CEO Performance Award may be amended only by a written agreement
executed by the Company and Mr. Smith. The Company may not, without the
approval of the shareholders, reduce, reprice or take any other action relative to the
2023 CEO Performance Award that would be treated as a repricing under applicable
NASDAQ Listing Rules (or the rules of any other exchange on which the stock is
then traded) or extend the exercise period of the 2023 CEO Performance Award
beyond 15 years from the Date of Grant.
Unless otherwise determined by the Compensation Committee, the 2023 CEO
Performance Award may not be transferred to any other person except by will or
the laws of descent and distribution. The Compensation Committee may, in
accordance with applicable law and listing standards, permit the transfer of the 2023
CEO Performance Award and any shares acquired upon the exercise thereof to a
family member, trust or partnership or to a charitable organization, in each case for
estate planning purposes.
Accounting and Tax Considerations
Accounting Considerations. The Company follows ASC Topic 718 for its stock-based compensation awards. ASC Topic
718 requires companies to measure the compensation expense for all stock-based compensation awards made to employees
and directors based on the grant date “fair value” of these awards. Pursuant to ASC Topic 718, this calculation cannot be
made for the 2023 CEO Performance Award prior to the date on which it is approved by the Company’s shareholders at
the Annual Meeting, which will be the “grant date” for accounting purposes. ASC Topic 718 also requires companies to
recognize the compensation cost of their stock-based compensation awards in their income statements over the requisite
service period. In the case of the 2023 CEO Performance Award the requisite service period is the longest of (i) the
Service-Based Vesting Condition, (ii) the expected time to achieve the operational goals and (iii) the estimated time as of
the grant date to achieve the stock price goal unless the stock price goal is achieved sooner for each Tranche. Accordingly,
the 2023 CEO Performance Award would result in the recognition of additional stock-based compensation expense over
Axon Enterprise, Inc. | 2023 Proxy Statement | 69
the term of the award as the operational goals become probable of being achieved through the expected vesting date
determined pursuant to ASC Topic 718. If the operational goal for a Tranche is attained, but the stock price goal is not
attained for such Tranche, so that the Tranche is not vested, the stock-based compensation expense for that Tranche is still
recognized.
For illustrative purposes only, and using the closing price of an Axon share on March 28, 2023, the grant date of the 2023
CEO Performance Award, the Company expects that the estimated aggregate grant date fair value of all ten Tranches will
be approximately $397.0 million. As of date of shareholder approval of the 2023 CEO Performance Award at the Annual
Meeting, the Company will update the estimate of the grant date fair value and then assess how many operational goals
will be probable of being achieved, which will determine when the portion of the stock-based compensation expense
associated with each probable Tranche will commence. This expense will be recognized ratably over the expected vesting
period of each respective Tranche. Given the Service-Based Vesting Condition, the expense will be recognized through
at least February 26, 2028. The remaining grant date fair value related to any operational goals that are not determined to
be probable to be achieved as of the grant date will be recognized if and when those operational goals become probable of
being achieved. This expense for each additional Tranche would be recognized ratably over its respective expected vesting
period.
Federal Income Tax Considerations. The following is a brief summary of certain of the federal income tax consequences
of the 2023 CEO Performance Award based on federal income tax laws in effect on March 31, 2023. The following
summary assumes that Mr. Smith remains a U.S. taxpayer. This summary is not intended to be exhaustive and does not
describe, among other things, state, local or non-U.S. income and other tax consequences. The specific tax consequences
to Mr. Smith will depend upon his future individual circumstances.
Mr. Smith did not recognize taxable income with respect to the 2023 CEO Performance Award at the time of grant nor
will he have taxable income from shareholder approval of the award, if such approval occurs. If and when Mr. Smith
exercises any portion of the Tranches, he will recognize ordinary income in an amount equal to the difference between the
exercise price paid and the fair market value of the share on the date of exercise. Any taxable income recognized by Mr.
Smith in connection with the exercise of the Tranches will be subject to tax withholding by us. Any additional gain or loss
recognized upon any later disposition of the shares should be capital gain or loss.
Subject to the limitations of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), which
generally limits the deductibility of compensation paid to our chief executive officer and other “covered employees” (as
defined in Section 162(m) of the Code) to no more than one million dollars each per taxable year, a corresponding
deduction will be available to Axon equal to the amount of ordinary income recognized by Mr. Smith.
2023 CEO Performance Award Benefits
Name
Principal Position
Patrick W Smith
Chief Executive Officer
Brittany Bagley
Chief Financial Officer and Chief Business Officer
Joshua Isner
Chief Operating Officer
Jeffrey Kunins
Chief Product Officer and Chief Technology Officer
Executive Group
Non-Employee Director Group
Non-Executive Officer Employee Group
Grant Date
Fair Value (1)
Number of
Shares
$
396,987,145
3,670,030
—
—
—
—
—
—
396,987,145
—
—
3,670,030
—
—
(1) Represents the market value of the securities underlying the 2023 CEO Performance Award as of March 28,
2023 (the latest practicable date to determine such amount).
Axon Enterprise, Inc. | 2023 Proxy Statement | 70
Registration with the Securities and Exchange Commission
If the 2023 CEO Performance Award is approved by shareholders, we expect to file as soon as practicable after the Annual
Meeting a Registration Statement on Form S-8 with the Securities and Exchange Commission to register the additional
number of shares of common stock that will be issuable pursuant to the Tranches.
Board and Compensation Committee Process
Our Compensation Committee consists of Hadi Partovi (Chair), Adriane Brown, and Michael Garnreiter. During the initial
process of designing the 2023 CEO Performance Award, Matthew McBrady also served on the Compensation Committee.
Historically, in developing compensation recommendations for Mr. Smith, the Compensation Committee has sought to
appropriately compensate Mr. Smith for his contributions to the Company, to further motivate Mr. Smith as a critical
driver of the Company’s future growth and to further align the compensation and incentives for the Company’s executives
and employees with the interests of its stockholders. An equity-based award for Mr. Smith and the Company’s employees
tied to the Company’s achievement of certain performance metrics and share prices serves this latter objective to tie future
compensation to the creation of significant shareholder value.
During August of 2021, the Chair of the Compensation Committee, met with members of management of the Company,
(including Mr. Smith) to discuss the current eXponential Stock Performance Plan (inclusive of the 2018 Award, the
“Current XSP Plan”). The participants reviewed the awards for Mr. Smith and the Company’s other employees under the
Current XSP Plan, a substantial portion of which had vested as of such time, and discussed the potential for a new award
for Mr. Smith and the Company’s other employees and a renewed ten-year commitment to the Company by Mr. Smith.
On September 13, 2021, the Chair of the Compensation Committee met with members of management (including Mr.
Smith) to discuss the Current XSP Plan, the challenges and opportunities available if all of the tranches of the awards
under the Current XSP Plan had vested and changes that could be made in any new award program, including, among
other things, (i) adding “boxcar” tranches (i.e., new tranches of awards upon the vesting of existing tranches), (ii) changing
the metric for the vesting of tranches from the Company’s market capitalization to the market price of shares of the
Company’s common stock, and (iii) removing the operational metrics relating to EBITDA and revenue required for the
vesting of tranches. Mr. Smith proposed that the percentage of shares of the Company’s common stock granted to Mr.
Smith in the 2023 CEO Performance Award be equal to 10% of the outstanding shares of the Company’s common stock.
Following Mr. Smith’s departure from the meeting, the Chair of the Compensation Committee requested the members of
management work with representatives of Infinite Equity, an advisor who has provided equity design, valuation,
accounting and educational services to the Company over the past four years, to provide a range of options for new award
programs for Mr. Smith and the Company’s other employees, appropriate milestones for such awards to vest and the
overall size of the 2023 CEO Performance Award.
Between September 13, 2021 and November 24, 2021, the Chair of the Compensation Committee and members of
management had numerous calls and discussions regarding the overall size of the 2023 CEO Performance Award, the
milestones for the vesting of the award, and the participation of officers and employees of the Company in a new
performance-based stock incentive plan.
On January 3, 2022, the Compensation Committee held a meeting with members of management in attendance. At the
meeting, the Chair of the Compensation Committee and members of management presented proposed terms of a new
performance-based stock incentive plan for the Company’s employees other than Mr. Smith and the 2023 CEO
Performance Award (such plans, together, the “Compensation Plans”), which included, among other things, that: (i) the
Compensation Plans would be comprised of ten tranches; (ii) each tranche would require a 20% increase in the market
price of shares of the Company’s common stock to vest; (iii) certain operational metrics relating to EBITDA and revenue
would need to be achieved for a tranche to vest; and (iv) the size of the 2023 CEO Performance Award should equal
approximately 5.5% of the outstanding shares of the Company’s common stock at the time the award was granted. It was
noted that the 2023 CEO Performance Award would be in lieu of awarding Mr. Smith a traditional compensation package
(other than the required minimum wage salary for an employee). The Compensation Committee discussed how the
operational goals would be calculated and certain considerations that would need to be accounted for in respect of
Axon Enterprise, Inc. | 2023 Proxy Statement | 71
employees other than Mr. Smith in the Compensation Plans. The Compensation Committee then directed the Chair of the
Compensation Committee to work with the Company’s management and Cravath, Swaine & Moore LLP (“Cravath”),
outside counsel to the Company, to further develop the Compensation Plans for the Compensation Committee’s
consideration.
On January 10, 2022, the Chair of the Compensation Committee met with members of management and representatives
of Cravath to discuss the proposed terms of the Compensation Plans.
On January 31, 2022, the Compensation Committee held a meeting to discuss the terms of the Compensation Plans. The
Compensation Committee discussed, among other things, the effect of a change in control transaction on the vesting of
the awards under the Compensation Plans as well as the operational metrics relating to EBITDA and revenue for the
vesting of awards.
On February 2, 2022, the Compensation Committee held a meeting to discuss the Compensation Plans. During the
meeting, the Compensation Committee, among other things, considered adding a service-based vesting component to the
Compensation Plans. Following the discussion, the Compensation Committee determined to add a service-based vesting
condition for each tranche that would be determined using a formula based on the tranche number.
On February 14, 2022, the Compensation Committee held a meeting with representatives of Cravath and Potter Anderson
& Corroon LLP (“Potter Anderson”) in attendance at the invitation of the Compensation Committee. At the meeting, the
Compensation Committee reviewed with the representatives of Cravath and Potter Anderson the contemplated incentive
plans, noting that the Compensation Committee was considering two different performance-based stock incentive
programs—one plan that would apply to employees and executives of the Company (other than the Chief Executive
Officer) who elected to participate therein and the 2023 CEO Performance Award. The representatives of Potter Anderson
reviewed with the Compensation Committee members their fiduciary duties under Delaware law and the process by which
Potter Anderson would formulate views on the independence and disinterestedness of each member of the Compensation
Committee with respect to evaluating the Compensation Plans. The Compensation Committee also discussed engaging a
lead, independent compensation consultant and the timing for the consideration of the Compensation Plans and the desire
for alignment between a performance-based incentive plan for the Company’s other employees and the 2023 CEO
Performance Award to ensure that the Company’s executives and employees would be similarly incentivized to create
long-term value for the Company and its shareholders.
On February 16, 2022, the Compensation Committee engaged Potter Anderson as independent Delaware counsel based
upon, among other things, Potter Anderson’s qualifications and lack of any actual or potential conflicts of interest with
respect the Compensation Plans as well as Potter Anderson’s experience and expertise with transactions involving potential
conflicts of interest, special and other independent committees of board of directors, and corporate governance matters
under Delaware law.
Between February 16, 2022 and February 18, 2022, Potter Anderson conducted interviews with each member of the
Compensation Committee regarding such person’s independence and disinterestedness in respect of the Compensation
Plans. During Mr. McBrady’s interview, Mr. McBrady discussed his long-standing social relationship with Mr.
Smith. Following the interview and out of an abundance of caution, Mr. McBrady determined that, given his social
relationship with Mr. Smith, it was appropriate to resign from the Compensation Committee effective March 10, 2022.
On February 17, 2022, the Compensation Committee held a meeting with representatives of Cravath and Potter
Anderson in attendance at the invitation of the Compensation Committee. At the meeting, the Compensation Committee
discussed, among other things, the engagement of a compensation consultant. Following the discussion, the
Compensation Committee delegated to the Chair of the Compensation Committee the authority to identify and interview
compensation consultant candidates.
Between February 17, 2022 and March 10, 2022, the Chair of the Compensation Committee met with representatives of
three compensation consulting firms for the purpose of interviewing such firms to serve as the Compensation
Committee’s leading, independent compensation consultant in connection with its consideration of the Compensation
Plans.
Axon Enterprise, Inc. | 2023 Proxy Statement | 72
On March 10, 2022, the Compensation Committee held a meeting with the Company’s Chief Legal Officer and
representatives of Infinite Equity and Potter Anderson in attendance at the invitation of the Compensation Committee.
The Chair of the Compensation Committee reported on the interviews with the compensation consulting firms.
Following the report, the Compensation Committee determined to engage Semler Brossy Consulting Group, LLC
(“Semler Brossy”) based upon, among other things, Semler Brossy’s qualifications and experience with non-traditional
equity compensation awards, subject to satisfactory negotiation of an engagement letter.
The representative of Potter Anderson reviewed with the Compensation Committee the standards for disinterestedness and
independence under Delaware law. The Compensation Committee reviewed with Potter Anderson the findings from its
interviews, including that Mr. Partovi and Mr. Smith attended the same college for a year and periodically
socialize. Following the discussion, taking into consideration input from Potter Anderson, the Compensation Committee
determined that each member of the Compensation Committee was independent and disinterested in respect of the
Compensation Plans.
On March 16, 2022, the Compensation Committee engaged Semler Brossy to serve as its independent compensation
consultant.
On March 17, 2022, the Compensation Committee held a meeting with representatives of Infinite Equity, Semler Brossy
and Potter Anderson in attendance at the invitation of the Compensation Committee. At the meeting, the Compensation
Committee reviewed with Semler Brossy a high-level summary, and identified goals of, the Compensation Plans. The
Compensation Committee, Infinite Equity and Semler Brossy discussed the appropriate share price and operational metrics
applicable for each tranche, the service-based vesting condition for each tranche and potential “boxcar tranches” (i.e., to
add new tranches of awards upon the vesting of existing tranches). The Compensation Committee also discussed with
Infinite Equity and Semler Brossy a proposed “moonshot” tranche for the Compensation Plans, which would focus on the
Company’s moonshot goal of reducing the number of fatal officer-involved shootings across the United States by 50%.
On March 17, 2022, the Compensation Committee also reported to the full Board at its meeting regarding, among other
things, progress on the Compensation Plans.
On April 19, 2022, the Compensation Committee held a meeting with representatives of Infinite Equity, Semler Brossy
and Potter Anderson in attendance at the invitation of the Compensation Committee. During the meeting, the
representatives of Semler Brossy presented an assessment of proposed terms for the Compensation Plans, with an emphasis
on the 2023 CEO Performance Award. The representatives of Semler Brossy, Infinite Equity and Potter Anderson led the
Compensation Committee in a discussion regarding the material terms of the Compensation Plans, including the quantum
of the awards to be granted under the 2023 CEO Performance Award, the share price and operational metrics for vesting
tranches of awards, the holding period required after a tranche is exercised, the change of control vesting conditions and
the service-based vesting conditions. During the discussion, the representatives of Semler Brossy provided the
Compensation Committee with an assessment of the then-current terms of the 2023 CEO Performance Award and advised
the Compensation Committee on potential revisions to the material terms of the 2023 CEO Performance Award, including,
among other things, adding a relative total shareholder return (“rTSR”) condition to the share price metrics or including a
feature that “turns off” lower tranches after a period of time and revisions to the holding requirements. Following the
discussion, the Compensation Committee determined that the 2023 CEO Performance Award should include a holding
requirement of 2.5 years for all exercised tranches (not just the most recently exercised tranche). The Compensation
Committee also discussed adding a provision to permit the Company to clawback earned shares under the 2023 CEO
Performance Award in the event of a “with cause” termination if there is reputational harm to the Company or a financial
restatement that results in the Company’s performance being below a previously achieved operational hurdle and revising
the change of control provision to provide a “double trigger” vesting requirement such that the acceleration of vesting in
the event of a change in control event will occur only upon a termination “without cause” or for “good reason” within 24
months following the change in control (as opposed to a single trigger vesting provision upon a change in control).
On April 21, 2022, the Compensation Committee held a meeting with representatives of Infinite Equity, Semler Brossy
and Potter Anderson in attendance at the invitation of the Compensation Committee. During the meeting, the members of
the Compensation Committee discussed with representatives of Semler Brossy and Potter Anderson the proposed revisions
to the Compensation Plans that were raised in the Compensation Committee meeting held on April 19, 2022. The
Axon Enterprise, Inc. | 2023 Proxy Statement | 73
representatives of Semler Brossy reviewed with the Compensation Committee alternative structures for the service-based
condition and the rTSR condition, among other things. Following the discussion, the Compensation Committee determined
to propose the following revisions to the 2023 CEO Performance Award: (i) revise the service-based vesting condition to
provide that a tranche (other than the “moonshot” tranche) would not vest until the later of (a) n/2 + 3 years, where “n” is
equal to the tranche number and (b) February 26, 2028, the ten-year anniversary of the 2018 Award; (ii) add a rTSR
condition providing that upon achieving the applicable share price for a tranche, if the Company’s performance did not
exceed the 65th percentile of the S&P 500 and S&P 400 companies, then only 80% of the awards underlying such tranche
would vest and if both the rTSR and share price metric were later achieved, then the remaining 20% of such shares would
vest at that time; and (iii) add a requirement that Mr. Smith hold at least 20% of his earned and exercised awards for three
years following his retirement. The representatives of Potter Anderson also reviewed the current litigation landscape in
respect of similar special performance-based equity awards to executive officers.
On May 10, 2022, the Compensation Committee held a meeting with members of management (excluding Mr. Smith) and
representatives of Infinite Equity, Semler Brossy and Potter Anderson in attendance at the invitation of the Compensation
Committee. During the meeting, the Compensation Committee discussed with the members of management and its
advisors the “moonshot” tranche for the Compensation Plans, which would focus on the moonshot goal of the Company:
reducing the number of fatal officer-involved shootings across the United States by 50%. The representatives of Potter
Anderson and the members of the Compensation Committee reviewed the benefits of the “moonshot” tranche to the
Company, including, among other things, that the tranche was expected to motivate employees to innovate and develop
new products for the Company. The members of management led a discussion regarding the potential inputs to determine
whether the “moonshot” tranche metrics had been achieved, including, among other things, (i) which law enforcement
agencies should be included in determining the number of fatal officer-involved shootings, (ii) the definition of a fatal
officer-involved shooting, including the definition of a “lethal weapon”; and (iii) whether an officer involved in a fatal
officer-involved shooting must be full-time or may be part-time. After discussion, the Compensation Committee
determined to propose that: (i) all law enforcement agencies in the United States should be included in the calculation;
(ii) the definition of a fatal officer-involved shooting would include deaths resulting from the discharge of an officer’s
weapon as well as the death of an officer resulting from the discharge of a civilian’s weapon, and the definition of “lethal
weapon” should include lethal firearms and should exclude tasers and rubber bullets; and (iii) all officers, both full-time
and part-time, should be included in the calculation. The members of management and the Compensation Committee
discussed how the Company planned to track the number of fatal officer-involved shootings to determine whether the
metric for the “moonshot” tranche had been achieved. The Compensation Committee also discussed whether there should
be a graduated approach to the “moonshot” tranche.
On May 12, 2022, the Compensation Committee held a meeting with representatives of Infinite Equity, Semler Brossy
and Potter Anderson in attendance at the invitation of the Compensation Committee. During the meeting, the
Compensation Committee discussed the terms of the “moonshot” tranche and whether there should be a graduated
approach to such tranche. The Compensation Committee and its advisors discussed, among other things, (i) vesting of a
portion of the awards upon reaching certain milestones in the reduction of fatal officer-involved shootings, (ii) the
measurement period for determining if a milestone had been achieved, (iii) the possibility that certain outside factors that
were not related to the Company or its products could affect the number of fatal office-involved shootings, and (iv) the
fact that the “moonshot” tranche is intended as an ESG initiative. The representatives of Semler Brossy also reviewed
with the Compensation Committee compensation an analysis it had prepared in April 2022 of opportunities for peer
company chief executive officers over a forward-looking ten year period and how such compensation opportunities
compared to the 2023 CEO Performance Award. The Compensation Committee also discussed the possibility of “boxcar”
tranches for the Compensation Plans and determined that the Company should commit to not adding any “boxcar” tranches
to the Compensation Plans until, at a minimum, the metrics for the third tranche of the Compensation Plans had been
satisfied. Finally, the representatives of Semler Brossy reviewed with the Compensation Committee the exercise price of
the stock options awarded to Mr. Smith if the stock options were issued on such day and how such price compared to the
historical trading price of the Company.
On May 19, 2022, at the direction of the Compensation Committee, representatives of Infinite Equity delivered to Mr.
Smith and representatives of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), counsel to Mr. Smith, a proposal
containing the terms discussed at the Compensation Committee meetings held on April 19, 2022 and April 21, 2022.
Axon Enterprise, Inc. | 2023 Proxy Statement | 74
On May 20, 2022, the Compensation Committee reported to the full Board at its meeting regarding, among other things,
progress on the Compensation Plans.
On June 2, 2022, the representatives of Skadden contacted representatives of Infinite Equity to deliver feedback on the
proposed revisions to the 2023 CEO Performance Award, which included Mr. Smith’s desire to: (i) revise the service-
based vesting condition to provide that stock options may not vest until the later of (a) n/2 + 2 years, where “n” is equal to
the tranche number and (b) February 26, 2026; (ii) with respect to the rTSR condition, either (x) remove the condition in
its entirety or (y) reduce the percentile of the S&P 500 and S&P 400 companies to the 60th percentile and revise the
measurement period to the better of (I) “Since Grant” or (II) the most recent three years; (iii) revise the holding period
from a “post-exercise” period to a “post-vest date” period; and (iv) add a provision providing for the acceleration of the
stock options upon Mr. Smith’s death or disability to the extent that the performance-based conditions for the tranche have
been met. In addition, the representatives of Skadden indicated a preference that the definition of “reputational harm” set
forth in the provision permitting the Company to clawback stock options and shares obtained in exercise thereof be based
on statutory or other objective and determinable facts.
On July 7, 2022, the Compensation Committee held a meeting with representatives of Infinite Equity, Semler Brossy and
Potter Anderson in attendance at the invitation of the Compensation Committee. During the meeting, the Compensation
Committee and its advisors reviewed and discussed the feedback received from the representatives of Skadden on June 2,
2022. The Compensation Committee determined to (i) accept the proposed revisions to the holding period from a “post-
exercise” period to a “post-vest date” period and (ii) accept the provision permitting acceleration of Mr. Smith’s stock
options upon his death or disability to the extent the performance-based vesting conditions applicable to a tranche had
been achieved. The Compensation Committee also discussed with its advisors the status of negotiations with Mr. Smith’s
counsel. Following the discussion, the Compensation Committee determined to reject the proposed revisions to the
service-based vesting condition and the rTSR condition but discussed certain revisions to the rTSR condition and the
service-based vesting condition that the Compensation Committee would be willing to accept. The Compensation
Committee also reviewed the request regarding the definition of “reputational harm” for purposes of the clawback
provision, which the Compensation Committee viewed as reasonable. The Compensation Committee then authorized the
Chair of the Compensation Committee to contact Mr. Smith to deliver the Compensation Committee’s counterproposal
and negotiate the remaining materials terms in accordance with the foregoing determinations. The Compensation
Committee and its advisors also discussed the potential timing for the approval of the 2023 CEO Performance Award and
potential alternative structures in respect of the “moonshot” tranche.
In mid-July 2022, the Chair of the Compensation Committee and Mr. Smith met, during which time the Chair of the
Compensation Committee delivered the counterproposal discussed at the Compensation Committee meeting on July 7,
2022.
On September 6, 2022, the Chair of the Compensation Committee and Mr. Smith met to discuss the Compensation
Committee’s most recent proposal with representatives of Infinite Equity, Potter Anderson and Skadden present. During
the meeting, the Chair of the Compensation Committee and Mr. Smith discussed the Compensation Committee’s
counterproposal, including the rationale for the rTSR condition and the service-based vesting conditions. The participants
also discussed the appropriate triggers for a clawback provision and the timing of the potential approval of the 2023 CEO
Performance Award.
On September 7, 2022, representatives of Skadden contacted representatives of Infinite Equity to request that the rTSR
condition be revised to reduce the performance percentile to the 60th percentile of S&P 500 and S&P 400 companies and
reduce the percentage of stock options that would remained unvested if the rTSR condition was not met when the other
metrics for such tranche had been achieved from 20% to 10%. The representative of Skadden also indicated that Mr. Smith
had accepted the Compensation Committee’s proposal in respect of the service-based vesting condition.
On September 8, 2022, the Chair of the Compensation Committee and Mr. Smith met to further discuss the Compensation
Committee’s counterproposal. The participants agreed that, with respect to the rTSR condition, the performance percentile
would remain at the 65th percentile of S&P 500 and the S&P 400 companies and the percentage of stock options that
would remained unvested if the rTSR condition was not met when the other metrics had been achieved from 20% to 15%.
The parties also discussed, among other things, the structure and inclusion of the “moonshot” tranche.
Axon Enterprise, Inc. | 2023 Proxy Statement | 75
On September 28, 2022, the Compensation Committee held a meeting with members of management (excluding Mr.
Smith) and representatives of Infinite Equity, Semler Brossy and Potter Anderson in attendance at the invitation of the
Compensation Committee. During the meeting, the Compensation Committee discussed with management the
implications of the 2023 CEO Performance Award on the Company’s “burn rate.” The Compensation Committee also
considered the appropriate form for any awards granted under the 2023 CEO Performance Award and determined that any
awards granted to Mr. Smith under the 2023 CEO Performance Award should be in the form of stock options. The
Compensation Committee discussed the status of the Compensation Plans and the Company’s current position and
determined to postpone further consideration of the Compensation Plans.
On August 18, 2022 and November 17, 2022, the Compensation Committee reported to the full Board at its meetings
regarding, among other things, progress on the Compensation Plans.
On January 9, 2023, the Chair of the Compensation Committee met with members of management (excluding Mr. Smith)
and representatives of Infinite Equity, Semler Brossy and Potter Anderson to discuss the 2023 CEO Performance Award.
During the meeting, the participants discussed the timing for the 2023 CEO Performance Award, the rationale for the 2023
CEO Performance Award and how the 2023 CEO Performance Award was intended to incentivize Mr. Smith moving
forward. The participants also discussed the level of dilution that would result from the vesting of the tranches set forth
in the 2023 CEO Performance Award together with the other equity compensation anticipated for other employees of the
Company. The members of management also reviewed recent feedback that had been received from the Company’s
shareholders during ordinary course discussions.
On February 14, 2023, the Compensation Committee held a meeting with members of management (excluding Mr.
Smith) and representatives of Infinite Equity, Semler Brossy and Potter Anderson in attendance at the invitation of the
Compensation Committee. During the meeting, the Compensation Committee and members of management discussed
the terms of the 2023 CEO Performance Award and the timing for the 2023 CEO Performance Award. The members of
management proposed certain revisions to the vesting conditions for the 2023 CEO Performance Award (which had not
previously been discussed with Mr. Smith), including (i) limiting the number of tranches that Mr. Smith may exercise
during any twelve-month period to one or two tranches, (ii) separating the operational metrics for revenue and EBITDA
for each individual tranche such that only one operational tranche could count toward achievement of a given tranche,
(iii) increasing the growth required between each milestone to be 26% for each of share price, revenue, and EBITDA,
(iv) increasing all EBITDA goals to imply a 25% EBITDA margin relative to revenue goals for each tranche, (v)
removing the rTSR condition, and (vi) ensuring that the definition of EBITDA excluded any gains/losses attributable to
mark to market investments and the impact of any future one-time events. The Compensation Committee reviewed with
its advisors each of the operational, performance-based, time-based and service-based conditions for the vesting of
tranches under the 2023 CEO Performance Award. After discussion, the Compensation Committee determined to accept
management’s proposals either as presented or modified, including that Mr. Smith may not exercise more than one
tranche in any six-month period. In making such determination, the Compensation Committee viewed management’s
proposals as making the required conditions for vesting more difficult to achieve overall. The Compensation Committee
also determined that Mr. Smith would be required to be in the position of chief executive officer or executive chairman
of the Company (or similar role) for tranches to vest. Following these determinations, the Compensation Committee
authorized the Chair of the Compensation Committee to negotiate these conditions with Mr. Smith, subject to certain
parameters. The Compensation Committee also determined the parties should work towards finalizing the 2023 CEO
Performance Award so that it could be submitted to the shareholders of the Company at the Annual Meeting, if
appropriate.
On February 21, 2023, the Chair of the Compensation Committee, Mr. Smith and representatives of Skadden, Potter
Anderson and Infinite Equity met to discuss the Compensation Committee’s proposed revisions to the 2023 CEO
Performance Award. During the discussion, the participants discussed support for the overall structure of the 2023 CEO
Performance Award and the need to increase the difficulty of the program in order to be responsive to shareholder
feedback. The parties negotiated secondary provisions including the number of operational metrics eligible at each tier,
the exercise timing limitation, the clawback provision, and the treatment of the award upon various separation of service
events.
Axon Enterprise, Inc. | 2023 Proxy Statement | 76
On February 27, 2023, the Board held a meeting with members of management and representatives of Infinite Equity
and Potter Anderson in attendance to discuss, among other things, the 2023 CEO Performance Award and the proposed
“moonshot” tranche. During the meeting, the terms of the CEO Performance Award were reviewed, and Mr. Smith
provided his views on the 2023 CEO Performance Award. Following Mr. Smith’s departure from the meeting, further
discussion ensued regarding the 2023 CEO Performance Award and the “moonshot” tranche and how the shareholders
of the Company may view the 2023 CEO Performance Award and the “moonshot” tranche. The Board also received
from the Compensation Committee a report on its progress on the Compensation Plans.
Following a series of discussions among the members of the Compensation Committee and its advisors, on March 9, 2023,
the Compensation Committee determined to request additional conditions to the service-based vesting conditions for the
2023 CEO Performance Award, including that (i) Mr. Smith must spend the substantial majority of his professional time
with the Company, (ii) Mr. Smith may not act as the chief executive officer of any operating company (other than certain
investment entities or grant-making foundations), and (iii) Mr. Smith may not join any other board of directors of any
other for-profit entity without the approval of the Board. Mr. Smith and his counsel accepted these additional conditions.
On March 17, 2023, the Board held a meeting with members of management (including Mr. Smith) and representatives
of Potter Anderson and Infinite Equity. During the meeting, the participants discussed, among other things, then-recent
changes to the 2023 CEO Performance Award and differences between the 2023 CEO Performance Award and the
Current XSP Plan. The Board determined to vote to approve only the 2023 CEO Performance Award and determined
not to proceed with approving a performance-based stock incentive plan for the Company’s other employees. In
addition, the Board determined not to include in the 2023 CEO Performance Award the “moonshot” tranche.
On March 28, 2023, the Board held a meeting with representatives of Infinite Equity and Cravath to discuss the proposed
final terms of the 2023 CEO Performance Award. Following discussion, the Board determined to approve and grant the
2023 CEO Performance Award, subject to shareholder approval at the Annual Meeting.
The Board of Directors recommends a vote FOR the approval of the 2023 CEO Performance Award.
---
Vote Required
For Proposal No. 5, assuming the existence of a quorum, the affirmative vote of a majority of the total votes properly cast
for or against the proposal, in person or represented by proxy at the Annual Meeting. Abstentions and broker non-votes
will have no impact on this proposal if a quorum is present.
In addition, Mr. Smith has expressed his intent to abstain from voting on the 2023 CEO Performance Award. Given an
abstention will have no effect on the 2023 CEO Performance Award, assuming the existence of a quorum, the proposal
to approve the 2023 CEO Performance Award will effectively require the affirmative vote of a majority of the votes
properly cast for or against the proposal by the holders of shares of common stock, other than Mr. Smith, in person or
by proxy at the Annual Meeting.
Axon Enterprise, Inc. | 2023 Proxy Statement | 77
PROPOSAL NO. 6 – SHAREHOLDER PROPOSAL TO DISCONTINUE THE DEVELOPMENT OF A NON-
LETHAL TASER DRONE SYSTEM
Axon has been advised that the Jubitz Foundation, intends to submit the following proposal at the Annual Meeting:
RESOLVED: Shareholders of Axon Enterprise, Inc. (“Company”), in recognition of the public safety and human and
civil rights issues raised by former members of the Axon AI Ethics Board and multiple organizations, request that our
Company discontinue the development and plans for sale of a remotely-operated, non-lethal TASER drone system.
Supporting Statement: Axon is a public safety technology company most known for developing Taser electroshock
weapons and body cameras. In May 2022, a two-thirds majority of Axon’s AI Ethics Board voted to advise the Company
not to develop Taser-equipped drones for a limited pilot program with law enforcement. The board expressed “serious
concerns around Taser misuse and the possibility that the deployment of weaponized drones and robots could increase
the rate at which force is used,” particularly on people of color.
Weeks later, Axon announced its intention to embed Taser-equipped drones in schools and other public spaces. Axon
proposed using AI surveillance, algorithmic predictors, and virtual reality simulations to stop mass shootings. Axon did
not seek meaningful input from its in-house Community Advisory Coalition, AI Ethics Board, or Vice President of
Community Impact prior to the announcement. It did not put forth a considered proposal, but instead linked to CEO
Rick Smith’s graphic novel for details.
The AI Ethics Board consequently denounced Axon’s decision, given that the project was a “notable expansion” of
what the Board had already evaluated and firmly rejected. Nine of the thirteen AI Ethics Board members resigned,
stating they had “lost faith in Axon’s ability to be a responsible partner.”
Substantial evidence supports the AI Ethics Board’s concerns. Police use of Tasers has killed over 500 people since
2010. Exposing students to constant surveillance is a violation of privacy, and AI tools have a track record of
perpetuating racial disparities and subjecting innocents to undue harm. Gun- detecting AI scanners deployed in schools
routinely flag laptops as threats but fail to detect common handguns. AI-powered aggression detectors installed in
schools routinely flag innocent behavior, like coughing, while failing to detect screams. With Tasers involved, routine
automated errors of this kind could result in serious physical harm.
Axon temporarily paused the project in response to the resignations, but Smith has since admitted the Company is still
pursuing it. Axon has now replaced both the Community Advisory Coalition and the AI Ethics Board with a new
advisory council, which Smith still does not commit to heeding.
The rollout of this proposal demonstrates a tremendous failure of management’s self-governance procedures, exposing
Axon to reputational damage. Moving forward risks exposing the company to litigation and financial costs as it puts
the physical and psychological safety of children and others at risk. Given these risks, Axon’s plan to develop Taser-
equipped drones for use in public settings renders the Company vulnerable to further erosion of its reputation as a
trusted developer of transformative technology for public safety.
Statement in Opposition to Proposal No. 6
Axon believes that the proposal fails to appreciate Axon’s mission to protect life and how our development projects directly
advance this goal. We also believe the proposal inappropriately seeks to constrain our efforts to explore creative solutions
to advancing our mission and asserts gross inaccuracies about TASER devices. Accordingly, we urge our shareholders to
vote against this proposal.
CEO Rick Smith founded Axon in 1993 with a mission to protect life. The Jubitz Foundation’s published mission, “to
enhance the communities in which we live by strengthening families, by respecting the natural environment, and by
fostering peace,” is very much aligned with Axon’s mission and vision for the future. Axon welcomes the opportunity to
remediate the misperception driving the investor’s concern, and believes a mutual common goal exists between the
Axon Enterprise, Inc. | 2023 Proxy Statement | 78
company and all stakeholders, including shareholders. Given that the Jubitz Foundation declined multiple offers for a
meeting with Mr. Smith, who wrote the 2019 book, “The End of Killing,” we present that remediation here.
Robotic Security Saves Lives
Axon views both robotics and drone technology, first and foremost, as a way to extend visibility and communications for
first responders. Our Axon Air end-to-end drone solution leverages technology to improve outcomes for public safety.
Drones are already playing an increasingly important role in search and rescue, natural disaster response, crime and
accident scene reconstruction, and a new category known as DFR, or "drone as a first responder." Drones also provide a
first line of communication that can start the de-escalation process remotely.
Today, less than 20% of U.S. state and local law enforcement agencies have implemented drone programs, and we are
already seeing growing benefits to the public. Recently, in Bullitt County, KY, for example, a drone helped find a missing
person within 15 minutes. Drones deployed to dangerous scenes have granted public safety improved situational awareness
and have limited the need for use of force. Drones are also supplementing officer capacity and serving as a personnel
multiplier — allowing faster 9-1-1 response times. Chula Vista Police Department, which deployed the nation’s first DFR
program, was able to reduce average emergency response time to under two minutes, less than half the national average
for ground-based units. The agency’s DFR mission count now exceeds 14,000 — about 25% of which were resolved
without the need to deploy ground units.
Axon also utilizes drones as part of Axon Aid, our charitable disaster recovery program supporting first responders. At no
cost to the public, Axon deploys an aid team who delivers critical supplies and helps first responders assess damage. We
founded Axon Aid in the wake of Hurricane Florence (2018), where Axon-operated drones enabled first responders to
survey a wide area and more quickly direct resources to locations in need. After a natural disaster, the ground can become
impassable. Drones are increasingly supplementing search and rescue, alongside helicopters and water vessels, and helping
to save lives.
Axon Will Never Build Lethal Drones
To be clear, we have thus described drones carrying primarily communications and visibility payloads only, or unarmed
drones. When we turn our attention to the current state of the market regarding armed drones, we find that the use of force
capabilities today are almost entirely lethal.
Much like the existence of firearms, lethal drones already exist, and we did not invent them. However, it is Axon’s
philosophy that there should be less-lethal alternatives. Axon is working to reduce violence and displace lethal uses of
force with less-lethal alternatives that can save — rather than take — lives. We believe making available less-lethal drones
is critical to reducing the societal acceptance of the manufacture, sale and distribution of lethal drones.
Axon will never design, produce or ship an armed lethal force drone, or any other technology intended or readily usable
for lethal force.
Moonshot Goal to Cut Gun-Related Deaths
In October 2022, Axon publicly committed to a moonshot goal to cut gun-related deaths between police and the public by
50% by 2033, and we have begun building a strong coalition of prominent public safety and community leaders to be a
part of making this goal a reality.
We carry an ethical responsibility to explore how longer range and remotely operable robotic systems can advance this
moonshot goal. Based on our analysis of the Washington Post’s dataset of fatal officer involved shootings, we estimate
that a more effective, longer range handheld TASER device has the potential to reduce fatal officer involved shootings by
around 40%. When we run this same analysis looking at instances where police could have utilized a less-lethal capable
drone, we estimate that a drone could likely have been used instead of lethal force in 57% of these fatal shootings. When
we combine an advanced handheld TASER device together with remotely operated drone and robotic capabilities, we
estimate that up to 72% of fatal shootings might be averted.
Axon Enterprise, Inc. | 2023 Proxy Statement | 79
We see it as a moral imperative to find more humane, more effective, and more carefully controlled approaches to stopping
acts of extreme violence. When central command observes a highly dangerous event unfolding, what actions can be taken
immediately and safely without requiring the time and risk of waiting for heavily armed people with lethal weapons to
deploy to the scene?
Today, the only option to stop a person with a gun is to send in more people with more guns and resolve the situation with
a gun fight. That is the current state of the world that we aim to improve. And on a longer time horizon, Axon sees
opportunities to use robotics to change the nature of not only policing, but also geopolitical warfare — not to industrialize
killing, but to industrialize not killing — enabling security operations without loss of life.
How Axon Addresses Misuse
We believe the public understands the potential benefits of robotics technology and would want us to pursue these projects
while working on features that lessen the risk of misuse. Our research indicates the U.S. public is largely receptive to the
idea of drones that carry a payload that could deliver neuro-muscular incapacitation, such as a TASER-equipped drone.
Axon conducted a survey on perceptions of this technology and found that among about 2,500 individuals surveyed, people
supported the concept of a TASER-equipped drone by a wide margin of more than 6 to 1 — with 69% of people liking the
concept versus 12% disliking it, and the rest being neutral. We also found that favorability was largely consistent across
race, ethnicity and political affiliations. Notably, our survey provider slightly oversampled non-white adults to ensure
representation from communities most affected by policing strategies.(1)
To the extent the public has concerns about TASER-equipped drones, it is nearly entirely regarding the potential for
misuse. These are concerns we share, and which can be addressed with technology. In fact, the most frequent criticism of
TASER technology of any kind is the potential for misuse.
We rigorously address misuse concerns through product design and continuous innovation. Not only do we make the
market’s leading less-lethal force option (TASER devices), we are also the leading provider of technology to help avoid
misuse — body cameras. Axon began investing in body camera technology in 2008 to provide transparency, accountability
and oversight — and continued to invest for 10 years before we finally made a profit, because we were committed to
building a better future. Today, our body cameras work together with drone technology and other devices to give a real-
time look into any unfolding situation, sending live-streaming video and alert signals over cellular networks back to central
command.
Our entire product suite embodies ethical design. On drone technology specifically, Axon built accountability into our
Axon Air product from the ground up and has set the standard for ethical practice when utilizing drone technology in
public safety. We are also investing to develop the ethical use framework implemented in rigorous technological controls
in parallel to the underlying less-lethal payloads and robotic systems. For example, our draft “laws of first responder
robotics” mandates that all force decisions must be made by an authenticated human operator who has accepted legal and
moral responsibility for the decision to use force. We will be refining and developing these ethical use frameworks and
controls in collaboration with our Ethics and Equity Advisory Council (EEAC), as well as with key customers and their
ethics and human rights advisory relationships.
As of today, Axon has not shipped any product that puts a TASER payload on a drone. It is our position, however, that
such technology should be developed, and we believe there is no organization in the world better suited to develop it the
right way than Axon.
Axon Enterprise, Inc. | 2023 Proxy Statement | 80
Commitment to Being a Force for Good
When we build for the future, we collaborate with our trusted constituencies. We work with governments, city councils,
public safety, industry partners, legislators and policy makers, and community advocates to garner insight as we innovate.
We also engage with our valued EEAC, who routinely provides feedback throughout the product design process, helping
us ensure that we are investing to build a future that we all want to live in.
We believe our management is in the best position to weigh the many different tradeoffs that come from the development
of any new product. Therefore, we believe our shareholders should resoundingly reject any proposal that would introduce
unnecessary limitations over management’s research and development decisions or limit Axon’s future product road map.
To discontinue the development of a particular application of technology represents a detrimental restraint, given the
interconnected nature of what we develop and the fact that researching and developing solutions to engineering problems
produces work that is shared among our diverse product portfolio. Robotic security, for example, represents a growing
segment of the public safety technology market that is on the cusp of growing adoption, and an area of active investment.
Axon has an obligation to all stakeholders to remain a public safety technology leader and provide the safest, most effective
applications.
To expand upon the governance point, the proposal relates to Axon’s ordinary business operations and seeks to
micromanage our business. The proposal aims to restrict and circumscribe the types of products and services Axon offers,
thereby seeking to replace the judgment of management with that of the shareholders. The decision of whether to create
and roll out a new product is so fundamental to management’s ability to run the company on a day-to-day basis that it
cannot be subject to shareholder oversight, as it would undermine our business model and impinge on how management
operates the business. As we have outlined, our management team has the necessary capability and knowledge to evaluate
the particular facts and circumstances of our business operations to make the appropriate decisions regarding which
products to develop.
Further, we respectfully point out that the shareholder proposal is founded on serious misconceptions about TASER
devices and how frequently they are misused. TASER devices have been used in an estimated 300,000 instances where
law enforcement would have been justified to use lethal force, each time offering society an option to save a life. Over 900
independent science and medical studies and resource materials have demonstrated that TASER technology is the safest
less-lethal use-of-force option available in the world today. We also estimate that, since inception, TASER devices have
been deployed approximately 5.2 million times, with little to no injury resulting from the vast majority of uses.
Independent studies show an injury rate of less than 1% and a risk of death of less than 0.25%. (2)
Axon strongly disputes any allegations that TASER devices have been responsible for over 500 deaths. Such assertions
are not grounded in fact and ignore details related to medically determined causes of death, lack scientific understanding
of TASER device functionality and its de minimis impact on the human body, and fail to represent the net benefit of
TASER devices, particularly in those countless definitive outcomes where a TASER device helped save a life.
In Conclusion
The future of policing will include more robotic security and we will continue to innovate. We wholeheartedly support
drones as a force for good when deployed in an ethical manner. And the potential harms of new technology must be
mitigated, while still allowing society to realize the benefits. We are proud of our history of introducing ethical controls
and new standards of accountability. We introduced the first weapons with firing logs to hold users accountable. We
introduced the concept of body cameras to record the truth of what happens in critical incidents. And we believe there is
no organization in the world better suited to lead the development of the right oversight and ethics controls to enable the
use of remotely operated less-lethal systems to save lives and reduce the use of killing as a blunt instrument when there
can be new, better, and safer approaches.
Axon Enterprise, Inc. | 2023 Proxy Statement | 81
The shareholder proposal does not compare a proposed new technology to the current state of the world and ask if it will
be, on balance, an improvement. Instead, the shareholder proposal, and the reasoning behind it, evaluates proposed
technology under the false veil of a perfect world where weapons should not be necessary at all. We are at a powerful
moment in the history of weaponry, with the opportunity to bring sanctioned killing to a decisive and necessary end. The
story of violence is as old as the story of humanity. Axon is writing a new chapter. The future is less lethal.
Sources:
(1) Dynata, (2022). TASER-Equipped Drone Study [2,502 individuals over the age of 18 in the U.S. surveyed, July 2022].
(2) U.S. Department of Justice, Wake Forest University, U.S. National Institute of Health, (2009). Injury Profile of
Conducted Electrical Weapons Used by Law Enforcement Officers Against Criminal Suspects; U.S. Department of Justice,
(2011). Laub, J. Study of Deaths Following Electro Muscular Disruption.
The Board of Directors recommends a vote AGAINST the approval of Proposal No. 6.
Vote Required
For Proposal No. 6, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes properly cast for or against the proposal, in person or represented by proxy at the Annual Meeting. Abstentions
and broker non-votes will have no impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2023 Proxy Statement | 82
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, 2022, 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 2024 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 22,
2023 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. In addition, to comply
with the universal proxy rules (once effective), stockholders who intend to solicit proxies in support of director nominees
Axon Enterprise, Inc. | 2023 Proxy Statement | 83
other than Company nominees must provide notice to the Company that sets forth the information required by Rule l4a-
19 under the Exchange Act no later than February 21, 2024.
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, 2022, 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 ANNUAL SHAREHOLDER MEETING TO BE HELD ON MAY 31, 2023
The proxy materials for the Company’s Annual Meeting of Shareholders, including the 2022 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
April 21, 2023
Axon Enterprise, Inc. | 2023 Proxy Statement | 84
AXON ENTERPRISE, INC.
PERFORMANCE NON-QUALIFIED STOCK OPTIONS
GRANT NOTICE
ANNEX A
This Performance Stock Option Award Agreement (this “Agreement”) consists of this Grant Notice (this “Grant Notice”) and
the attached Award Terms Agreement (the “Award Terms Agreement”). This Agreement sets forth the specific terms and conditions
governing an award (this “Award”) of performance non-qualified options to purchase shares of Stock (each, an “Option”). Capitalized
terms used in this Grant Notice but not otherwise defined herein shall have the meanings ascribed to them in the Award Terms
Agreement.
Name of Optionee:
Patrick W. Smith
Total No. of Options subject to this Award:
3,670,030
Date of Grant:
Expiration Date:
Exercise Price:
Vesting Schedule:
Contingent Award:
March 28, 2023
March 28, 2038
$218.59, which reflects the closing price for a share of Stock as of the
last trading day immediately preceding the Date of Grant.
Subject to the other vesting terms and conditions of this Agreement, this
Award shall vest solely to the extent that the performance-based vesting
conditions set forth in Schedule A hereto have been attained prior to the
Vesting End Date.
Notwithstanding the foregoing, this Award is subject to stockholder
approval at the Company’s 2023 Annual Meeting of Stockholders (the
“Annual Meeting”). If this Award is not approved by stockholders at the
Annual Meeting, this Award shall be void ab initio and have no further
force or effect. No shares of Stock may be issued hereunder absent such
stockholder approval at the Annual Meeting.
BY EXECUTING THIS AGREEMENT, THE OPTIONEE ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS
THE PROVISIONS OF THIS GRANT NOTICE AND THE ATTACHED AWARD TERMS AGREEMENT AND AGREES
THAT THIS GRANT NOTICE AND THE AWARD TERMS AGREEMENT SHALL GOVERN THE TERMS AND
CONDITIONS OF THIS AWARD.
[intentionally blank; signature page follows]
IN WITNESS WHEREOF, the Company and the Optionee have duly executed this Agreement, and this Agreement shall be effective
as of the Date of Grant set forth above.
AXON ENTERPRISE, INC.
By: /s/ Isaiah Fields
Print Name:
Isaiah Fields
Its: Chief Legal Officer
OPTIONEE
/s/ Patrick W. Smith
Signature
Patrick W. Smith
Print Name
Schedule A – Performance-Based Vesting
The total number of Options subject to this Award shall be deemed to consist of 10 substantially equal installments (each, a
“Tranche”). References to a Tranche shall be deemed to refer to the Options in such Tranche. The number of Options in each Tranche
is set forth in Chart 1 of Schedule A hereto.
The Committee shall, in good faith, periodically evaluate whether the Stock Price Goals and/or Operational Goals (collectively,
the “Performance-Based Vesting Requirements”) with respect to any Tranche have been achieved; provided that the Committee shall
perform such evaluation no less frequently than (i) within 30 days following the Company’s filing with the SEC of any Form 10-Q or
Form 10-K and (ii) within 30 days following the satisfaction of any Stock Price Goal.
The Performance-Based Vesting Requirements with respect to any Tranche shall be deemed achieved upon the Committee’s
determination that (a) the Stock Price Goal set forth next to such Tranche in Chart 1 of Schedule A hereto has been attained and (b)
the cumulative number of Operational Goals set forth next to such Tranche in Chart 1 of Schedule A hereto have been attained (the
date that the Committee makes any such determination, a “Determination Date”); provided that in no event shall any Determination
Date occur later than the 10-year anniversary of the Date of Grant (the “Vesting End Date”). On each Determination Date, the
Committee shall also determine the date on which the Performance-Based Vesting Requirements were attained (a “Goal Attainment
Date”), provided that (i) in the event the applicable Goals are attained on different dates, the Performance-Based Vesting
Requirements shall be deemed to have been attained on (and the Goal Attainment Date shall be) the date on which the last applicable
Goal was attained and (ii) each Operational Goal shall be deemed to be attained (if at all) on the last day of the last fiscal quarter of the
Company to which such Goal relates. Any Tranche that is not vested as of the Vesting End Date shall be forfeited, canceled and cease
to be outstanding.
Schedule A – Performance-Based Vesting (Continued)
Chart 1 – Stock Price and Operational Goals
Vesting Requirements
Tranche Number
Number of
Options
Stock Price
Goal ($)
1
2
3
4
5
6
7
8
9
10
Total:
367,003
367,003
367,003
367,003
367,003
367,003
367,003
367,003
367,003
367,003
3,670,030
$237.50
$296.88
$371.09
$463.87
$579.83
$724.79
$905.99
$1,132.49
$1,415.61
$1,769.51
Operational Goals
Attainment of 1 of the 20 Goals listed in Chart 2
Attainment of 2 of the 20 Goals listed in Chart 2
Attainment of 3 of the 20 Goals listed in Chart 2
Attainment of 4 of the 20 Goals listed in Chart 2
Attainment of 5 of the 20 Goals listed in Chart 2
Attainment of 6 of the 20 Goals listed in Chart 2
Attainment of 7 of the 20 Goals listed in Chart 2
Attainment of 8 of the 20 Goals listed in Chart 2
Attainment of 9 of the 20 Goals listed in Chart 2
Attainment of 10 of the 20 Goals listed in Chart 2
With respect to each Tranche, the applicable Stock Price Goal shall be deemed to have been attained as of any date if, and only if, both
(a) the Six-Month Average Stock Price and (b) the Thirty-Day Average Stock Price are equal to or greater than the Stock Price Goal
target amount set forth next to such Tranche in Chart 1 on such date; provided that the calculation of the Six-Month Average Stock Price
and Thirty-Day Average Stock Price shall begin on the Date of Grant and shall not include any Daily Stock Price with respect to any
date prior to the Date of Grant.
Following any attainment of a Stock Price Goal, any subsequent change in Daily Stock Price, Six-Month Average Stock Price or the
Thirty-Day Stock Price shall have no effect on the attainment of such Goal.
The Stock Price Goals and Operational Goals are subject to adjustment, as determined by the Committee, as described in Schedule B.
Chart 2 – Operational Goals
Schedule A – Performance-Based Vesting (Continued)
Operational Milestone Tier
Revenue Goals (millions)
Adjusted EBITDA Goals
(millions)
Vesting Opportunity Per
Row
Operational Goals
1
2
3
4
5
6
7
8
9
10
$1,513
$1,891
$2,363
$2,954
$3,693
$4,616
$5,770
$7,212
$9,015
$11,269
$378
$473
$591
$739
$923
$1,154
$1,442
$1,803
$2,254
$2,817
1
1
1
1
1
2
2
2
2
2
Each Revenue Goal shall be deemed to have been attained as of any fiscal quarter end date if, and only if, Revenue is equal to or greater
than the Revenue Goal target amount set forth in Chart 2 as of such date. Following any attainment of a Revenue Goal, any subsequent
change in Revenue shall have no effect on the attainment of such Goal.
Each Adjusted EBITDA Goal shall be deemed to have been attained as of any fiscal quarter end date if, and only if, Adjusted EBITDA
is equal to or greater than the Adjusted EBITDA Goal target amount set forth in Chart 2 as of such date. Following any attainment of
an Adjusted EBITDA Goal, any subsequent change in Adjusted EBITDA shall have no effect on the attainment of such Goal.
Notwithstanding the foregoing, the calculation of Revenue and Adjusted EBITDA shall begin with the first fiscal quarter commencing
after the fiscal quarter in which the Date of Grant occurs and shall not include any fiscal quarter of the Company prior to such fiscal
quarter.
Notwithstanding the foregoing, in no event shall attainment of both Revenue and Adjusted EBITDA attributable to the same Operational
Milestone Tier in Chart 2 count toward the attainment of more than one Operational Goal on any Determination Date in the case of the
first five Operational Milestone Tiers (e.g., if Revenue for Tier 1 is achieved, Adjusted EBITDA for Tier 1 cannot count toward
achievement of a different Operational Goal; conversely, both Revenue and Adjusted EBITDA for Tier 6 can count toward achievement
of different Operational Goals).
The Operational Goals are subject to adjustment, as determined by the Committee, as described in Schedule B.
•
•
•
•
•
Schedule B – Adjustment of Stock Price and Operational Goals for Certain Acquisitions and Divestitures
Adjustments for Acquisitions
Any Revenue Goals that have not been attained as of the date the Company closes a merger or purchase of substantially all of
the assets of another corporation or entity (an “Acquisition”), in each case with Target Revenue in excess of 2.5% of Revenue
for the most recent fiscal year ending prior to such Acquisition with respect to which the Company has filed a Form 10-K with
the SEC (such percentage of Revenue, the “Revenue Threshold”), shall be (i) increased by a dollar amount equal to 25% of
such Target Revenue beginning with the first full fiscal quarter of the Company ending after the Acquisition; (ii) then increased
by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Target Revenue in the second full fiscal quarter
of the Company ending after the Acquisition; (iii) then increased by a dollar amount equal to an additional 25%, or a cumulative
75%, of such Target Revenue in the third full fiscal quarter of the Company ending after the Acquisition; and (iv) then increased
by a dollar amount equal to an additional 25%, or a cumulative 100%, of such Target Revenue in the fourth full fiscal quarter
of the Company ending after the Acquisition and all future fiscal quarters of the Company thereafter.
Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes an Acquisition with Target
Adjusted EBITDA in excess of 5% of Adjusted EBITDA for the most recent fiscal year ending prior to such Acquisition with
respect to which the Company has filed a Form 10-K with the SEC (such percentage of Adjusted EBITDA, the “Adjusted
EBITDA Threshold”) shall be (i) increased by a dollar amount equal to 25% of such Target Adjusted EBITDA beginning with
the first full fiscal quarter of the Company ending after the Acquisition; (ii) then increased by a dollar amount equal to an
additional 25%, or a cumulative 50%, of such Target Adjusted EBITDA in the second full fiscal quarter of the Company ending
after the Acquisition; (iii) then increased by a dollar amount equal to an additional 25% or a cumulative 75%, of such Target
Adjusted EBITDA in the third full fiscal quarter of the Company ending after the Acquisition; and (iv) then increased by a
dollar amount equal to an additional 25%, or a cumulative 100%, of such Target Adjusted EBITDA in the fourth full fiscal
quarter of the Company ending after the Acquisition and all future fiscal quarters of the Company thereafter.
Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes an Acquisition with Target
Adjusted EBITDA losses in excess of the Adjusted EBITDA Threshold shall be (i) decreased by a dollar amount equal to 25%
of such Target Adjusted EBITDA losses beginning with the first full fiscal quarter of the Company beginning after the
Acquisition; (ii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Target Adjusted
EBITDA losses in the second full fiscal quarter of the Company beginning after the Acquisition; (iii) then decreased by a dollar
amount equal to an additional 25%, or a cumulative 75%, of such Target Adjusted EBITDA losses in the third full fiscal quarter
of the Company beginning after the Acquisition; and (iv) then decreased by a dollar amount equal to an additional 25%, or a
cumulative 100% of such Target Adjusted EBITDA losses in the fourth full fiscal quarter of the Company beginning after the
Acquisition and all future fiscal quarters of the Company thereafter.
Adjustments for Divestitures
Any Revenue Goals that have not been attained as of the date the Company closes a split-up, spin-off, divestiture or disposition
involving Divestiture Revenue (a “Divestiture”) in excess of the Revenue Threshold shall be (i) decreased by a dollar amount
equal to 25% of such Divestiture Revenue beginning with the first full fiscal quarter of the Company beginning after the
Divestiture; (ii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Divestiture
Revenue in the second full fiscal quarter of the Company beginning after the Divestiture; (iii) then decreased by a dollar amount
equal to an additional 25%, or a cumulative 75%, of such Divestiture Revenue in the third full fiscal quarter of the Company
beginning after the Divestiture; and (iv) then decreased by a dollar amount equal to an additional 25%, or a cumulative 100%,
of such Divestiture Revenue in the fourth full fiscal quarter of the Company beginning after the Divestiture and all future fiscal
quarters of the Company thereafter.
Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes a Divestiture with Divestiture
Adjusted EBITDA in excess of the Adjusted EBITDA Threshold shall be (i) decreased by a dollar amount equal to 25% of
such Divestiture Adjusted EBITDA beginning with the first full fiscal quarter of the Company beginning after the
Divestiture; (ii) then decreased by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Divestiture
Adjusted EBITDA in the second full fiscal quarter of the Company beginning after the Divestiture; (iii) then decreased by a
dollar amount equal to an additional 25%, or a cumulative 75%, of such Divestiture Adjusted EBITDA in the third full fiscal
quarter of the Company beginning after the Divestiture; and (iv) then decreased by a dollar amount equal to an additional 25%,
or a cumulative 100%, of such Divestiture Adjusted EBITDA in the fourth full fiscal quarter of the Company beginning after
the Divestiture and all future fiscal quarters of the Company thereafter.
•
•
Any Adjusted EBITDA Goals that have not been attained as of the date the Company closes a Divestiture with Divestiture
Adjusted EBITDA losses in excess of the Adjusted EBITDA Threshold shall be (i) increased by a dollar amount equal to 25%
of such Divestiture Adjusted EBITDA losses beginning with the first full fiscal quarter of the Company ending after the
Divestiture; (ii) then increased by a dollar amount equal to an additional 25%, or a cumulative 50%, of such Divestiture
Adjusted EBITDA losses in the second full fiscal quarter of the Company ending after the Divestiture; (iii) then increased by
a dollar amount equal to an additional 25%, or a cumulative 75%, of such Divestiture Adjusted EBITDA losses in the third full
fiscal quarter of the Company ending after the Divestiture; and (iv) then increased by a dollar amount equal to an additional
25%, or a cumulative 100%, of such Divestiture Adjusted EBITDA losses in the fourth full fiscal quarter of the Company
ending after the Divestiture and all future fiscal quarters of the Company thereafter.
In the event of any split-up, spin-off, extraordinary dividend or similar transaction, the Daily Stock Price shall be calculated
assuming the per-share amounts received by the Company’s stockholders in such transaction were reinvested in Stock at the
time such amounts were received by Company stockholders, as determined in good faith by the Committee.
PERFORMANCE NON-QUALIFIED STOCK OPTION AWARD TERMS AGREEMENT
This Performance Non-Qualified Stock Option Award Terms Agreement, together with the Grant Notice to which it is attached,
supplements and forms a part of the Agreement identified in the Grant Notice between Axon Enterprise, Inc., a Delaware corporation
(the “Company”), and the individual (the “Optionee”) identified in the Grant Notice, and is effective as of the date of grant set forth in
the Grant Notice (the “Date of Grant”).
1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a) “Accountant” shall have the meaning ascribed to it in Section 30.
AGREEMENT
(b) “Acquired Shares” means any shares of Stock acquired upon the exercise of the Options, after giving effect to any shares of
Stock withheld by the Company in connection with such exercise for purposes of satisfying the applicable exercise price or
tax obligation attributable to such exercise.
(c) “Acquisition” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(d) “Adjusted EBITDA” means, as of any date, for the previous four consecutive fiscal quarters, the Company’s net (loss)
income attributable to common stockholders before interest expense, interest and other income (such as dividends), adjusted
for one-time or non-recurring items, including gains and losses on investments (inclusive of strategic and non-strategic non-
controlling minority investments and joint ventures or similar arrangements), transaction costs related to strategic
investments and acquisitions (or divestitures), gains or losses or impairments related to dispositions of businesses, disposals
and/or abandonments of intangible assets, disposals or impairment of land, property and/or equipment, restructuring costs
(including non-recurring costs related to a reduction in force and/or to closing or exiting facilities), (benefit) provision for
income taxes, depreciation and amortization and stock based compensation.
(e) “Adjusted EBITDA Threshold” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(f) “Affiliate” means any member of a “controlled group of corporations” (within the meaning of Section 414(b) of the Code as
modified by Section 415(h) of the Code) that includes the Company as a member of the group. In applying Sections
1563(a)(1), (2) and (3) of the Code for purposes of determining the members of a controlled group of corporations under
Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” in each place it
appears in Sections 1563(a)(1), (2) and (3).
(g) “Agreement” shall have the meaning ascribed to it in the Grant Notice.
(h) “Annual Meeting” shall have the meaning ascribed to it in the Grant Notice.
(i) “Award” shall have the meaning ascribed to it in the Grant Notice.
(j) “Award Terms Agreement” shall have the meaning ascribed to it in the Grant Notice.
(k) “Axon Business” shall have the meaning ascribed to it in Section 22(c).
(l) “Board” means the Company’s Board of Directors, as constituted from time to time.
(m) “Cause” means, for purposes of termination of the Optionee’s employment, any of the following: (i) the Optionee’s
commission of fraud, misrepresentation, theft or embezzlement of Company assets; (ii) the Optionee’s violation of law or of
Company policies (including the Company’s Code of Business Conduct and Ethics) material to the performance of the
Optionee’s duties; (iii) the Optionee’s repeated insubordination or failure to comply with any valid and legal directive of the
Board; (iv) the Optionee’s engagement in dishonesty, illegal conduct or misconduct, which is, in each case, injurious to the
Company or its Affiliates (including financial or reputational injury); (v) the Optionee’s conviction of, or plea of guilty or
nolo contendere to a crime that constitutes either a felony or a misdemeanor involving embezzlement, misappropriation,
moral turpitude or fraud, if such crime materially impairs the Optionee’s ability to perform services for the Company or
results in harm (including financial or reputational) to the Company or its Affiliates; (vi) the Optionee’s material breach of
the provisions of this Agreement, including specifically the restrictive covenant obligations described in Sections 22, 23 and
24 of this Agreement; (vii) the repeated failure of the Optionee to perform his duties after written notice of such failure from
the Board (other than any such failure resulting from incapacity due to physical or mental illness) or (viii) the Optionee’s
willful misconduct in the performance of his duties or engaging in any other actions that are reasonably expected to cause
material financial or reputational harm to the Company or its Affiliates; provided, however, that in the event of any proposed
termination for Cause related to the Optionee’s poor performance (and excluding, for the avoidance of doubt, clause (viii)),
the Optionee’s termination shall be effective upon the expiration of a 30-day cure period following written notice by the
Board and a lack of adequate corrective action having been undertaken by the Optionee to the reasonable satisfaction of the
Board, in its sole discretion, during such 30-day cure period.
(n) “Change in Control” means any of the following:
i.
The consummation of (A) a merger, consolidation, statutory share exchange or similar
form of transaction involving (x) the Company or (y) any of its subsidiaries, but in the case of this clause (y), only if Company
Voting Securities (as defined below) are issued or issuable (a “Reorganization”) or (B) the sale, transfer or other similar
disposition of all or substantially all the assets of the Company to any Person or Persons, (other than (1) any disposition to an
Affiliate or (2) any dividend or distribution of assets (including the stock of any Affiliate) to the stockholders of the Company)
(a “Sale”), unless immediately following such Reorganization or Sale, (1) all or substantially all the Persons who were the
“beneficial owners” (as used in Rule 13d-3 under the Exchange Act (or a successor rule thereto)) of the securities eligible to
vote for the election of the Board (“Company Voting Securities”) outstanding immediately prior to the consummation of such
Reorganization or Sale continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of
the then outstanding voting securities of the corporation or other entity resulting from such Reorganization or Sale (including
a corporation or other entity that, as a result of such transaction, owns the Company or all or substantially all the Company’s
assets either directly or through one or more subsidiaries) (the “Continuing Company”) in substantially the same proportions
as their ownership, immediately prior to the consummation of such Reorganization or Sale, of the outstanding Company Voting
Securities (excluding, for such purposes, any outstanding voting securities of the Continuing Company that such beneficial
owners hold immediately following the consummation of the Reorganization or Sale as a result of their ownership prior to such
consummation of voting securities of any corporation or other entity involved in or forming part of such Reorganization or Sale
other than the Company), (2) no Person (excluding any employee benefit plan (or related trust) sponsored or maintained by the
Continuing Company or any entity controlled by the Continuing Company) beneficially owns, directly or indirectly, 30% or
more of the combined voting power of the then outstanding voting securities of the Continuing Company and (3) at least a
majority of the members of the board of directors of the Continuing Company were Incumbent Directors (as defined below) at
the time of the execution of the definitive agreement providing for such Reorganization or Sale or, in the absence of such an
agreement, at the time at which approval of the Board was obtained for such Reorganization or Sale;
ii.
any Person, corporation or other entity (other than (A) the Company or (B) any trustee or
other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the
Company Voting Securities; provided, however, that for purposes of this subparagraph (ii), the following acquisitions shall not
constitute a Change in Control: any acquisition (x) directly from the Company, (y) by an underwriter temporarily holding such
Company Voting Securities pursuant to an offering of such securities or any acquisition by a pledgee of Company Voting
Securities holding such securities as collateral or temporarily holding such securities upon foreclosure of the underlying
obligation or (z) pursuant to a Reorganization or Sale that does not constitute a Change in Control for purposes of
subparagraph (i) above;
the stockholders of the Company approve a plan of complete liquidation or dissolution of
the Company, unless such liquidation or dissolution is part of a transaction or series of transactions described in
subparagraph (i) above that does not otherwise constitute a Change in Control; or
iii.
iv.
during any period of twenty-four (24) consecutive calendar months, individuals who were
Directors on the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the non-
employee members of the Board, provided that any person becoming a Director subsequent to the first day of such period
whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the
Incumbent Directors shall be deemed to be an Incumbent Director; provided, further, however, that no such individual shall be
an Incumbent Director if such individual’s initial assumption of office occurs as a result of, or in connection with, (A) an actual
or threatened proxy contest with respect to the election or removal of Directors, (B) actual or threatened solicitation of proxies
or consents by or on behalf of any person or persons (whether or not acting in concert) other than the Board or (C) agreement
with any Person or Persons (whether or not acting in concert) to avoid or settle any such contest or solicitation.
(o) “CIC Option” means, with respect to any Change in Control, (i) any outstanding unvested Option in a Tranche for which the
Stock Price Goal would be satisfied if each of the Six-Month Average Stock Price and the Thirty-Day Average Stock Price
was deemed to be equal to the greater of (A) the most recent closing price of the Stock immediately prior to such Change in
Control and (B) the per share Stock price received by the Company’s stockholders in connection with such Change in Control
(such greater price, the “CIC Price”) and (ii) in the event the CIC Price is greater than the Stock Price Goal applicable to any
Tranche but less than the Stock Price Goal applicable to the next Tranche, a pro rata portion of the Options in such next
Tranche, based on a fraction the numerator of which is the excess of the CIC Price over the Stock Price Goal applicable to the
first Tranche and the denominator of which is the excess of the Stock Price Goal applicable to the second Tranche over the
Stock Price Goal applicable to the first Tranche. All such determinations shall be made by the Committee in its discretion,
which shall also have the discretion to make any such determination prior to the date of such Change in Control.
(p) “Closing Date” shall have the meaning ascribed to it in Section 4(b)(ii).
(q) “Code” means the Internal Revenue Code of 1986, as amended, including regulations thereunder and successor provisions and
regulations thereto.
(r) “Committee” means the Compensation Committee of the Board, as constituted from time to time.
(s) “Company” shall have the meaning set forth in the preamble to this Award Terms Agreement.
(t) “Confidential Information” means and includes: (i) matters of a technical nature such as materials, models, devices, products,
trade secret processes, techniques, data, formulas, inventions (whether or not patentable), specifications and characteristics of
products and services planned or being developed; (ii) research subjects, methods and results; (iii) matters of a business nature
such as information about costs, margins, pricing policies, markets, sales, suppliers, customers, product plans and marketing
plans or strategies; (iv) recorded communication; or (v) other information of a similar nature that is not generally disclosed to
the public.
(u) “Customer” has the meaning ascribed to in Section 22(d).
(v) “Daily Stock Price” means, as of any trading day, the closing price for the Stock as reported on the NASDAQ Stock Market
(or such other exchange on which the Stock is then traded) for such trading day.
(w) “Date of Grant” shall have the meaning set forth in the preamble to this Award Terms Agreement.
(x) “Determination Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
(y) “Director” means any non-employee member of the Board, but solely in his or her capacity as such a member of the Board.
(z) “Divestiture” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(aa) “Divestiture Adjusted EBITDA” means, as of any date, the cumulative Adjusted EBITDA of the spun-off, split-off or divested
business or entity for the four consecutive fiscal quarters completed immediately prior to the closing date of the relevant
transaction; provided that if such business or entity does not have four fiscal quarters of operating history, the calculation shall
be annualized based on available quarterly financial data, as determined in good faith by the Committee.
(bb) “Divestiture Revenue” means, as of any date, the cumulative revenue of the spun off, split-off, divested or disposed business
or entity for the four consecutive fiscal quarters completed immediately prior to the closing date of the relevant transaction;
provided that if such business or entity does not have four fiscal quarters of operating history, the calculation will be annualized
based on available quarterly financial data, as determined in good faith by the Committee.
(cc) “Exchange Act” means the Securities Exchange Act of 1934, as amended, including regulations thereunder and successor
provisions and regulations thereto.
(dd) “Excise Tax” shall have the meaning ascribed to it in Section 30.
(ee) “Exercise Limit” shall have the meaning ascribed to it in Section 6(b).
(ff) “Expiration Date” shall have the meaning ascribed to it in Section 8.
(gg) “Fair Market Value” means, as of any date, the closing price for one share of Stock as reported on the NASDAQ (or any
other exchange on which the Stock is then listed) for that date or, if no prices are reported for that date, the closing price on
the last day on which such prices were reported.
(hh) “Family Member” means the Optionee’s spouse and any parent, stepparent, grandparent, child, stepchild or grandchild,
including adoptive relationships or a trust or any other entity in which these persons (or the Optionee) have more than 50% of
the beneficial interest.
(ii) “Goal” means any Stock Price Goal or Operational Goal.
(jj) “Goal Attainment Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
(kk) “Good Reason” means a material reduction of the Optionee’s duties, authority or responsibilities, in effect immediately prior
to such reduction; provided, however, that changes by the Board to the Optionee’s specific job duties or reporting relationships
which do not materially diminish the Optionee’s authority and responsibilities shall not constitute Good Reason.
Notwithstanding the foregoing, no termination by the Optionee shall constitute a termination for Good Reason unless: (i) the
Optionee gives the Company notice of the existence of the condition constituting Good Reason within 30 days following the
initial occurrence thereof; (ii) the Company does not remedy or cure the Good Reason condition within 30 days of receiving
the notice described in clause (ii); and (iii) the Optionee terminates his employment within 30 days following the end of the
cure period described in clause (ii).
(ll) “Holding Period Requirement” shall have the meaning ascribed to it in Section 9(a).
(mm) “Inventions” means discoveries, improvements and ideas (whether or not in writing or reduced to practice) and works of
authorship, whether or not patentable or copyrightable: (i) that relate directly to the business of Company, or to Company’s
actual or demonstrably anticipated research or development; (ii) that result from any work performed by the Optionee for
Company; (iii) in which equipment, supplies, facilities or trade secret information of Company is utilized; or (iv) that were
conceived or developed during the time the Optionee was employed by the Company.
(nn) “Minimum Service Date” means, with respect to any Tranche, the later of (i) the first business day on or following the date
that is a number of months after the Date of Grant equal to (A) (x) the number of such Tranche (i.e., in the case of Tranche 1,
one; in the case of Tranche 10, 10) multiplied by 12, divided by (y) two plus (B) 36 and (ii) February 26, 2028.
(oo) “Non-Compete Period” shall have the meaning ascribed to it in Section 22(c).
(pp) “Normal Vesting Date” shall have the meaning ascribed to it in Section 4(a).
(qq) “Operational Goal” means any of the specified target amounts of either Revenue or Adjusted EBITDA as listed in Chart 2 of
Schedule A of the Grant Notice.
(rr) “Optionee” shall have the meaning set forth in the preamble to this Award Terms Agreement.
(ss) “Options” shall have the same meaning ascribed to it in the Grant Notice.
(tt) “Parachute Payments” shall have the meaning ascribed to it in Section 30.
(uu) “Performance-Based Vesting Requirements” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
(vv) “Person” means a “person” or “group” within the meaning of Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act.
(ww) “Post-CIC Award” shall have the meaning ascribed to it in Section 4(b)(iii).
(xx) “Reputational Harm” shall have the meaning ascribed to it in Section 10(b).
(yy) “Required Position” means the Optionee’s service in the role of chief executive officer of the Company (or in a role
performing an equivalent function) or executive chairman of the Board (or in a role performing an equivalent function)
pursuant to which the Optionee is devoting substantially all the Optionee’s business time, attention, skill and efforts to the
business and affairs of the Company and its Subsidiaries. Notwithstanding the foregoing, the Optionee shall be deemed to not
be in the Required Position if, prior to the Vesting End Date, the Optionee (i) is the chief executive officer of any operating
company (excluding investment entities or grant-making foundations) that is not affiliated with the Company or (ii) becomes
a member of any for-profit board of directors without the prior written approval of the Board.
(zz) “Revenue” means, as of any date, the Company’s total revenues, as reported by the Company in its financial statements on
Forms 10-Q and 10-K filed with the SEC (but without giving effect to any rounding used in reporting the amounts in Forms
10-Q and 10-K), for the previous four consecutive fiscal quarters of the Company, beginning with the Company’s first full
fiscal quarter ending after the fiscal quarter in which the Date of Grant occurs.
(aaa) “Revenue Threshold” shall have the meaning ascribed to it in Schedule B of the Grant Notice.
(bbb) “SEC” means the U.S. Securities and Exchange Commission.
(ccc) “Section 409A” shall have the meaning ascribed to it in Section 28.
(ddd) “Section 21F” shall have the meaning ascribed to it in Section 22(a).
(eee) “Securities Act” means the Securities Act of 1933, as amended, including regulations thereunder and successor provisions
and regulations thereto.
(fff) “Six-Month Average Stock Price” means, as of any date, (i) the sum of the Daily Stock Price of the Company for each trading
day during the 181-calendar-day period ending immediately prior to such date divided by (ii) the number of trading days
during such period.
(ggg) “Stock” means the common stock of the Company, par value $0.00001 per share, and such other securities of the Company
that may be substituted for Stock pursuant to Section 14.
(hhh) “Stock Price Goal” means any of the specified target amounts of both Six-Month Average Stock Price and Thirty-Day Stock
Price as set forth in Chart 1 of Schedule A of the Grant Notice.
(iii) “Target Adjusted EBITDA” means, as of any date, the applicable cumulative Adjusted EBITDA for the four consecutive
fiscal quarters completed immediately prior to the closing date of the relevant transaction; provided that if the relevant target
business or entity does not have four fiscal quarters of operating history, the calculation will be annualized based on available
quarterly financial data, as determined in good faith by the Committee.
(jjj) “Target Revenue” means, as of any date, the applicable cumulative revenue of the relevant target business or entity (or, to the
extent applicable, any predecessor to the relevant target entity) for the four consecutive fiscal quarters completed immediately
prior to the closing date of the applicable Acquisition; provided that if the relevant target company or entity does not have four
fiscal quarters of operating history, the calculation will be annualized based on available quarterly financial data, as determined
in good faith by the Committee.
(kkk) “Thirty-Day Average Stock Price” means, as of any date, (i) the sum of the Daily Stock Price of the Company for each
trading day during the 30-calendar-day period ending immediately prior to such date divided by (ii) the number of trading
days during such period.
(lll) “Tranche” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
(mmm) “Unvested CIC Options” shall have the meaning ascribed to it in Section 4(b)(ii).
(nnn) “Vesting Date” means, with respect to any Option, the date (if any) on which such Option vested and became exercisable
pursuant to Section 4.
(ooo) “Vesting End Date” shall have the meaning ascribed to it in Schedule A of the Grant Notice.
2. Grant of Option. Subject to the terms of this Agreement, the Company grants to the Optionee the right and option to purchase from
the Company all or any part of the total number of shares of Stock specified in the Grant Notice effective as of the Date of Grant
(but subject to stockholder approval as set forth in Section 5 and in the Grant Notice). The Options granted under this Agreement
are not intended to be “incentive stock options” under Section 422 of the Code.
3. Exercise Price. The exercise price of each Option is the exercise price per share of Stock specified in the Grant Notice.
4. Vesting of Tranches.
(a) General. Except as otherwise provided in this Section 4 or in Section 5, with respect to each outstanding Tranche, subject to
(i) the Committee’s determination that the applicable Performance-Based Vesting Requirements have been achieved in
accordance with the terms and conditions set forth in this Agreement (including Schedule A of the Grant Notice) and (ii) the
Optionee’s continued employment in the Required Position through the later of (x) the applicable Determination Date and (y)
the applicable Minimum Service Date (such later date, a “Normal Vesting Date”), such Tranche shall vest as of such Normal
Vesting Date; provided, however, that the Vesting End Date shall be deemed to be extended until the first Determination Date
after the Vesting End Date solely for purposes of determining whether any Operational Goal for the last fiscal quarter ending
prior to the Vesting End Date has been attained, and any Tranche that vests because of the attainment of any such Operational
Goal shall be deemed to have vested prior to the Vesting End Date.
(b) Change in Control. (i) Prior to the consummation of a Change in Control that occurs prior to the Vesting End Date, the
Committee shall determine whether any outstanding unvested Option in any Tranche is a CIC Option with respect to such
Change in Control.
(ii) If the Optionee is employed by the Company in the Required Position on the date a Change in Control is
consummated (the “Closing Date”), (x) any outstanding CIC Options with respect to which the applicable Minimum Service Date
occurred prior to the Closing Date shall, without regard to whether the applicable Operational Goals were attained, vest effective as of
the Closing Date and (y) any other CIC Option shall remain outstanding and eligible to vest subject solely to the Optionee’s continued
employment through the applicable Minimum Service Date and without regard to the Performance-Based Vesting Conditions (any CIC
Options described in this clause (y), “Unvested CIC Options”). Any outstanding unvested Option in a Tranche that is not a CIC Option
shall be forfeited, cancelled and cease to be outstanding as of the Closing Date.
(iii) In connection with a Change in Control, any CIC Options shall be subject to the authority of the Committee
hereunder, including Section 14. In the event that Unvested CIC Options remain outstanding following a Change in Control, whether
by assumption, continuation or substitution of a new award (a “Post-CIC Award”), such Post-CIC Award shall vest in full in the event
that, during the 24-month period following such Change in Control, the Optionee’s employment is terminated by the Company without
Cause or the Optionee resigns for Good Reason; provided that the term of the Options set forth in Section 8 shall continue to apply.
(c) Termination Without Cause. Notwithstanding anything in Section 4(a) or (b) to the contrary, if either (i) the Company
removes the Optionee from the Required Position (other than in connection with a termination of the Optionee’s employment
by the Company for Cause or in connection with the Optionee’s death or disability) or (ii) the Optionee’s employment is
terminated by the Company without Cause prior to the Vesting End Date, then, subject to a release of claims in form and
substance satisfactory to the Company, any then outstanding Tranche shall vest as of the date of such event based solely on
attainment of the applicable Stock Price Goals as of such date, without regard to the otherwise applicable Operational Goals.
In addition to any Tranches that vest as a result of the preceding sentence of this Section 4(c), a pro rata portion of the next
outstanding unvested Tranche (if any are remaining) shall also vest as of such date, based on a fraction the numerator of which
is the excess of the Six-Month Average Stock Price as of such date over the Stock Price Goal applicable to the first Tranche
and the denominator of which is the excess of the Stock Price Goal applicable to the second Tranche over the Stock Price Goal
applicable to the first Tranche.
(d) Death/Disability. In the event of the Optionee’s death or disability and prior to the applicable Minimum Service Date, any
then outstanding Tranche shall vest as of such termination based solely on attainment of the applicable Performance-Based
Vesting Requirements as of such date, without regard to the Optionee’s continued employment.
(e) Leave of Absence. Unless otherwise determined by the Committee, the vesting of any then outstanding Tranche shall be
suspended during any period of time prior to the Vesting End Date on which the Optionee is on approved leave of absence;
provided that the term of the Options set forth in Section 8 shall continue to apply.
(f) Other Termination of Employment; Vesting End Date. Except as otherwise provided in this Section 4, upon the earliest of
(i) the Optionee ceasing to be employed in the Required Position, (ii) the Optionee’s termination of employment for any reason
and (iii) the Vesting End Date, any outstanding unvested Tranche shall be forfeited, canceled and cease to be outstanding.
5. Stockholder Approval. The Optionee acknowledges and agrees that this Agreement and this Award is being made prior to the
approval of this Award by the Company’s stockholders. The Company currently intends to submit this Award for the approval of
the Company’s stockholders at the Annual Meeting. Notwithstanding anything herein to the contrary, no portion of this Award
shall vest and no Stock shall be delivered pursuant to the exercise of this Award prior to such stockholder approval. The Optionee
acknowledges and agrees that, if the Company’s stockholders do not approve this Award at the Annual Meeting (as determined by
the Board in its sole discretion), this Award Agreement and this Award shall be null and void ab initio and have no further force or
effect, and any portion of this Award that may have otherwise vested prior to such date shall be forfeited, cancelled and cease to be
outstanding.
6. Exercise of Option; Exercise Limit.
(a) Subject to the Exercise Limit, each Option may be exercised pursuant to Section 7 at any time after it vests in accordance with
Section 4 and before the Expiration Date.
(b) In the event that any Tranche vests within the six-month period following the vesting of any other Tranche, such Tranche shall
remain vested but the initial exercisability of such Tranche shall be delayed until the earliest date such that, after giving effect
to any prior application of this Section 6(b), no more than one Tranche first becomes exercisable in any six-month period (the
“Exercise Limit”). To the extent an Option is exercisable after the application of the Exercise Limit, it shall remain exercisable
until the Expiration Date. Notwithstanding the foregoing, the Exercise Limit shall cease to apply upon the Optionee’s death
or the consummation of a Change in Control.
7. Method of Exercising Option. Subject to the terms of this Agreement, the Options may be exercised by timely delivery to the
Company of written notice, which notice shall be effective on the date received by the Company. The notice shall state the
Optionee’s election to exercise Options and the number of underlying shares in respect of which an election to exercise has been
made. Such notice shall be signed by the Optionee, or if an Option is exercised by a person or persons other than the Optionee
because of Optionee’s death, such notice must be signed by such other person or persons and shall be accompanied by proof
acceptable to the Company of the legal right of such person or persons to exercise the Options. As a condition to any such exercise,
(i) the exercise price of such Option must be paid in cash or such other method permitted by the Committee, in its sole discretion,
in compliance with applicable federal or state securities laws, regulations or rules of the NASDAQ Stock Market (or such other
exchange on which the Stock is then traded), including a broker-assisted “cashless exercise” arrangement or cashless net-issuance
arrangement, and communicated to the Optionee before the date the Optionee exercises the Option and (ii) provision must be made
for the payment of any applicable taxes in accordance with Section 11.
8. Term of Option. The Options granted under this Agreement (whether or not vested or exercisable) cease to be exercisable and
expire, unless earlier forfeited, on the 15th anniversary of the Date of Grant, through and including the normal close of business of
the Company on such date (the “Expiration Date”).
9. Holding Period Requirement.
(a) Following the vesting and exercise of any Options in any Tranche, the Optionee shall not sell, transfer, pledge, assign or
otherwise alienate or hypothecate 20% of the Acquired Shares attributable to such Options at any time (including after the
Expiration Date) prior to the date that is three years after any termination of the Optionee’s employment (the “Holding Period
Requirement”). Except as required to satisfy any applicable tax obligations, any dividends or other distributions by the
Company on any Acquired Share subject to the Holding Period Requirement shall accrue and be held and retained by the
Company on the same basis as such Acquired Share, and shall not be paid to the Optionee until and unless such Acquired
Share is no longer subject to the Holding Period Requirement.
(b) Notwithstanding Section 9(a), the Holding Period Requirement shall be automatically waived as to all Acquired Shares (i)
upon the occurrence of a Change in Control (and, for the avoidance of doubt, in the event the Optionee receives any Acquired
Shares following a Change in Control, the Holding Period Requirement shall not be applicable thereto) or (ii) in the event that
the Optionee’s employment is terminated by the Company without Cause or due to the Optionee’s death or disability.
(c) The Company shall hold any Acquired Shares subject to the Holding Period Requirement in escrow together with separate
stock powers executed by the Optionee in blank for transfer. The Company shall not dispose of shares held in escrow pursuant
to this Section 9(c), except as otherwise provided in this Agreement. At such time as any Acquired Share is no longer subject
to the Holding Period Requirement, the Company shall release such share from escrow.
(d) Within 30 days following each date the Optionee receives any Acquired Share subject to the Holding Period Requirement, the
Optionee shall execute and file with the Internal Revenue Service an election under Section 83(b) of the Code with respect to
such Acquired Share in a form satisfactory to the Company, and the Optionee shall provide the Company with a copy of such
executed and filed election promptly thereafter.
10. Clawback.
(a) General. This Award and any Acquired Shares (and any other amounts payable under this Award) are subject to forfeiture or
recoupment to the fullest extent required by applicable law, any applicable stock exchange listing standard, Section 10(b) of
this Agreement and any recoupment or clawback policy adopted by the Company to comply with Rule 10D-1 under the
Exchange Act. By accepting this Award, the Optionee consents to the potential forfeiture or recoupment of his Award and
any Acquired Shares (and any other amount payable under this Award) pursuant to any applicable law, listing standard,
provision of this Agreement or Company policy, and agrees to be bound by and comply with such requirements and to return
or repay the full amount required by such requirements. Without limiting the foregoing, if the Date of Grant occurs prior to
the adoption by the Company of a recoupment or clawback policy to comply with Rule 10D-1 under the Exchange Act, this
Award and any Acquired Shares (and any other amounts payable under this Award) shall be subject thereto as though this
Award was granted immediately after the effective date of such policy.
(b) Reputational Harm. Without limiting any other rights and remedies available to the Company, in the event the Optionee’s
employment is terminated by the Company for Cause due to willful actions or omissions by the Optionee after the Date of
Grant that cause material reputational harm to the Company (“Reputational Harm”), then the Company may, at any time after
such termination, (i) terminate or cancel all or any unvested portion of this Award or any vested but unexercised Options, (ii)
recover from the Optionee any Acquired Shares (or other amounts paid under this Award) that are held in escrow pursuant to
the Holding Period Requirements, or (iii) require the Optionee to remit to the Company the after-tax net value of any amount
previously paid or received by the Optionee in respect of this Award (including Acquired Shares no longer subject to the
Holding Period Requirements); provided that any recovery or remittance described in clause (ii) or (iii) above shall only apply
with respect to amounts paid or received within the three-year period prior to the Optionee’s termination of employment for
Reputational Harm. The amount that the Company may recover from the Optionee in the event of a termination due to
Reputational Harm shall be based on such factors the Board reasonably determines in its good-faith judgment are appropriate,
including the impact of individuals other than the Optionee or events beyond the control of the Optionee, the cooperation of
the Optionee in mitigating the Reputational Harm and the judgment of the Board as to the magnitude of the Reputational Harm
to the Company. No act or omission by the Optionee shall be considered “willful” for purposes of this Agreement unless
done, or failed to be done, by the Optionee intentionally and in bad faith or if done, or failed to be done, by the Optionee
following advice of the Company’s legal counsel.
(c) Reputational Harm Determination. Notwithstanding anything in Section 10(b) to the contrary, the cessation of the
Optionee’s employment shall not be deemed to be due to Reputational Harm unless and until there shall have been delivered
to the Optionee a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board
(excluding for all purposes the Optionee) at a meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Optionee and the Optionee is given an opportunity, together with counsel for the Optionee, to be heard
before the Board), finding that, in the good-faith opinion of the Board, Cause and Reputational Harm exist and specifying the
particulars thereof in detail.
11. Withholding; Tax Advice. The Company shall have the power to withhold, or require the Optionee to remit to the Company, up
to the maximum statutory amount necessary, in the applicable jurisdiction, to satisfy any federal, state or local taxes required to be
withheld or otherwise due with respect to the exercise of the Option; provided that the amount of withholding will reflect the
required minimum amount necessary to satisfy taxes if withholding at the minimum amount is necessary to avoid adverse accounting
consequences. To the extent that alternative methods of withholding are available under applicable law, the Committee shall have
the power to choose among such methods including by: (a) using already owned shares of Stock; (b) a broker-assisted “cashless”
transaction; (c) directing the Company to apply shares of Stock to which the Optionee is otherwise entitled to satisfy the required
withholding amount; (d) certified personal check or other cash equivalent acceptable to the Company; or (e) cashless net-issuance
arrangement. By signing this Agreement, the Optionee acknowledges that neither the Company nor any of its representatives has
provided the Optionee any tax-related advice with respect to the matters covered by this Agreement. The Optionee understands
and acknowledges that the Optionee is solely responsible for obtaining his own tax advice with respect to the matters covered by
this Agreement.
12. Nontransferability of Options. The Options shall not be transferable by the Optionee or any other person claiming through the
Optionee, either voluntarily or involuntarily, except by will or the laws of descent and distribution or as permitted by the Committee.
In addition, the Committee may, in its sole discretion and in compliance with applicable federal or state securities laws, regulations
or rules of the NASDAQ Stock Market (or such other exchange on which the Stock is then traded), permit the transfer of any Option
or any Acquired Share to a Family Member, trust or partnership, or to a charitable organization (including law enforcement-based
charitable organizations), in each case for estate planning purposes or to any other person in the Committee’s sole discretion;
provided that no value or consideration is received by the Optionee with respect to such transfer.
13. No Right to Continued Employment. This Agreement shall not be construed to confer upon the Optionee any right to continue
employment with the Company (or continue employment as the Company’s Chief Executive Officer) and shall not limit the right
of the Company, in its sole and absolute discretion, to terminate the Optionee’s employment at any time for any reason.
14. Administration by Committee. This Agreement shall at all times be administered by the Committee. The Committee shall have
the sole and complete discretion with respect to all matters under this Agreement and decisions of the Committee with respect
thereto and to this Agreement shall be final and binding upon the Optionee and the Company. Each member of the Committee shall
be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by such member in connection with or resulting from any claim, action, suit or proceeding to which such
member may be a party or in which such member may be involved by reason of any action taken or failure to act in connection with
the administration of this Agreement. The foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such member of the Committee may be entitled under the Company’s articles of incorporation, bylaws,
resolution or agreement, as a matter of law, or otherwise.
15. Adjustments upon Specified Events. In the event of any change in the outstanding shares of Stock by reason of a stock dividend
or split, split-up or spin-off, extraordinary dividend or other extraordinary distribution (whether in the form of cash, Stock or other
property), Change in Control, recapitalization, rights offering, liquidation, merger, consolidation, combination, exchange of shares,
or other similar corporate change or event in respect of the Stock, the Committee shall equitably adjust, in the manner the Committee
determines appropriate, any or all of: (a) the number and class of shares of Stock or other property subject to this Award; (b) any
numeric or share-based limit expressed in this Agreement; (c) the number and class of and/or price of shares of Stock subject to this
Award; (d) the performance period, performance targets and/or other goals applicable to this Award; or (e) any other terms of an
Award that are affected by the event. In the event of any such transaction, the Committee, in its discretion, may provide in
substitution for any or all of this Award such alternative consideration (including cash) as it, in good faith, may determine, including
(i) making provision for a cash payment to the Optionee in consideration for the cancelation of this Award, including a cash payment
in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Stock
subject to the applicable Option over the aggregate exercise price of such Option, (ii) canceling and terminating any Option having
a per-share exercise price equal to, or in excess of, the Fair Market Value of a share of Stock subject to such Option without any
payment or consideration therefor or (iii) establishing a date upon which such Award will expire unless exercised prior thereto.
Any action taken pursuant to this Section 15 shall be taken in a manner consistent with the requirements of Section 409A. The
adjustments permitted under this Section 15 shall be binding on the Optionee without the Optionee’s consent or further action
thereby.
16. Compliance with Securities and Applicable Laws.
(a) General. Notwithstanding anything in this Agreement to the contrary, the Company shall not be required to deliver any
Acquired Shares or issue or deliver any related certificates evidencing shares of Stock, make any book-entry credits, or take
any other action to evidence the ownership of shares of Stock pursuant to the exercise of the Option if, in the opinion of
counsel for the Company, such issuance would violate the Securities Act, the Exchange Act, or any other applicable federal
or state securities laws, regulations, or rules of the NASDAQ Stock Market (or such other exchange on which the Stock is
then traded). All Stock certificates, book-entry credits, or other evidence of ownership delivered pursuant to this Agreement
are subject to any stop-transfer orders and other restrictions as the Company deems necessary or advisable to comply with
applicable law and the rules and regulations and the rules of the NASDAQ Stock Market (or such other exchange on which
the Stock is then traded). The Company may place legends on any Stock certificate to reference restrictions applicable to the
Stock. In addition to the terms and conditions provided herein, the Company may require that the Optionee make such
reasonable covenants, agreements and representations as the Company, or its counsel, deem advisable in order to comply with
any such laws, regulations or requirements.
(b) Further Limits on Disposition. The Optionee understands and acknowledges that, as of the Date of Grant, any Option and
any shares of Stock subject to the Option are not registered under the Securities Act or any applicable state securities laws and
may not be sold, assigned, transferred or disposed of (including transfer by gift or operation of law) except in accordance with
this Agreement. If this Award is approved by stockholders at the Annual Meeting, the Company shall file with the SEC a
registration statement on an appropriate form under the Securities Act with respect to the shares of Stock subject to this Award.
17. No Stockholder Rights. The Optionee shall have no voting rights or any other rights as a stockholder of the Company with respect
to any Option unless and until shares of Stock are in fact issued to the Optionee in connection with this exercise of the Option.
18. Governing Law; Forum Selection. The place of administration of this Agreement shall be conclusively deemed to be within the
State of Arizona and the validity, construction, rights, obligations, remedies and performance of this Agreement shall be governed
by the laws of the State of Arizona. The parties agree that any action or proceeding initiated to enforce this Agreement shall be
brought solely in the State of Arizona. Any dispute involving or affecting this Agreement shall be determined and resolved by
binding arbitration in the County of Maricopa, State of Arizona, in accordance with the Rules of the American Arbitration
Association then in effect, and with applicable law. BY SIGNING THIS AGREEMENT, EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY DISPUTE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT. Both parties will bear their own costs, attorneys’ fees and other expenses incurred in connection with the
preparation and/or review of this Agreement. Should the Optionee or the Company employ an attorney to enforce any of the
provisions of this Agreement, or to recover damages for the breach of any terms of this Agreement, the prevailing party shall be
entitled to recover all reasonable costs, damages and expenses, including attorneys’ fees incurred or expended in connection
therewith. The phrase “prevailing party” shall mean the party who is determined in the proceeding to have prevailed or who prevails
by dismissal, default, judgment or otherwise.
19. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns
of the Company, including whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition
of substantially all of the assets or business of the Company, and any and all such successors and assigns shall absolutely and
unconditionally assume all of the Company’s obligations under this Agreement.
20. Amendment; No Repricing. This Agreement may be amended only by a written agreement executed by the Company and the
Optionee. The provisions of this Agreement may not be waived or modified unless such waiver or modification is in writing and
signed by a representative of the Committee. The Company may not, without the approval of the stockholders: (a) reduce, reprice
or take any other action relative to the Options that would be treated as a repricing under applicable NASDAQ Listing Rules (or
the rules of any other exchange on which the Stock is then traded); (b) cancel the Options in exchange for cash or in exchange for
any other option or other equity security with an exercise price that is less than the exercise price of the Options; or (c) extend the
exercise period of the Options beyond the Expiration Date.
21. Severability; Entire Agreement. Whenever possible, each provision of this Agreement will be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule, such invalidity, illegality or unenforceability will not affect any other provision of this
Agreement and the Agreement shall be construed, enforced and interpreted as if such unenforceable provision had never been
contained herein. This Agreement (including the Grant Notice) constitutes the entire agreement and supersedes all prior
understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof.
22. Restrictive Covenants.
(a) Confidential Information. The Optionee agrees to maintain the confidentiality of and not use, directly or indirectly,
confidential and proprietary information of the Company. The Optionee represents that the Optionee will return all Company
Confidential Information in the Optionee’s possession to the Company upon termination of his employment with the
Company. The Optionee agrees that, following his termination of employment for any reason, he will not directly or indirectly,
alone or as a partner, officer, director or stockholder of any other firm or entity, use the Confidential Information to solicit or
attempt to influence any client, customer or other person to direct its purchase of products or services away from the Company.
The parties agree that this Agreement does not limit the Optionee’s ability to communicate with any government agencies
regarding matters within their jurisdiction or otherwise participate in any investigation or proceeding that may be conducted
by any government agency, including providing documents or other information, without notice, to the government agencies.
This confidentiality provision does not apply to communications necessary between Company management, its attorneys and
auditors or members of its Board, Optionee’s immediate family members, attorneys, or legal and financial planners or tax
preparers who are also bound by this confidentiality provision. Nothing in this Agreement shall prevent the Optionee from the
disclosure of confidential Information or trade secrets that: (i) is made: (1) in confidence to a federal, state or local government
official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected
violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made
under seal. In the event that the Optionee files a lawsuit alleging retaliation by the Company for reporting a suspected violation
of law, the Optionee may disclose Confidential Information or trade secrets related to the suspected violation of law or alleged
retaliation to the Optionee’s attorney and use the Confidential Information or trade secrets in the court proceeding if the
Optionee or the Optionee’s attorney: (i) files any document containing Confidential Information or trade secrets under seal;
and (ii) does not disclose the Confidential Information or trade secrets, except pursuant to court order. The Company provides
this notice in compliance with the Defend Trade Secrets Act of 2016. All information which the Optionee has a reasonable
basis to consider Confidential Information or which is treated by the Company as being Confidential Information shall be
presumed to be Confidential Information, whether originated by the Optionee, or by others, and without regard to the manner
in which the Optionee obtains access to such information. The Optionee agrees that the Company shall have the right to notify
any future or prospective employers, or individuals or entities with whom the Optionee may be entering into a contractual
relationship, of the provisions of this Section 22 for purposes of ensuring that the Company’s interests are protected. This
Agreement is not intended to limit or restrict, and shall not be interpreted in any manner that limits or restricts, the Optionee
from exercising any legally protected whistleblower rights (including pursuant to Section 21F of the Exchange Act (“Section
21F”)) or receiving an award for information provided to any government agency under any legally protected whistleblower
rights. Notwithstanding anything in this Agreement to the contrary, nothing in or about this Agreement prohibits the Optionee
from: (i) filing and, as provided for under Section 21F, maintaining the confidentiality of a claim with the SEC; (ii) providing
Confidential Information to the SEC, or providing the SEC with information that would otherwise violate Section 22(a), to
the extent permitted by Section 21F; (iii) cooperating, participating or assisting in an SEC investigation or proceeding without
notifying the Company; or (iv) receiving a monetary award as set forth in Section 21F.
(b) Inventions. The Optionee agrees that all Inventions made, authored or conceived by the Optionee, either solely or jointly with
others, during the Optionee’s employment with the Company, shall be the sole and exclusive property of the Company. The
Optionee is hereby notified that this Section 22 does not apply to any Invention for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed initially on the Optionee’s own time and (i)
which does not relate: (1) directly to the business of the Company; or (2) to the Company’s actual or demonstrably anticipated
research, development or products; or (ii) which does not result from any work performed by the Optionee for the Company.
(c) Covenant Not to Compete. The Optionee agrees that while employed by the Company and during the 24-month period
following termination of the Optionee’s employment with the Company for any reason (the “Non-Compete Period”), he will
not, directly or indirectly, own, control, manage, operate or act for or on behalf of, assist in, engage in, have any financial
interest in, or participate in any way, including as an owner, partner, employee, officer, agent, board member, consultant,
advisor, volunteer, stockholder or investor in, any entity, person, business or enterprise that is engaged in the design,
manufacture, marketing, selling, importing, exporting, servicing or supporting of less lethal weapons, law enforcement
cameras, digital evidence management, record management systems, computer-aided dispatch systems, machine learning,
artificial intelligence, unmanned vehicles (e.g., drones), virtual reality or any other technology or products that the Company
is engaged in or is on the roadmap to enter over the Non-Compete Period at the time of termination of employment; or related
professional services marketed, sold or provided to public safety customers in connection with the products mentioned above
throughout the world (the “Axon Business”). The Optionee acknowledges that his continued employment with the Company
and this Agreement are more than sufficient consideration for this covenant not to compete. The Optionee further
acknowledges that the Company is engaged in marketing and selling its products throughout the world and that this covenant
not to compete is necessary and reasonable to protect the Company and that the Company will suffer irreparable harm and
other damages in the event of a breach of this provision. The Optionee acknowledges that his training and experience have
prepared him for employment or other business opportunities to sell products and perform services for businesses other than
those in the Axon Business. Accordingly, the Optionee acknowledges that the restrictions contained in this covenant not to
compete will not unduly prevent him from obtaining employment or business opportunities other than in the Axon Business.
The Optionee also acknowledges that the time, scope and geographic area of this covenant not to compete are reasonable and
necessary to protect the interests of the Company and the Axon Business.
(d) No Solicitation of Customers. The Optionee shall not contact, or cause to be contacted, directly or indirectly, or engage in
any form of oral, verbal, written, recorded, transcribed or electronic communication with, any Customer for the purposes of
conducting business that is competitive or similar to that of the Company or for the purpose of disadvantaging the Company’s
business in any way. It is not a breach of this subsection for Optionee to respond to an unsolicited inquiry from a Customer
by informing that Customer that “I am subject to a contractual restriction and am unable to assist you”, or words of similar
effect. For purposes of this Agreement, “Customer” shall mean all persons or entities that have used or inquired of the
Company’s services at any time while the Optionee was employed by the Company. The Optionee acknowledges and agrees
that the Company’s list of Customers was cultivated with great effort and secured through the expenditure of considerable
time and money by the Company.
(e) Covenant Not to Recruit and Hire. The Optionee shall not: (i) directly or indirectly hire, solicit or recruit, or attempt to hire,
solicit or recruit, any employee of the Company to leave their employment with the Company, nor shall the Optionee contact
any employee of the Company, or cause an employee of the Company to be contacted, for the purpose of leaving employment
with the Company; or (ii) solicit, encourage or induce, or cause to be solicited, encouraged or induced, directly or indirectly,
any supplier, vendor or contractor who conducted business with the Company at any time during the 24-month period
preceding the termination of the Optionee’s employment with the Company for any reason, to terminate or adversely modify
any business relationship with the Company or not to proceed with, or enter into, any business relationship with the Company,
nor shall the Optionee otherwise interfere with any business relationship between the Company and any such supplier, vendor
or contractor.
(f) Covenant Not to Disparage. The Optionee agrees not to make any statements, written or verbal, or cause or encourage others
to make any statements, written or verbal, including but not limited to any statements made via social media, on websites or
blogs, that defame, disparage or in any way criticize the personal or business reputation, practices, or conduct of the Company,
or any of its affiliates, its directors, officers, employees or its products. The Optionee acknowledges and agrees that this
prohibition extends to statements, written or verbal, made to anyone, including but not limited to, the news media, any member
of the Board or advisory board, competitors, vendors, employees (past and present) and clients.
(g) Acknowledgments. The Optionee further acknowledges that his fulfillment of the obligations contained in this Agreement,
including, but not limited to, his obligation neither to disclose nor to use Confidential Information other than for the Company’s
exclusive benefit and his obligations not to compete and not to solicit employees is necessary to protect the Confidential
Information and, consequently, to preserve the value and goodwill of the Company. The covenants set forth in this Section 22
are necessarily of a special, unique and extraordinary nature, and the loss arising from a breach thereof cannot reasonably and
adequately be compensated by money damages, as such breach will cause the Company to suffer irreparable harm.
Accordingly, in the event of any breach or threatened breach of any of the covenants set forth in this Section 22, the Company
will be entitled to seek an injunctive or other extraordinary relief from a court of competent jurisdiction to restrain the violation
or threatened violation of such covenants by the Optionee or any person acting for or with the Optionee in any capacity. The
remedy set forth herein will be cumulative and not in limitation of any other remedies available to the Company. The covenants
set forth in this Section 22 shall be construed as a series of separate covenants, one for each city, county and state of any
geographic area in which the Company sold products or services. In the event that the provisions of this Section 22 are deemed
to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the
maximum time, geographic or scope limitations, as the case may be, then permitted by such law. In the event that the court
does not exercise the power granted to it in the prior sentence, the Optionee and the Company agree to replace such invalid or
unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or unenforceable term.
23. Cooperation. The Optionee agrees that while employed by the Company and all times thereafter, to cooperate with the Company
regarding any claims, litigation or related matters involving the Company, including providing truthful (a) information by phone,
email or otherwise upon reasonable request and (b) testimony by deposition or in court as may be reasonably required, with the
Company paying reasonable compensation, travel and per diem expenses.
24. Return of Company Property. All computers, tablets, phones, equipment, records, files, lists (including computer-generated
lists), data, drawings, documents, equipment and similar items relating to the Company’s business that the Optionee generated or
received from the Company remain the Company’s sole and exclusive property. The Optionee further represents that the Optionee
has not copied or caused to be copied, printed out, or caused to be printed out any documents or other material originating with or
belonging to the Company. The Optionee agrees to promptly return to the Company all property of the Company in Optionee’s
possession upon termination of his employment with the Company, for any reason, including all Company documents, equipment
or other materials.
25. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Company at
Legal@axon.com or its principal office to the attention of the Secretary, and to the Optionee at the Optionee’s last address reflected
on the Company’s records, or at such other address as either party may hereafter designate in writing to the other. Any notice shall
be deemed to be given only when received, but if the Optionee is no longer employed by the Company, such notice shall be deemed
to have been duly given by the Company when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified,
and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the
United States government.
26. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed
an original but all of which together shall constitute one and same instrument.
27. Interpretation. The section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or
affect any provision hereof. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other
gender and the neuter as the context requires.
28. Section 409A. The Company intends (but cannot and does not guarantee) that this Agreement and the Option comply with and
meet all, or qualify for an exception to, the requirements of Section 409A of the Code (“Section 409A”) and, accordingly, to the
maximum extent permitted, this Agreement shall be interpreted and administered in compliance with Section 409A or an exception
thereto. The Optionee acknowledges that the Company makes no representations or warranties regarding the tax treatment or tax
consequences of the Option, including the application of Section 409A. In any case, the Optionee shall be solely responsible and
liable for the satisfaction of all taxes and penalties that may be imposed on the Optionee or for the Optionee’s account in connection
with any Option (including any taxes and penalties under Section 409A), and the Company shall have no obligation to indemnify
or otherwise hold the Optionee harmless from any or all of such taxes or penalties.
29. Independent Counsel. The Optionee acknowledges that he has been advised to seek, and has had the opportunity to seek, the
advice and representation of independent counsel and tax advisors prior to entering into this Agreement and the transactions
contemplated hereby.
30. Section 280G. Notwithstanding any other provision in this Agreement to the contrary, in the event that it is determined (by the
reasonable computation of an independent nationally recognized certified public accounting firm that shall be selected by the
Company prior to the applicable Change in Control (the “Accountant”)) that the vesting of the Options, together with the aggregate
amount of any other payments, distributions, benefits and entitlements of any type payable by the Company or any affiliate to the
Optionee or for the Optionee’s benefit, in each case, that could be considered “parachute payments” within the meaning of Section
280G of the Code (such payments, the “Parachute Payments”) that, but for this Section 30, would be payable to the Optionee,
exceeds the greatest amount of Parachute Payments that could be paid to you without giving rise to any liability for any excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state or local law, or any
interest or penalties with respect to such tax (such tax or taxes, together with any such interest or penalties, collectively referred to
as the “Excise Tax”), then the aggregate amount of Parachute Payments payable to the Optionee shall not exceed the amount which
produces the greatest after-tax benefit to the Optionee after taking into account any Excise Tax to be payable by the Optionee. For
the avoidance of doubt, this provision shall reduce the amount of Parachute Payments otherwise payable to the Optionee, if doing
so would place the Optionee in a more favorable net after-tax economic position as compared with not reducing the amount of
Parachute Payments (taking into account the Excise Tax payable in respect of such Parachute Payments). Parachute Payments will
be reduced by first reducing amounts considered to be nonqualified deferred compensation subject to Section 409A; provided that
in no event may the Parachute Payments be reduced in a manner that would subject the Optionee to additional taxation under Section
409A.
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, 2022
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery
period pursuant to §240.10D-1(b). ☐
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, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $6.3 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 24, 2023 was 72,862,227
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for its 2023 annual meeting of stockholders to be prepared and filed with the Securities and Exchange Commission not later than 120 days after December 31, 2022
are incorporated by reference into Part III of this Form 10-K.
AXON ENTERPRISE, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2022
Page
- - - -
6
14
33
33
34
34
35
36
37
53
55
102
102
106
106
106
106
106
107
107
107
109
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
[Reserved]
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
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
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.
Risk Factor Summary
The following is only a summary of the principal risks that may materially adversely affect our business, financial
condition, results of operations and cash flows. The following should be read in conjunction with the more complete
discussion of the risk factors we face, which are set forth more fully in “Part I. Item 1A. Risk Factors.”
Strategic Risks
•
•
•
If law enforcement agencies do not continue to purchase and use our products and services, our growth
prospects, operating results and financial conditions will be adversely affected.
If our TASER conducted energy devices (“CEDs”) do not continue to be widely accepted, our growth
prospects will be diminished.
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.
• We face risks associated with rapid technological change and new competing products.
• 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.
• Acquisitions of, or investments in, other companies, products, or technologies could disrupt our business,
dilute stockholder value, and adversely affect our operating results.
• Our failure to retain executive officers, specifically Patrick W. Smith, could adversely impact our business.
Operational Risks
• Unavailability of materials or higher costs could adversely affect our financial results.
3
• Material adverse developments in domestic and global economic conditions, or the occurrence of other
world events, could materially adversely affect our revenue and results of operations.
• 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.
• Delays in product development schedules could adversely affect our revenues and cash flows.
• We expend significant resources in anticipation of a sale and may receive no revenue in return.
• Changes in civil forfeiture laws may affect our customers’ ability to purchase our products.
• Catastrophic events could materially adversely affect our business and/or financial condition.
•
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, customers may curtail or stop using our
service and we may incur significant legal and financial exposure and liabilities.
• Defects or disruptions in our services could impact demand for our services and subject us to substantial
liability.
• Defects in our products could reduce demand for our products or result in product recalls and result in a loss
of sales, delay in market acceptance and damage to our reputation.
• Our international operations expose us to additional risks that could adversely affect our business.
• We depend on our ability to attract and retain our key management, sales and technical personnel.
•
If we fail to comply with federal, state or local regulations applicable to TASER 10 we may be subject to
governmental actions or litigation which could adversely affect our business.
If we fail to maintain effective internal control over financial reporting or identify a material weakness or
significant deficiency, our ability to accurately and timely report our financial condition and results of
operations could be adversely affected, investor confidence could diminish, and the value of our common
stock may decline.
•
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.
• We may experience a decline in gross margins due to a shift in product sales to software and sensors products
and services which may continue to carry a lower gross margin than that of TASER devices.
• Software-as-a-Service 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.
• Most of our end-user customers are subject to budgetary and political constraints that may prevent sales.
• Due to municipal government funding rules, certain of our contracts are subject to various cancellation
clauses, which could allow our customers to cancel or not exercise options to renew contracts in the future.
• We maintain most of our cash balances, some of which are not insured, at three depository institutions.
• Stock transactions may have a material, unpredictable impact on our results of operations and may result in
dilution to existing shareholders.
• Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus
local currencies.
• Unanticipated changes in our effective tax rate and additional tax liabilities may impact our operating results.
• Our revenues and operating results may fluctuate unexpectedly, which may cause our stock price to decline.
Legal and Compliance Risks
• We may face personal injury, wrongful death, product liability and other liability claims that harm our
reputation and adversely affect our sales and financial condition.
• Other litigation, government inquiries and regulatory actions may subject us to significant costs and
judgments and divert management attention from our business.
4
• We have been, and may be 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.
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.
•
• We may be limited in our ability to enforce patent rights internationally to only those jurisdictions in which
our patent applications have been granted.
• A variety of new and existing laws and/or interpretations could materially and adversely affect our business.
o Our business could be adversely affected by rules and regulations governing our radio spectrum
devices.
o Changes in statutes, regulations, and interpretation outside of our control may result in our products
being classified or reclassified as firearms and could substantially reduce our private citizen market.
o Failure to comply with U.S. federal regulations could disrupt our operations.
o Our inability to obtain export licenses or classifications on a timely basis for sales of our products
o
to our international customers could adversely affect our international sales.
Inability to comply with federal regulation of foreign national employees could curtail the
company’s ability to execute research and development and production related to CED technology.
o Our product sales may be adversely affected by state and local governmental regulation of our
TASER-branded devices.
o Certain jurisdictions prohibit, restrict, or require a permit for importation, sale, possession or use of
CEDs, including in some countries by law enforcement agencies, limiting our international sales
opportunities.
o Abrupt changes to domestic and international regulation of imports and exports of components in
our supply chain can result in delays or interruptions to final product supplies.
o Any failure to properly maintain or license our foreign operations could limit our ability to sell,
support, or develop our products and services both internationally and in the U.S. market.
o We may be adversely impacted by environmental or climate change disclosure litigation and new,
or changes in, environmental safety laws, regulations or rules.
o Our inability to adequately address privacy concerns, or comply with applicable laws, regulations,
policies, industry standards and guidance, contractual obligations, or other legal obligations, could
result in significant regulatory and third party liability, increased costs and may adversely affect our
business.
• We are subject to evolving corporate governance and public disclosure regulations and expectations that
could expose us to numerous risks.
Risks Related to our Convertible Notes
• Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow to pay
our substantial debt.
• The conditional conversion feature of our 0.50% Convertible Senior Notes due 2027 (the “Notes”), if
triggered, may adversely affect our operating results.
• Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the
price of our common stock.
• Changes in the accounting treatment for the Notes may have a material effect on our reported financial
results.
• The convertible note hedge and warrant transactions may affect the value of the Notes and our common
stock.
• We are subject to counterparty risk with respect to the convertible note hedge transactions.
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Item 1. Business
Axon Enterprise, Inc. may be referred to as “the Company,” “Axon,” “we,” or “our.”
Overview
Axon’s mission is to protect life in service of promoting peace, justice and strong institutions. Our moonshot
goal is to cut gun-related deaths between police and the public in the United States by 50 percent before 2033.
As a technology leader in global public safety, Axon is building the public safety operating system of the future
by integrating a suite of hardware devices and cloud software solutions that lead modern policing. Axon’s suite
includes TASER energy devices, body-worn cameras, in-car cameras, cloud-hosted digital evidence management
solutions, productivity software and real-time operations capabilities.
Our hardware and software solutions advance our long-term strategic vision 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.
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. Axon products are generally cloud-
connected, designed to drive better outcomes and customer experiences, and sold via mutually reinforcing integrated
bundles.
Axon’s operations comprise two reportable segments:
1. 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. Our software offerings also support productivity and real-time operations.
2. 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.
Further information about our reportable segments and sales by geographic region is included in Notes 1, 2 and
20 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.
Axon employees are distributed across multiple geographies and report to work via a remote-hybrid model,
which leverages both in-person collaboration environments as well as cloud-based software tools that enable remote
productivity. Our physical headquarters in Scottsdale, Arizona houses some executive management, sales, marketing,
certain engineering, manufacturing, finance and other administrative support functions. Our other key in-person
facilities include Seattle, London and Ho Chi Minh City. We also have subsidiaries, and in some cases offices located
in Australia, Canada, Finland, France, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United
Kingdom, and Vietnam.
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:
• TASER: We develop smart devices, tools and services that support public safety officers in de-
escalating situations, avoiding or minimizing use of force and aiding consumer personal protection.
These tools include TASER devices, virtual reality training services and consumer 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
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adopted by a majority of U.S. state and local police departments and are used daily to help keep
communities safe. Global adoption of TASER devices remains early and we are expanding into new
geographies. Axon VR solutions make public safety training more accessible, relevant and
affordable — with the goal of using new immersive VR technologies to better prepare officers for real-
life situations in the field.
• 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, Axon Fleet in-car systems, and other devices that work with our
software.
• 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 $473 million(a) as of December 31, 2022. We have many SaaS solutions, which can best
be trisected into three categories: digital evidence management, productivity and real-time operations
solutions. Axon Evidence is the world’s largest cloud-hosted public safety data repository of public
safety video data and other types of digital evidence. Our productivity suite, which includes Axon
Records, is designed to save officers time spent writing reports and doing paperwork. And our real-time
operations capabilities, which include Axon Respond, integrates location data, signal alerts and video
feeds to provide a complete picture of evolving situations.
(a) Monthly recurring license, integration, warranty, and storage revenue for the year ended December 31,
2022.
Sales and Distribution: Who We Sell To and Where We Deliver
We think of our core customers as falling into roughly four categories of funding sources: U.S. state and local
governments, the U.S. federal government, international government customers, and commercial enterprises.
Additionally, the types of customers who find value in our product offerings are expanding beyond law enforcement
to include attorneys, fire and EMS personnel, corrections and the U.S. military.
Axon’s 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.
Our largest customer segment is U.S. state and local law enforcement. Axon has a customer relationship with
over 95% of state and local law enforcement agencies in the United States. The remaining agencies are served via our
telesales team, as well as distributors.
No customer represented more than 10% of total net sales for the years ended December 31, 2022, 2021 or 2020.
We are diversifying into new markets by adding new types of customer profiles, or users, and by adding to our
core customer base. In recent years, we have been investing in sales personnel to capture these new markets, and in
2023, we will focus on strategic headcount additions to support key new markets and newer products.
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. We continue to monitor developments in federal government
funding.
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 continue to take steps to diversify our supply chain and global manufacturing footprint, which positioned us
well managing through the recent supply chain challenges. Thus far, we have been able to produce and ship our critical
core products. As we enter 2023, material availability is improving but still poses real risks to all businesses that
manufacture products. Supplier decommitments remain our largest area of risk as we continue to experience this in
several areas. However, we have put programs in place to mitigate this risk. We proactively manage our supply chain
down to third tier suppliers to overcome material shortages as they arise. These actions align to our strategic model to
help meet strong product demand while also preparing us to stagger factory work schedules as needed, which enables
us to meet compressed build schedules over short periods of time. 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, identifying alternate shipping / logistic sources, and 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 Axon devices and CEDs, and customers also have the
option to purchase extended warranties. For additional information about our warranties, refer to Note 1 in 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, 2022, we hold 274 U.S.
patents, 109 U.S. registered trademarks, 165 international patents, and 415 international registered trademarks, and
also have numerous patent and trademark applications pending.
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 “Axon.com”, “Evidence.com”, and “TASER.com.” 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
Sensors — Connected Cameras and Digital Evidence Management Software: The body-worn camera and in-car
video/automatic license plate readers market is highly competitive. Our competition includes Motorola Solutions,
Utility Associates, Getac Technology Corporation, Panasonic Corp., Reveal Media, Safe Fleet, Digital Ally Inc.,
Visual Labs Inc., Intrensic, LLC, as well as Safety Vision, LLC, Rekor Systems Inc., and Genetec Inc.
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. Our competition includes Motorola Solutions, Panasonic Corp., IBM, Oracle, FotoWare, Vidizmo,
LLC, NICE, QueTel Corporation, OpenText Corporation, and FileOnQ among others.
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Key competitive factors in this market include product performance, product features (including live-streaming,
GPS tracking, and pre-event buffering), battery life, product quality and warranty, total cost of ownership, data
security, data and information workflows, company reputation and financial strength, and relationships with
customers.
Productivity and Real-Time Operations — Records Management System (RMS) and Computer Aided Dispatch
(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 Computer Systems), Saab, SOMA Global, RapidDeploy Inc., Sopra Steria, Mark43 Inc, and CSI
Technology Group. 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. Our Respond offering competes both with real-time operations platforms that
ingest body camera video feeds, like Motorola’s CommandCentral Aware, Hitachi’s Visualization Suite and Genetec’s
Citigraf as well as platforms that ingest video feeds exclusively from surveillance cameras, like Rave Mobile Safety,
Live Earth and Mutualink among others.
TASER for Professional User Markets: Our CEDs compete with a variety of less-lethal alternatives to firearms,
including rubber bullets or rubber baton rounds, such as those made by Combined Systems; pepper spray, pepper
spray projectiles, such as those made by Byrna Technologies Inc. (dba Fox Labs), SABRE Corporation, and Mace
Security International, Inc.; traditional stun guns, such as those made by UZI and Jolt; hand-held remote restraint
devices involving a tether, such as the one made by Wrap Technologies Inc.; laser dazzlers that cause temporary
blindness, such as the one made by B.E. Meyers & Co., Inc.; stun grenades, such as those made by Combined Systems,
Inc.; long-range acoustic devices, such as the one made by Genasys Inc.; police batons and night sticks, such as those
made by Monadnock and by Armament Systems and Procedures, Inc. 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 law enforcement agencies and other professional users 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
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.
Virtual Reality (“VR”) De-Escalation Training for Law Enforcement, Corrections and Private Security Markets:
Our VR Training platform competes with several other companies in the space who offer simulation scenarios,
including simulated training on the use of both lethal and less-lethal alternatives. Our competition in this space
includes VirTra Inc., Apex Officer, Laser Shot Inc., InVeris Training Solutions Inc., MILO, Ti Training Corp,
Adaptive VR Ltd. (AVRT), V-Armed, Street Smarts VR and WRAP Technologies.
Key competitive factors in this market include scale of content library, integration to additional sensors and
devices (e.g. haptic suit, TASER), ease of use, visual fidelity and realism, quality of immersion experience (enhanced
by capabilities such as eye tracking and speech recognition) and portability.
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. Leading competitors in the less-than-lethal space include Byrna Technologies, Inc., Salt Supply
Co., PepperBall, Mace, SABRE and Vipertek. 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 personal safety 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
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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), to personal tracking and emergency notification mobile applications.
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.
Non-Axon trademarks are property of their respective owners.
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 certain of our CEDs as firearms;
advertising; 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. See “Item 1A. Risk Factors – Legal and Compliance Risks - A variety of new and existing laws and/or
interpretations could materially and adversely affect our business.”
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, after receiving the required approvals,
we market our 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
10
by FirstNet and other operators. These regulations affect CEDs with Signal technology, including the TASER 7 and
TASER 10, SPPM, and future CEDs implementing wireless technology.
Axon and TASER Devices
For our TASER products, we rely on the opinions of the U.S. Bureau of Alcohol, Tobacco, Firearms and
Explosives (“ATF”), 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.: All current CED models, with the exception of TASER 10, which
launched in January 2023, are not firearms regulated by the ATF, and our consumer products are regulated by the U.S.
Consumer Product Safety Commission. The TASER 10 is regulated by the ATF under the Gun Control Act of 1968
and is subject to applicable state and local firearms regulations that are jurisdiction-specific. Axon must maintain a
federal firearms license to manufacture and sell the TASER 10, which subjects Axon to periodic compliance
inspections by the ATF. License violations discovered by the ATF can result in fines, penalties, warning letters or
license revocation. Additionally, if we fail to comply with ATF rules and regulations, the ATF may limit our TASER
10 activities or growth, fine us, or ultimately, suspend our ability to produce and sell the TASER 10 product line.
There are currently no federal laws restricting sales of our other currently offered 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. 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. Although TASER 10 is regulated by the ATF for domestic
sales, the U.S. DOC has ruled that the product’s unique propulsion design has no impact on its export classification
and that the TASER 10 model’s export classification remains consistent with all other TASER CED models.
Federal regulation of foreign national employees: Our CED development and 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 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 recruit employees and execute R&D and
production related to CED technology.
State and local regulation: Our CEDs are controlled, restricted or, less frequently, prohibited by some state and
local governments. As of December 31, 2022, Rhode Island is the only state that prohibits the possession of our
TASER-branded devices that are not regulated by the ATF. However, that prohibition was struck down as
unconstitutional by a federal court, and new legislation is expected. Additionally, some cities and municipalities also
prohibit private citizen possession or use of our CED products. However, with the launch of TASER 10 in
January 2023, we may need to comply with additional state and local requirements governing the sale of firearms if
that device is sold to non-law enforcement customers.
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.
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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. Additionally, certain TASER 10 components are regulated for import into the U.S. by the ATF and are subject
to ATF import permits which limits Axon’s ability to source from some suppliers leading to a potential decrease in
supply chain agility.
International regulation of foreign-based operations: We maintain foreign operations in several countries
globally for purposes of logistics, sales, general and administrative services, and R&D support. Depending on these
activities, regulations can include business activity licensing and registration, import permits and recordkeeping,
warehousing & storage security and permitting, and government reporting.
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.
Other countries have adopted chemical restrictions regulations, including but not limited to the U.S., Canada,
and Australia. New, or changes in, environmental safety laws, regulations or rules could also lead to increased costs
of compliance, including remediations of any discovered issues, and changes to our operations, which may be
significant. Any failures to comply could result in significant expenses, delays or fines.
Privacy Regulations
We are subject to laws and regulations that dictate whether, how, and under what circumstances we can collect,
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. These laws and regulations often
create private rights of action, impose new potential monetary penalties for noncompliance, and may require us to
adopt additional contractual obligations as well as restrict our ability to store or process data.
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We continue to monitor and assess for compliance as the regulatory environment evolves both within the United
States and in relevant international markets. Laws and regulations often involve matters central to our business,
including:
• Privacy laws, such as the European General Data Protection Regulation, California’s Consumer Privacy Act
and Privacy Rights Act, Illinois’ Biometric Information Privacy Act, Virginia’s Consumer Data Protection
Act, the Colorado Privacy Act and other laws.
• Data protection laws passed by many states within the U.S. regarding notification to data subjects or
regulators where there is a security breach of personal data.
• Data localization or data sovereignty laws requiring that certain data types collected in a particular country
be stored or processed within that country.
Dynamic, and sometimes inconsistent, interpretations of what constitutes “personal information” enhance the
complexity of complying with these regulations across jurisdictions.
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, 2022, we had 2,821 full-time employees and 913 temporary employees (temporary
employees include contractors, interns, and consultants). During fiscal 2022, the number of full-time employees
increased by 673 or 31%, primarily for product support, R&D, and other support organizations.
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. We closed the year with our regrettable attrition
rate(a) at 2.02%, well under the annual goal of 2.5%. More than 90% of employees reported feeling proud to work at
Axon during 2022’s employee engagement survey.
(a) Regrettable attrition is defined as rolling 12-month attrition of employees rated as top performing in the
prior performance rating cycle.
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. Throughout 2022 we continued to see active participation in all six of our
affinity groups — Axon Allies for LGBTQ+ employees, APIA for Asian Pacific Islander employees, HOLA for
Hispanic employees, Axon Mosaic for Black employees, Axon Vets for service veterans, and Women at Axon. Each
affinity group is inclusive of employees who identify as members of each community, as well as allies.
In 2022, we formed the Ethics & Equity Advisory Council (EEAC) to ensure that ethics and equity are at the
forefront of our services and product development. We believe that our ability to retain our workforce is dependent
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upon fostering an environment that is sustainably safe, respectful, fair and inclusive of everyone and promotes
diversity, equity and inclusion inside and outside of our business. Internally, we continue to listen to our employees
with town hall sessions, provide expert-led webinars, and host community round tables.
Health and Safety
The health and safety of our employees is of utmost importance 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.
To promote mental and emotional wellbeing, all full-time employees are 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 articles
and activities offering guidance on maintaining emotional balance throughout tumultuous times.
Additionally, we have a Wellness Incentive Program for our domestic employees that incentivizes healthy
lifestyles. The program rewards employees for completing a variety of well-being activities that help foster their
financial wellness, mental health, social wellbeing, community engagement and nutrition.
Corporate Information
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.
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.
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Strategic Risks
We are substantially dependent on acceptance of our products by law enforcement markets, throughout the
world. If law enforcement agencies do not continue to purchase and use our products and services, our growth
prospects, operating results and financial conditions will be materially adversely affected.
At any point, whether or not related to the performance of our products and services, law enforcement agencies
may elect to no longer purchase our CEDs or other products and services. For example, in the past, we believe that
our sales were adversely impacted by negative coverage and publicity surrounding our products and services and their
use. If law enforcement agencies no longer purchase our products and services, or materially decrease their purchases,
our growth prospects, operating results and financial condition will be materially adversely affected.
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, 2022, 2021 and 2020, we derived a significant portion of our revenues from
sales of TASER brand devices and related cartridges, whether on a standalone basis or as part of a bundled offering,
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.
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. 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 levels of inventory to mitigate the risk of production
delays, which may in turn expose us to an increased risk of obsolescence.
We have devoted, and continue to devote, significant resources to develop and deploy our cloud-based
productivity and real-time operations SaaS solutions, which we continue 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 be consistently configured for customers with minimal effort, or if we are unable to grow 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 business prospects, operating results and
financial condition could be negatively impacted..
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 Axon device, CED and SaaS
technology, 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 which is principally through direct sales
and independent distributors. We are focusing on direct sales to larger agencies through our regional sales managers
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and our inability to grow sales to these agencies in this manner would materially adversely affect our business
prospects, operating results and financial condition In addition, our inability to establish relationships with and retain
law enforcement equipment distributors, who we believe can successfully sell our products, would materially
adversely affect our business prospects, operating results and financial condition. 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 of, or investments in, other companies, products, or technologies may require significant
management attention and could disrupt our business, dilute stockholder value, and adversely affect our
operating results.
Our business strategy may include acquiring other complementary products, technologies or businesses.
Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these
transactions may be subject to third-party approvals, such as government regulatory approvals, which are beyond our
control. Consequently, we can make no assurance that these transactions once undertaken and announced, will close.
These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. If
we acquire businesses or technologies, we may not be able to integrate the acquired personnel, operations, and
technologies successfully, or effectively manage the combined business following the acquisition. We also may not
achieve the anticipated benefits from the acquired business due to a number of factors, including:
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inability to integrate or benefit from acquired technologies, products, personnel or services in a profitable
manner;
unanticipated costs or liabilities associated with the acquisition, including potential liabilities due to
litigation and potential identified or unknown security vulnerabilities in acquired technologies that expose
us to additional security risks or delay our ability to integrate the product into our offerings or recognize the
benefits of our investment;
differences between our values and those of an acquired company, as well as potential disruptions to our
workplace culture;
incurrence of acquisition-related costs, including costs related to integration activities;
difficulty integrating the accounting and information systems, operations, and personnel of the acquired
business;
augmenting the acquired technologies and platforms to the levels that are consistent with our brand and
reputation;
difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of
the acquired business;
challenges converting the acquired company’s revenue recognition policies and forecasting the related
revenues, including subscription-based revenues and software license revenues;
potential write-offs of acquired assets or investments, and potential financial and credit risks associated with
acquired customers;
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difficulty converting the customers of the acquired business onto our platform and contract terms;
diversion of management’s attention and other company resources;
harm to our existing business relationships with business partners and customers as a result of the
acquisition;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
We cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we
would not be exposed to unknown liabilities or risks. Integrating an acquired technology, asset or business into our
operations can be challenging, complex and costly and we cannot assure you that we will be successful or that the
anticipated benefits of the acquisitions that we complete will be realized or outweigh their costs. If our integration and
development efforts are not successful and the anticipated benefits of the acquisitions that we complete are not
achieved, our business, operating results, financial condition, and prospects could be adversely affected.
In connection with these types of transactions, we may issue additional equity securities that would dilute our
stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us
or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse
business cultures and values, and become subject to adverse tax consequences, substantial depreciation, or deferred
compensation charges. These challenges could adversely affect our business, operating results, financial condition,
and prospects.
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
Unavailability of materials or higher costs 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
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. Additionally, if our suppliers do not accurately forecast
and effectively allocate production or if they are not willing to allocate sufficient production to us, or they decommit
to us previously agreed to supply levels, it may reduce our access to components and require us to search for new
suppliers. As the scale of our hardware production increases, we will also need to accurately forecast, purchase,
warehouse and transport components at high volumes to our manufacturing facilities. If we are unable to accurately
match the timing and quantities of component purchases to our actual needs, we may incur unexpected production
disruption, storage, transportation and write-off costs, which may harm our business and operating results.
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
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our financial condition or results of operations and could harm our reputation. For example, revenue from TASER 7
for 2022 was impacted by approximately $35.0 million for orders that were scheduled to ship prior to December 31,
2022, but could not be fulfilled due to the delayed receipt of a manufacturing component for our TASER 7 devices.
Additionally, Axon Body revenue was impacted by approximately $15.5 million for orders that were scheduled to
ship prior to December 31, 2022, but could not be fulfilled due to supply chain constraints for our Axon Body 3
devices.
Due to the unique requirements of the TASER 10, we purchase our raw materials from a limited number of
suppliers. Some of the raw materials that are used in the TASER 10 may be subject to fluctuations in market price
which we may be unable to pass through to our customers to offset market fluctuations. Because of the unique
requirements of the TASER 10, we cannot change suppliers easily. Any delay or interruption in the supply of these
raw materials could impair our ability to manufacture and deliver the TASER 10, harm our reputation or cause a
reduction in revenues.
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, there
have been disruptions in the semi-conductor supply chain that could negatively impact 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 our
revenues, profitability and financial condition. 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. We may be
unable to transition away from China to other jurisdictions or obtain secondary sources for raw materials which could
result in a material adverse effect on our revenues, profitability and financial condition.
Material adverse developments in domestic and global economic conditions, or the occurrence of other world
events, could materially adversely affect our revenue and results of operations.
Various factors contribute to the uncertain economic environment, including the conflict between Russia and
Ukraine, the increase in, and volatility of, interest rates, high inflation, an actual recession or fears of a recession, trade
policies and tariffs and geopolitical tensions. Our inability to offset price inflation in our materials, components,
shipping, or labor through increased prices to customers with long-term fixed contracts and formula-based or long-
term fixed price contracts with suppliers could adversely affect our business, financial condition and results of
operations. Global supply chain and labor market challenges could also negatively affect our performance as well as
the performance of our suppliers. Interest rate increases have also created financial market volatility and could further
negatively impact financial markets, lead to an economic downturn or recession or have an adverse effect on our
operating results. Economic slowdowns can also negatively impact municipal and state tax collections and put pressure
on law enforcement budgets which may increase the risk that our customers will be unable to appropriate funds for
existing or future contracts with us. In addition, geopolitical risks could affect our customers’ budgets and policies.
These and other factors may adversely affect customer demand and ability to pay, cause decrease in sales, and
negatively impact the realizability of our accounts and notes receivable and contract assets.
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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.
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 manufacturing 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, operating 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, operating results, cash
flows and competitive position.
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 could limit the amount of funds available to our customers, which could
adversely affect the sale of our products.
Catastrophic events could materially adversely affect our business, results of operations and/or financial
condition.
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, utility failure, cyber-attack, terrorist attack,
public health crisis, pandemic, 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.
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 catastrophic events, but there can be no assurances that we will be successful in doing so.
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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.
Security breaches of Axon body worn cameras, docks, fleet vehicle cameras, signal devices and Axon Evidence
and other cloud services or products could expose our clients and us to a risk of loss or misuse of data. Any security
breach could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business,
lead to legal liability, and negatively impact our future sales. 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; however, security breaches that have not had a material effect on our business or our third-party service providers
have occurred and will continue to occur, including as a result of third-party action, employee error, and malfeasance
or otherwise. Remote-work arrangements may also make our systems and employees more susceptible to attack.
Breaches could occur during transfer of data-to-data centers or at any time, and result in unauthorized physical or
electronic 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. Increasing socioeconomic
and political instability in some countries has heightened these risks. In addition, retaliatory acts by Russia in response
to Western sanctions could include cyber-attacks that could directly or indirectly impact our operations.
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 real or perceived 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
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 or result in product recalls 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
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acceptance, damage to our reputation and increased warranty costs, which could adversely affect our business,
financial results and competitive position.
Additionally, we are subject to the U.S. Consumer Products Safety Act of 1972, as amended by the Consumer
Product Safety Improvement Act of 2008, which empowers the Consumer Products Safety Commission to exclude
from the market products that are found to be unsafe or hazardous, and similar laws under foreign jurisdictions. Under
certain circumstances, the Consumer Products Safety Commission or comparable foreign agency could require us to
repurchase or recall one or more of our products. If we were required to remove, or we voluntarily remove, our
products from the market, our reputation could be tarnished, and we might have large quantities of finished products
that we could not sell.
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.
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Import and export requirements, tariffs, trade disputes and barriers, product certification requirements,
sanctions, 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.
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 adversely 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
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applicable terms of the employment agreements. In particular, we expect to continue to face significant challenges in
hiring personnel, particularly for engineering talent, whether as a result of competition with other companies or other
factors.
We have unique equity incentives designed to attract and retain long-term employees. We utilize these plans to
align pay and performance and drive shareholder returns while reducing near-term cash expenditures. Our equity
incentives and ongoing stock and option grants are subject to having sufficient shares under our stock plan and any
new plans or increases in the number of shares available for grant under existing plans must be approved by our
shareholders. If we are unable to obtain shareholder approval, we may be unable to attract and retain top talent. Our
ability to attract, retain, and motivate employees may also be adversely affected by stock price volatility. The loss of
the service of one or more of our key personnel could adversely impact our business, prospects, financial condition
and operating results.
If we fail to comply with federal, state or local regulations applicable to our firearm product, TASER 10, we
may be subject to governmental actions or litigation which could materially harm our business, operating
results, and financial condition.
TASER 10 is primarily regulated by the ATF, which licenses the manufacture, sale, and import of firearms in
the United States. The primary federal laws are the National Firearms Act of 1934, or NFA, the Gun Control Act of
1968, or GCA, and the Firearms Owners’ Protection Act of 1986, or FOPA, which have been amended from time to
time.
The ATF conducts periodic audits of our Arizona facilities which hold federal firearms licenses. If we fail to
comply with ATF rules and regulations, the ATF may limit our TASER 10 activities or growth, fine us, or, ultimately,
suspend our ability to produce and sell the TASER 10 product line. There are also various state laws, regulations, and
local ordinances relating to firearm characteristics, features, and sales. Axon and local distributors must comply with
state and local laws, regulations, and ordinances pertaining to firearm and magazine sales in the jurisdictions where
TASER 10 is sold. Additionally, certain TASER 10 components are regulated for import into the U.S. by ATF and
are subject to ATF import permits which limits Axon’s ability to source from some suppliers leading to a potential
decrease in supply chain agility. Supply chain constraints or an inability to source TASER 10 components could have
a material adverse affect on our business, prospects, financial condition and operating results.
Federal and state legislatures frequently consider legislation relating to the regulation of firearms, including the
amendment or repeal of existing legislation. Existing laws may also be affected by future judicial rulings and
interpretations. These possible changes to existing legislation or the enactment of new legislation may seek to restrict
the makeup of a firearm, mandate the use of certain technologies in a firearm, remove existing legal defenses in
lawsuits, set minimum age limits to purchase certain firearms, or ban the sale and, in some cases, the ownership of
various types of firearms and accessories. Such restrictions or bans could have a material adverse affect on our
business, prospects, financial condition and operating results
If we fail to maintain effective internal control over financial reporting or identify a material weakness or
significant deficiency in our internal control over financial reporting, our ability to report our financial
condition and results of operations in a timely and accurate manner could be adversely affected, investor
confidence in our company could diminish, and the value of our common stock may decline.
Preparing our consolidated financial statements involves a number of complex manual and automated processes,
which are dependent upon individual data input or review and require significant management judgment. One or more
of these processes may result in errors that may not be detected and could result in a material misstatement or other
errors of our consolidated financial statements. Such errors may be more likely to occur when implementing new
systems and processes, particularly when implementing evolving and complex accounting rules. The Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that as a publicly-traded company we disclose
whether our internal control over financial reporting and disclosure controls and procedures are effective.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
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will not be prevented or detected on a timely basis. While we continually undertake steps to improve our internal
control over financial reporting as our business changes, we may not be successful in making the improvements and
changes necessary to be able to identify and remediate control deficiencies or material weaknesses on a timely basis.
For example, we identified a material weakness in our internal controls over revenue recognition and the reporting of
deferred revenue for the year ended December 31, 2022 which we are working to remediate as further discussed in
Item 9A. Controls and Procedures. If we are unable to successfully remediate any current or future material
weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be
adversely affected; our liquidity, access to capital markets and perceptions of our creditworthiness may be adversely
affected; we may be unable to maintain compliance with securities laws, stock exchange listing requirements and debt
instruments covenants regarding the timely filing of periodic reports; we may be subject to regulatory investigations
and penalties; investors may lose confidence in our financial reporting; we may suffer defaults under our debt
instruments; and our stock price may decline.
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.
Our strategy includes continuing 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. 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 multiple installments rather than up front. 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 to software and sensors products
and services which may continue to carry a lower gross margin than that of Tasers.
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. In 2022,
gross margin as a percentage of net sales for the Software and Sensors segment was 59.5% while it was 63.3% for the
TASER segment, and may continue to be lower in the future thus decreasing our consolidated gross margin.
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 ten 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 trends, whether positive or negative, 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
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
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experienced historically. Federal agencies may be particularly impacted by governmental impasse regarding continued
government funding and debt limit constraints.
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 three depository institutions.
We maintain the majority of our cash and cash equivalents accounts at three depository institutions. As of
December 31, 2022, the aggregate balances in such accounts at these three institutions were $139.9 million. Our
balances with these institutions regularly exceed Federal Deposit Insurance Corporation insured limits for domestic
deposits and various foreign deposit insurance programs covering our deposits in Australia, Canada, Finland, France,
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 transactions may have a material, unpredictable impact on our results of operations and may result in
dilution to existing shareholders.
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.
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.
As we continue to mature, the incentives to attract, retain, and motivate employees provided by our equity awards
or by future arrangements may not be as effective as in the past. We may also issue equity securities to pay for
acquisitions and grant stock-based awards to retain the employees of acquired companies. If we issue significant equity
to attract additional employees, to retain our existing employees, or related to acquisitions, we could incur substantial
additional share-based compensation expense and the ownership of our existing stockholders would be further diluted.
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
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in U.S. dollars which could increase our foreign exchange rate risk caused by foreign currency transaction gains and
losses.
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 potential 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, including proposals by the current U.S. president.
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;
•
•
•
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•
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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;
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•
•
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changes in our operating expenses, including stock-based compensation expense;
changes in foreign currency exchange rates, inflation, and interest rates; and
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, product liability 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 or killed 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, product performance issues, or inadequate warnings or training. 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 criminal misuse of our products. We have no control over how our
products and services are used by our customers or other end-users and cannot assure they are used consistent with
our specifications and design. While our products are designed to be non-lethal, we cannot guarantee they will be used
in a manner consistent with our intent and any such use exposes us to litigation, reputational harm and controversy. 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. Similar to product
liability claims, we face exposure to class action lawsuits related to the performance, safety, or advertising of our
products. Such class action lawsuits could also result in substantial monetary judgments, injunctions related to the sale
of products, and potentially harm our reputation.
Although we maintain product liability insurance in amounts that we believe are reasonable, we may not be able
to maintain such insurance on acceptable terms, if at all, and product liability claims may exceed the amount of
insurance coverage available to us. Because we manufacture and sell CEDs, insurance carriers may decide not to
insure our products or our company in the future. 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, government inquiries and regulatory actions may subject us to significant costs and judgments
and divert management attention from our business.
We have been or could in the future be involved in numerous other litigation, government inquiries and
regulatory matters relating to our products, employees, 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.
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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. 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 discontinue use of the protected technology or enter into costly royalty or licensing agreements in order to
be able to sell our products. 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
distributors, cease the manufacture, use, or sale of infringing products or processes, make proprietary source code
publicly available, 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 or virtual reality, 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. Varying intellectual property
laws across 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 those
first introduced in our M26 and X26 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, such
information 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
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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 ineffective, 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 against enforcement actions, such as that
filed by the FTC regarding our acquisition of Vievu LLC from Safariland LLC on May 3, 2018. For additional
discussion of this matter, refer to Note 13 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.
We may be limited in our ability to enforce patent rights internationally to only those 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. Certain foreign countries have
patent working requirements that require a patent owner to practice a patented invention with the respective country.
A patent in a foreign country may be subject to cancellation, forfeiture, compulsory license, or other penalty if the
claimed invention has not been worked in that country. Meeting the requirements of working an 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. In a country in which we do not have a patent or a
country in which our patent in that country is unenforceable or unenforced, other companies and makers of similar
products and services may be able to copy our products or features of our products without consequence, thus limiting
our ability to capture market share or protect our technology, which could materially harm our growth prospects and
operating results.
A variety of new and existing laws and/or interpretations could materially and adversely affect our business.
As detailed in “Item I. 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,
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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. For example, as has been reported in the press, there is a grand jury
investigation being conducted by the U.S. Attorney’s Office for the Northern District of Illinois. We have fully
cooperated with the investigation and continue to do so. While we conducted an extensive internal investigation into,
among other things, lobbying activities, and have found no indication of any wrongdoing by any Axon employee,
there can be no assurance that this matter will not harm our business.
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 U.S. Federal Communications Commission
(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 the 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.
Axon and TASER Devices
For our TASER products, we rely on the opinions of the ATF, 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.: The majority of our currently offered CEDs are not classified as firearms
regulated by the ATF. However, the ATF regulates TASER 10 as a firearm under the Gun Control Act of 1968 due to
a technological advancement specific to the propulsion design of the TASER 10 CED’s cartridges. While this
classification will have little impact on Axon’s ability to sell TASER 10 to law enforcement and government entities,
our private citizen and enterprise market could be substantially reduced because non-governmental end-users would
be required to comply with federal, state, or local firearm transfer requirements prior to purchasing TASER 10.
Additionally, Axon must maintain a federal firearms license to manufacture and sell the TASER 10, which subjects
Axon to periodic compliance inspections by the ATF. License violations discovered by the ATF can result in fines,
penalties, warning letters or license revocation, leading to disruptions in operations.
Our CED products are also subject to testing, safety and other standards by 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. 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. Although TASER 10 is regulated by the ATF for domestic
sales, the U.S. DOC has ruled that the product’s unique propulsion design has no impact on its export classification
and that the TASER 10 model’s export classification remains consistent with all other TASER CED models.
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Federal regulation of foreign national employees: Our CED development and 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 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 some state and
local governments. Other jurisdictions may ban or restrict the sale of our TASER-branded devices, 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. The change in TASER 10’s propulsion design may impact how
TASER 10 is regulated at the state and/or local level depending on each state’s firearm laws.
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. Additionally,
ATF regulation of certain imports of TASER 10 components may limit Axon’s supply chain agility.
International regulation of foreign-based operations: We maintain foreign operations in several countries
globally for purposes of logistics, sales, general and administrative, 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.
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 or climate change
disclosure legislation may be enacted in other jurisdictions, including the U.S. (under federal and state laws) and other
countries, the cumulative impact of which could be significant. New, or changes in, environmental safety laws,
regulations or rules could also lead to increased costs of compliance, including remediations of any discovered issues,
and changes to our operations, which may be significant. Any failures to comply could result in significant expenses,
delays, or fines.
Privacy Regulations
We are subject to various risks and costs associated with the collection, processing, storage and transmission of
personally identifiable information and other sensitive and confidential information. This data is wide ranging and
relates to our employees, customers, third parties, and the subjects of law enforcement. Our compliance obligations
include laws and regulations that dictate whether, how, and under what circumstances we can transfer, process and/or
receive and hold 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. Countries may
also 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. We are also subject to U.S. laws and regulations, including, without limitation, the
California Privacy Rights Act, which provides for enhanced consumer protections for California residents, a private
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right of action for data breaches and statutory fines and damages for data breaches or other California Consumer
Privacy Act violations, as well as a requirement of “reasonable” cybersecurity.
Any inability, or perceived inability, by us to adequately address privacy concerns, or comply with applicable
laws, regulations, policies, industry standards and guidance, contractual obligations, or other legal obligations, even
if unfounded, could result in significant regulatory and third party liability, increased costs, disruption of our business
and operations, and a loss of confidence and other reputational damage. Furthermore, as new privacy- related laws
and regulations are implemented, the time and resources needed for us to comply with such laws and regulations
continues to increase and become a significant compliance workstream.
Our business is subject to evolving corporate governance and public disclosure regulations and expectations,
including with respect to environmental, social and governance matters, that could expose us to numerous risks.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory
organizations, including the SEC, the Nasdaq Stock Market and the Financial Accounting Standards Board. These
rules and regulations continue to evolve in scope and complexity and many new requirements have been created in
response to laws enacted by Congress, making compliance more difficult and uncertain. In addition, increasingly
regulators, customers, investors, employees and other stakeholders are focusing on environmental, social and
governance (“ESG”) matters and related disclosures. These changing rules, regulations and stakeholder expectations
have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased
management time and attention spent complying with or meeting such regulations and expectations. For example,
developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related
information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards,
including the SEC’s recently proposed climate-related reporting requirements, and similar proposals by other
international regulatory bodies. We may also communicate certain initiatives and goals, regarding environmental
matters, diversity, responsible sourcing and social investments and other ESG related matters, in our SEC filings or
in other public disclosures. These initiatives and goals within the scope of ESG could be difficult and expensive to
implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient
pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Further, statements
about our ESG related initiatives and goals, and progress against those goals, may be based on standards for measuring
progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are
subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals,
or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if
we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, our reputation,
business, financial performance and growth could be adversely affected.
Risks Related to our Convertible Notes
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our or
their businesses to pay our substantial debt.
As of December 31, 2022, we had outstanding an aggregate principal amount of $690.0 million of our 0.50%
Convertible Senior Notes due 2027 (the “Notes”). Our ability to make scheduled payments of the principal of, to pay
interest on or to refinance our indebtedness, including the notes, depends on our future performance, which is subject
to economic, financial, competitive and other factors beyond our control. Our businesses may not continue to generate
cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we
are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets,
restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability
to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not
be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a
default on our debt obligations, including the notes.
31
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to
convert their Notes at any time during specified periods at their option. If one or more holders elect to convert their
Notes, we would be required to settle any converted principal amount of such Notes through the payment of cash,
which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could
be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as
a current, rather than long-term, liability, which would result in a material reduction of our net working capital.
Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the
price of our common stock.
The conversion of some or all of the Notes may dilute the ownership interests of our stockholders. Upon
conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock,
or a combination of cash and shares of our common stock in respect of the remainder, if any, of our conversion
obligation in excess of the aggregate principal amount of the Notes being converted. If we elect to settle the remainder,
if any, of our conversion obligation in excess of the aggregate principal amount of the Notes being converted in shares
of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our
common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
In addition, the existence of the Notes may encourage short selling by market participants because the conversion of
the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common
stock could depress the price of our common stock.
Changes in the accounting treatment for the Notes could have a material effect on our reported financial results.
We have adopted Accounting Standards Update (“ASU 2020-06”) 2020-06 as of January 1, 2022. Accordingly,
we do not bifurcate the liability and equity components of the Notes on our balance sheet and we use the if-converted
method of calculating diluted earnings per share. Under the “if-converted” method, diluted earnings per share will
generally be calculated assuming that all the notes were converted solely into shares of common stock at the beginning
of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per
share. Because the principal amount of the Notes upon conversion is required to be paid in cash, and only the excess
is permitted to be settled in shares, the application of the if-converted method will produce a similar result as the
treasury stock method prior to the adoption of ASU 2020-06. The effect of the treasury stock method is that the shares
issuable upon conversion of such Notes are not included in the calculation of diluted earnings per share except to the
extent that the conversion value of such Notes exceeds their principal amount.
In accordance with ASU 2020-06, the Notes are reflected as a liability on our consolidated balance sheets, with
the initial carrying amount equal to the principal amount of the Notes, net of issuance costs. The issuance costs will
be treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of
the Notes. As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting
purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported
income.
We cannot be sure whether future changes made to the current accounting standards related to the Notes will not
have a material effect on our reported financial results.
The convertible note hedge and warrant transactions may affect the value of the Notes and our common stock.
In connection with the pricing of the Notes, we have entered into convertible note hedge transactions with the
option counterparties. We have also entered into warrant transactions with the option counterparties. The convertible
note hedge transactions are expected generally to reduce the potential dilution to our common stock upon any
conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of
converted notes, as the case may be. However, the warrant transactions could have a dilutive effect on our common
stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants.
32
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering
into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common
stock or other securities of ours in secondary market transactions following the pricing of the notes and prior to the
maturity of the notes (and are likely to do in connection with any conversion of the Notes or redemption or repurchase
of the Notes). This activity could cause or avoid an increase or a decrease in the market price of our common stock.
In addition, if any such convertible note hedge and warrant hedging transactions fail to become effective, the
option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock,
which could adversely affect the value of our common stock.
The potential effect, if any, of these transactions and activities on the market price of our common stock will
depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely
affect the value of our common stock.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of them
might default under the convertible note hedge transactions. Our exposure to the credit risk of the option counterparties
will not be secured by any collateral.
If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in
those proceedings with a claim equal to our exposure at that time under the convertible note hedge transactions with
such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will
be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default
by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate
with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option
counterparties.
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 and Scottsdale, Arizona; San
Leandro, California; East Point, Georgia; Topsfield, Massachusetts; Seattle and Spokane, Washington; Melbourne
and Sydney, Australia; Toronto, Canada; Daventry and London, England; Tampere, Finland; Frankfurt, Germany;
Delhi, India; Rome, Italy; Amsterdam, Netherlands; and Ho Chi Minh City, Vietnam. We also own a parcel of land
located in Scottsdale, Arizona on which we intend to develop a new campus.
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.
33
Item 3. Legal Proceedings
See discussion of litigation in Note 13 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.
34
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, 2022, there were 212 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, 2022, no common
shares were purchased under the program. As of December 31, 2022, $16.3 million remained available under the plan
for future purchases.
35
Stock Performance Graph
The following stock performance graph compares the performance of our common stock to the NASDAQ
Composite Index, Russell 2000 Index, Russell Midcap Index, and S&P 500 Index.
The graph covers the period from December 31, 2017 to December 31, 2022. The graph assumes that the value
of the investment in our stock and in each index was $100 at December 31, 2017, 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 2000 Index, the Russell Midcap Index and the S&P 500
Index
$700
$600
$500
$400
$300
$200
$100
$0
12/31/17
12/31/18
12131/19
12/31/20
12/31121
12/31/22
-B- Axon Enterprise, Inc.
- h. -
' ASDAQ Composite
--e-- Russell 2000
- 0- Russell Midcap index - - - S&P 500
Axon Enterprise, Inc.
NASDAQ Composite
Russell 2000
Russell Midcap Index
S&P 500
2017
$ 100.00
100.00
100.00
100.00
100.00
2018
$ 165.09
97.16
88.99
90.94
95.62
2019
$ 276.53
132.81
111.70
118.72
125.72
2020
$ 462.38
192.47
134.00
139.02
148.85
2021
$ 592.45
235.15
153.85
170.42
191.58
2022
$ 626.08
158.65
122.41
140.91
156.88
Note: Index data copyright NASDAQ OMX, Inc.; Russell Investments; and Standard and Poor’s, Inc. Used with
permission. All rights reserved.
Item 6. [Reserved]
36
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, 2022 as compared to the year
ended December 31, 2021. For a discussion and analysis of the year ended December 31, 2021, compared to the same
period in 2020 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, 2021,
filed with the SEC on February 25, 2022.
Overview
Axon’s product suite includes TASER energy devices, body-worn cameras, in-car cameras, cloud-hosted digital
evidence management solutions, productivity software and real-time operations capabilities. Our financial strategy is
to build highly recurring, highly profitable businesses. Axon products are generally cloud-connected, designed to drive
better outcomes and customer experiences, and sold via mutually reinforcing integrated bundles.
Axon’s operations comprise two reportable segments:
1. 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. Our software offerings also support productivity and real-time operations.
2. TASER: Axon is the market leader in the development, manufacture and sale of CEDs, which we sell under
our brand name, TASER.
We derive revenue from two primary sources: (1) the sale of physical products, including Axon cameras, Axon
Signal enabled devices, CEDs, 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.
Some 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.
Our revenues for the year ended December 31, 2022 were $1,189.9 million, an increase of $326.6 million, or
37.8%, from the prior year. We had income from operations of $93.3 million compared to a loss from operations of
$168.1 million in the prior year. Gross margin dollars increased by $187.7 million, but decreased as a percentage of
revenue compared to 2021, reflecting higher labor and freight costs. Operating expenses decreased $73.6 million,
reflecting a decrease of $195.9 million in stock-based compensation expense primarily related to the CEO
Performance Award and XSPP, partially offset by an increase in salaries and bonus expense, and increases in travel
and commissions expense. For the year ended December 31, 2022, we recorded net income of $147.1 million, which
reflected net unrealized gains of $131.9 million related to observable price changes for our existing investments and
related warrants and an unrealized loss of $32.9 million on market securities related to our investment in Cellebrite
DI Ltd (“CLBT”), compared to a net loss of $60.0 million for the prior year.
37
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,
2022
$ 801,388
388,547
1,189,935
363,219
98,078
461,297
728,638
2021
67.3 % $ 608,525
32.7
100.0
30.5
8.3
38.8
61.2
254,856
863,381
260,098
62,373
322,471
540,910
401,575
233,810
635,385
93,253
103,265
196,518
49,379
$ 147,139
33.7
19.7
53.4
7.8
8.7
16.5
4.1
12.4 % $
515,007
194,026
709,033
(168,123)
26,748
(141,375)
(81,357)
(60,018)
70.5 %
29.5
100.0
30.1
7.2
37.3
62.7
59.7
22.5
82.2
(19.5)
3.1
(16.4)
(9.4)
(7.0)%
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,
2022
$ 987,975
201,960
$ 1,189,935
2021
83 % $ 686,914
17
176,467
100 % $ 863,381
80 %
20
100 %
International revenue increased in 2022, driven by strength in our Asia-Pacific (“APAC”) region, but decreased
as a percentage of total revenue compared to 2021.
Our operations are comprised of two reportable segments. In both segments, we report sales of products and
services. Service revenue in both segments includes sales related to Axon Evidence.
• The “Software and Sensors” segment includes software and sensors, which includes the sale of devices,
wearables, applications, cloud and mobile products, and services.
o
o
“Axon Cloud revenue” includes recurring cloud-hosted software revenue, related non-recurring
professional services, and certain software, including on-premise licenses.
“Sensors and Other revenue” is referred to as revenue from our “products” in the Software and
Sensors segment, which is generally from the sales of sensors, including on-officer body
cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other
products.
• The “TASER” segment includes the manufacture and sale of CEDs, batteries, accessories and extended
warranties and other products and services;
38
o Service revenue in this segment also includes digital subscription training content, VR training
content, TASER Evidence.com, and other professional services tied to TASER and VR
deployments.
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. Sales, general and administrative expenses are reported on a consolidated basis.
For the Years Ended December 31, 2022 and 2021
Net Sales
Net sales by product line were as follows for the years ended December 31, 2022 and 2021 (dollars in thousands):
TASER segment:
TASER 7
TASER X26P
TASER X2
TASER Consumer devices
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 Consumer devices
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Year Ended December 31,
2022
2021
Dollar
Change
Percent
Change
$ 224,905
33,725
24,068
6,420
181,686
18,752
29,008
13,002
531,566
124,164
3,031
63,017
30,086
371,889
49,765
16,417
658,369
$ 1,189,935
18.9 % $ 135,906
40,629
58,081
7,132
152,842
9,159
24,125
9,053
436,927
2.8
2.0
0.5
15.3
1.6
2.5
1.1
44.7
15.7 % $ 88,999
(6,904)
(34,013)
(712)
28,844
9,593
4,883
3,949
94,639
4.7
6.7
0.8
17.8
1.1
2.8
1.0
50.6
10.4
0.3
5.3
2.5
31.2
4.2
1.4
55.3
75,484
4,155
24,319
24,441
246,005
33,686
18,364
426,454
100.0 % $ 863,381
8.8
0.5
2.8
2.8
28.5
3.9
2.1
49.4
48,680
(1,124)
38,698
5,645
125,884
16,079
(1,947)
231,915
100.0 % $ 326,554
65.5 %
(17.0)
(58.6)
(10.0)
18.9
104.7
20.2
43.6
21.7
64.5
(27.1)
159.1
23.1
51.2
47.7
(10.6)
54.4
37.8 %
Year Ended December 31,
Unit
Percent
Change
2021
Change
90,348
48,869
(7,432)
30,083
38,620 (24,693)
(3,735)
26,958
4,945,927 689,442
71,838
(1,810)
13,080
3,260
181,663
7,828
11,264
25,584
54.1 %
(24.7)
(63.9)
(13.9)
13.9
39.5
(23.1)
116.1
12.7
2022
139,217
22,651
13,927
23,223
5,635,369
253,501
6,018
24,344
28,844
39
Net sales for the TASER segment increased $94.6 million, or 21.7%, primarily as a result of an increase of
$89.0 million in TASER 7 devices and a $28.8 million increase in cartridge revenue. The increase in TASER 7
revenue is the result of increased unit sales and higher average selling prices. We continue to see a shift to purchases
of TASER 7 from legacy devices. Cartridge revenue increased due to increased unit sales and higher average selling
prices due to product mix shift from legacy handles to TASER 7. Axon Evidence and cloud services revenue increased
based on the increased number of TASER 7 devices in the field. Partially offsetting the increases was a decrease in
revenue of legacy devices of $40.9 million. The decrease was attributable to decreased unit sales and was partially
offset by higher average selling prices.
Net sales for the Software and Sensors segment increased $231.9 million, or 54.4%. Revenue from Axon
Evidence and cloud services increased $125.9 million as we continued to add users to our network during the year
ended December 31, 2022. The increase in the aggregate number of users and devices also resulted in increased
extended warranty revenues of $16.1 million. Sales of our Axon Body 3 camera drove most of the $48.7 million
increase in Axon Body revenue and the $5.6 million increase in Axon Dock revenue. Fleet revenue increased
$38.7 million driven by an increase in both units and higher average selling prices, driven largely by Fleet 3.
Backlog - As of December 31, 2022 compared to December 31, 2021
Our backlog for products and services includes all orders that have been received and are believed to be firm.
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 TASER segment backlog balance was $824.4 million as of December 31, 2022. This backlog balance
includes $111.0 million of deferred revenue, and $713.5 million that has been recorded as bookings but not yet
invoiced, all as of December 31, 2022. We expect to realize approximately $176.8 million of the December 31, 2022
backlog balance as revenue during the next 12 months.
The Software and Sensors backlog balance was $3.8 billion as of December 31, 2022. This backlog balance
includes $497.1 million of deferred revenue, and $3.3 billion that has been recorded as bookings but not yet invoiced,
all as of December 31, 2022. We expect to realize approximately $780.7 million of the December 31, 2022 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 millions)
Total
$
$
449
907
(532)
824
$
$
2,353 $
2,128
(658)
3,823 $
2,802
3,035
(1,190)
4,647
Our backlog of $4.6 billion as of December 31, 2022 has increased significantly from $2.8 billion as of
December 31, 2021.
40
Gross Margin
Gross Margin (dollars in thousands):
TASER segment
Product gross margin
Service gross margin
Total TASER segment gross margin
Software and Sensors segment
Product gross margin
Service gross margin
Total Software and Sensors segment gross margin
Total gross margin
Gross margin as % of net sales
2022
316,053
20,556
336,609
$
122,116
269,913
392,029
728,638
$
61.2 %
$
$
Year Ended December 31,
Dollar
Change
2021
Percent
Change
277,177
9,866
287,043
71,250
182,617
253,867
540,910
$
38,876
10,690
49,566
50,866
87,296
138,162
$ 187,728
62.7 %
14.0 %
108.4
17.3
71.4
47.8
54.4
34.7 %
Gross margin increased $187.7 million to $728.6 million for the year ended December 31, 2022 compared to
$540.9 million for 2021. As a percentage of net sales, gross margin decreased to 61.2% for 2022 from 62.7% for 2021
due to a mix of low to no margin professional services revenue and increased raw materials and labor expense.
As a percentage of total segment net sales, gross margin for the TASER segment decreased to 63.3% for the year
ended December 31, 2022 from 65.7% for the year ended December 31, 2021 as a result of higher direct cost of goods.
Impacting higher cost of goods sold were cost increases in raw materials and increased labor expense.
Within the Software and Sensors segment, gross margin as a percentage of total segment net sales remained
consistent at 59.5% for each of the years ended 2022 and 2021, respectively. Within the Software and Sensors
segment, product gross margin was 42.1% for the year ended December 31, 2022 and 39.2% for the same period in
2021. The increase in product gross margin was attributable to higher average selling prices for the Axon Body 3 and
Fleet 3. The service margins were 73.3% for the year ended December 31, 2022 and 74.6% for the same period in
2021. The decrease in service margins was driven by a higher mix of low margin professional service revenue in 2022.
Sales, General and Administrative Expenses
Sales, General and Administrative (“SG&A”) Expenses (dollars in thousands):
Salaries, benefits and bonus
Stock-based compensation
Sales and marketing
Other
Total sales, general and administrative expenses
SG&A expenses as a percentage of net sales
Year Ended December 31,
2022
$ 160,936
51,301
72,451
116,887
$ 401,575
2021
$ 140,075
238,813
52,058
84,061
$ 515,007
$
Dollar
Change
20,861
(187,512)
20,393
32,826
$ (113,432)
33.7 %
59.7 %
Percent
Change
14.9%
(78.5)
39.2
39.1
(22.0)%
SG&A expenses decreased $113.4 million, or 22.0%. Stock-based compensation expense decreased
$187.5 million in comparison to the prior year comparable period, which was primarily attributable to a decrease of
$122.9 million in expense related to the CEO Performance Award and a decrease of $83.8 million related to our XSPP.
The decrease related to the vesting of ten tranches of the CEO Performance Award and nine tranches of the XSPP in
2021, which have no remaining unrecognized expense for the vested tranches, as well as no additional tranches that
vested in 2022. The decrease was partially offset by increased stock-based compensation expense for time-based
awards due to higher headcount.
41
Salaries, benefits and bonus expense increased $20.9 million. Of the total increase, $32.3 million is attributable
to an increase in salaries and related primarily to increased headcount. An increase in bonus expense of $10.2 million
reflected incremental bonuses paid during the year to employees at the senior director level and below, as well as
higher attainment on the annual company bonus performance metrics compared to 2021. Partially offsetting the
increase was a decrease of $18.4 million in payroll taxes related to the vesting of nine tranches of the XSPP and the
exercise of options under the CEO Performance Award in 2021; as no tranches vested in 2022, we did not recognize
any payroll tax expense related to the program in 2022. Salaries, benefits and bonus expense decreased as a percentage
of sales from 16.2% for 2021 to 13.5% for 2022.
Sales and marketing expenses increased $20.4 million, driven by a $16.9 million increase in commissions tied
to higher revenues. Of the total increase, $3.3 million related to trade shows and seminars, as we hosted additional in-
person events including our annual user conference, Axon Accelerate, in 2022.
Other SG&A expenses increased by $32.8 million, reflecting higher headcount and the following:
• Travel expenses increased $8.4 million reflecting increased in-person customer and vendor meetings.
Increased travel costs per trip also impacted higher travel expenses.
• Professional, consulting and lobbying expenses increased $5.2 million, driven primarily by initiatives
supporting company growth and expansion.
• Depreciation and amortization increased $4.5 million primarily due to an increase in depreciation and
amortization expense following the implementation of several phases of our enterprise resource planning
and related systems during 2021.
Research and Development Expenses
Research and Development (“R&D”) Expenses (dollars in thousands):
Year Ended December 31,
Salaries, benefits and bonus
Stock-based compensation
Indirect manufacturing costs and supplies
Other
Total research and development expenses
R&D expenses as a percentage of net sales
$
$
$
2022
135,596
50,268
18,955
28,991
233,810
$
19.7 %
2021
95,057
58,674
13,312
26,983
194,026
22.5 %
Dollar
Change
Percent
Change
$
$
40,539
(8,406)
5,643
2,008
39,784
42.6%
(14.3)
42.4
7.4
20.5%
Within the TASER segment, R&D expenses increased $5.5 million or 11.9%. An increase of $8.3 million in
salaries, benefits and bonus expense reflected higher headcount. Additionally, indirect manufacturing costs and
supplies increased $3.8 million related to the development of next generation products. Partially offsetting these
increases was a decrease in stock-based compensation expense of $5.7 million, due to the vesting of nine XSPP
tranches during 2021, for which there is no remaining unamortized expense, as well as no additional tranches that
vested in 2022.
R&D expense for the Software and Sensors segment increased $34.3 million or 23.2% and decreased as a
percentage of sales to 27.7% compared to 34.7% in the prior year. An increase of $32.2 million related to salaries,
benefits, and bonus attributable to increased headcount.
Stock-based compensation expense for the Software and Sensors segment decreased $2.7 million. Contributing
to the decrease was the vesting of nine XSPP tranches during 2021, for which there is no remaining unamortized
expense, as well as no additional tranches that vested in 2022. Partially offsetting the decrease was an increase in
general stock-based compensation expense due to an increase in headcount.
42
Interest and Other Income, Net
Interest and other income, net was $103.3 million and $26.7 million for the years ended December 31, 2022 and
2021, respectively.
For the year ended December 31, 2022, we recorded a net unrealized gain of $131.9 million related to observable
price changes for our investments in certain strategic investments and related warrants and the exercise of warrants in
one of our strategic investees, which was partially offset by a $32.9 million unrealized loss on marketable securities
related to our investment in CLBT. Interest and other income, net also reflected net interest income of $4.8 million
and losses from foreign currency transactions of $0.9 million.
For the year ended December 31, 2021, we recorded a gain of $40.9 million related to observable price changes
for our investments in certain strategic investments and related warrants. The gain was partially offset by a
$17.8 million unrealized loss on marketable securities related to our investment in CLBT. Interest and other income,
net also reflected interest income of $1.7 million, other income of $0.9 million from a government grant, and gains
from foreign currency transactions of $0.4 million.
Provision for Income Taxes
The provision for income taxes was an expense of $49.4 million for the year ended December 31, 2022. The
effective income tax rate for 2022 was 25.1%. The benefits related to excess stock-based compensation of $4.6 million
and research and development credits of $13.3 million, and a deduction for foreign derived intangible income (“FDII”)
of $2.6 million were offset by the tax effects of permanently non-deductible expenses for executive compensation of
$5.8 million, an increase in uncertain tax benefits of $3.2 million, and other permanently non-deductible expenses of
$1.8 million. Additionally, we recorded a $10.2 million increase to our valuation allowance as of December 31, 2022
related to research and development tax credits that may not be utilized prior to expiration and an unrealized
investment loss.
The provision for income taxes was a benefit of $81.4 million for the year ended December 31, 2021. The
effective income tax rate for 2021 was 57.5%. The benefits related to excess stock-based compensation of
$205.5 million and research and development credits of $34.4 million were partially offset by the tax effects of
permanently non-deductible expenses for executive compensation of $180.5 million, an increase in uncertain tax
benefits of $10.2 million, and other permanently non-deductible expenses of $1.8 million. Additionally, we recorded
a $9.0 million increase to our valuation allowance as of December 31, 2021 related to research and development tax
credits that may not be utilized prior to expiration and an unrealized investment loss.
Net Income
We recorded net income of $147.1 million for the year ended December 31, 2022 compared to a net loss of
$60.0 million in 2021. Net income per basic share was $2.07 while diluted net income per share was $2.03, compared
to net loss per basic and diluted net loss per share of $0.91 for 2021.
43
Three Months Ended December 31, 2022 Compared to September 30, 2022
Net sales by product line were as follows (dollars in thousands):
TASER segment:
TASER 7
TASER X26P
TASER X2
TASER Consumer devices
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 Consumer devices
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Three Months Ended
December 31, 2022
Three Months Ended
September 30, 2022
Dollar
Change
Percent
Change
$ 55,448
6,010
7,617
1,335
47,541
6,890
7,580
4,316
136,737
31,561
394
23,177
11,927
113,225
13,695
5,426
199,405
$ 336,142
16.5 % $ 65,951
5,897
8,298
1,702
46,475
5,125
7,290
4,145
144,883
1.8
2.3
0.4
14.1
2.0
2.3
1.3
40.7
9.4
0.1
6.9
3.5
33.7
4.1
1.6
59.3
35,427
687
10,139
4,830
96,814
14,511
4,463
166,871
100.0 % $ 311,754
21.2 % $ (10,503)
113
(681)
(367)
1,066
1,765
290
171
(8,146)
1.9
2.7
0.6
14.9
1.6
2.3
1.3
46.5
11.4
0.2
3.3
1.5
31.1
4.6
1.4
53.5
(3,866)
(293)
13,038
7,097
16,411
(816)
963
32,534
100.0 % $ 24,388
(15.9)%
1.9
(8.2)
(21.6)
2.3
34.4
4.0
4.1
(5.6)
(10.9)
(42.6)
128.6
146.9
17.0
(5.6)
21.6
19.5
7.8%
Three Months Ended
December 31, 2022 September 30, 2022
40,502
3,745
5,120
7,180
1,481,169
71,070
1,188
2,342
3,822
34,530
3,737
4,056
4,685
1,527,929
60,018
567
10,109
11,644
Unit
Percent
Change Change
(5,972)
(8)
(1,064)
(2,495)
46,760
(11,052)
(621)
7,767
7,822
(14.7)%
(0.2)
(20.8)
(34.7)
3.2
(15.6)
(52.3)
331.6
204.7
Net sales for the TASER segment decreased $8.1 million, or 5.6%, on a sequential basis primarily due to a
$10.5 million decrease in revenue from TASER 7 devices. This is tied to shipment timing on hardware, and we see
healthy demand for TASER products and services for 2023. The decrease in TASER 7 revenues was partially offset
by an increase in Axon Evidence revenue of $1.8 million and increased cartridge revenue of $1.1 million of other
TASER devices. The decrease in revenue was a result of decreased unit sales, and was partially offset by higher
average selling prices on our TASER 7 devices. The increase in Axon Evidence revenue was a result of more TASER
devices in the field, as well as higher VR revenue. Cartridge revenue increased due to increased units, partially offset
by lower average selling prices.
Net sales for the Software and Sensors segment increased $32.5 million, or 19.5%, on a sequential basis primarily
due to a $16.4 million increase in Axon Evidence and cloud services revenue and a $13.0 million increase in Axon
44
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, partially offset by
a decrease in the average selling price.
International sales were $55.5 million in for the three months ended December 31, 2022 as compared to
$47.1 million for the three months ended September 30, 2022, an increase of $8.4 million, primarily driven by
increased sales in the EMEA region.
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. 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 (Most comparable GAAP Measure: Net income) - Earnings before interest expense,
investment interest income, taxes, depreciation, amortization and non-cash stock-based compensation
expense, realized and unrealized gains and losses on strategic investments and marketable securities, and
certain other pre-tax items.
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.
45
EBITDA and Adjusted EBITDA reconcile to net income as follows (dollars in thousands):
Year Ended December 31,
Net income (loss)
Depreciation and amortization
Interest expense
Investment interest (income) loss
Provision for (benefit from) income taxes
EBITDA
Non-GAAP adjustments:
2022
$ 147,139 $
24,381
488
(4,782)
49,379
2021
(60,018)
18,694
28
(1,511)
(81,357)
$ 216,605 $ (124,164)
Stock-based compensation expense
Realized and unrealized gains on strategic investments and marketable securities,
net
Transaction costs related to strategic investments and acquisitions
Loss on disposal and abandonment of intangible assets
Loss on disposal and impairment of property, equipment and other assets, net
Costs related to FTC litigation
Payroll taxes related to XSPP vesting and CEO Award option exercises
Adjusted EBITDA
Liquidity and Capital Resources
Summary
106,176
303,331
(98,943)
2,368
110
5,452
545
—
$ 232,313 $
(23,035)
2,068
146
92
741
18,933
178,112
As of December 31, 2022, we had $353.7 million of cash and cash equivalents, a decrease of $2.6 million from
December 31, 2021. Cash and cash equivalents and investments totaled $1.1 billion, an increase of $689.6 million
from December 31, 2021.
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 increase (decrease) in cash and cash equivalents and restricted cash
Operating activities
Year Ended December 31,
2022
$ 235,361 $
(830,967)
598,100
(3,380)
$
(886) $
2021
124,494
252,556
(174,181)
(1,982)
200,887
Net cash provided by operating activities in 2022 of $235.4 million consisted of $147.1 million in net income, a
net add-back of non-cash income statement items totaling $69.2 million, and an $19.1 million net change in operating
assets and liabilities. Included in the non-cash items were $106.2 million in stock-based compensation expense, a
$98.9 million net gain on the change in fair value of strategic investments and marketable securities, $24.4 million in
depreciation and amortization expense, and a $22.1 million increase in deferred income tax assets. Cash provided by
operations was impacted by an increase of $73.2 million in accounts and notes receivable and contract assets, which
was largely attributable to increased sales in 2022, particularly for sales made under subscription plans. Cash provided
by operations was also impacted by an increase of $52.2 million in prepaid expenses and other assets, resulting
46
primarily from an increase in deferred commissions expense offset by a decrease in income tax receivable due to
utilization of overpayments, plus an increase of $96.0 million in inventory as we proactively built up inventory to help
meet future product demand. Partially offsetting this activity was an increase in deferred revenue of $159.7 million,
which was primarily attributable to increased subscription invoicing for Software and Sensors hardware and services
in advance of fulfillment, and a smaller increase in hardware deferred revenue from TASER subscription sales.
Investing activities
We used $831.0 million for investing activities in 2022. Cash outflows from investing activities included
$692.2 million for purchases of available-for-sale investments, net of proceeds from calls and maturities, $74.3 million
for new strategic minority investments and $6.6 million for the exercise of price of warrants related to our strategic
investments. We also invested $55.5 million in the purchase of property and equipment and intangibles, net of
proceeds on disposals.
Financing activities
Net cash provided by financing activities was $598.1 million for the year ended December 31, 2022. The increase
in cash provided by financing activities was primarily due to net proceeds of $603.0 million from issuing the Notes
and Warrants and the purchase of the Note Hedge. Partially offsetting the increase were payments totaling $4.9 million
for certain restricted stock units (“RSUs”) that 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.
Liquidity and Capital Resources
Our most significant source of liquidity continues to be funds generated by operating activities and available
cash and cash equivalents and short-term investments. In addition, our $200.0 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
Term SOFR plus 1.25 to 1.75% per year determined in accordance with a pricing grid based on our net debt to earnings
before interest, taxes, depreciation and amortization (“EBITDA”) ratio. “SOFR” is defined as a rate equal to the
secured overnight financing rate as administered by the Federal Reserve Bank of New York or a successor
administrator of the secured overnight financing rate.
As of December 31, 2022, we had letters of credit outstanding of $7.0 million, leaving the net amount available
for borrowing of $193.0 million The credit agreement will mature on the earlier of December 15, 2027 or the date that
is six months prior to the stated maturity date of the 0.50% convertible senior notes due 2027 unless such Notes have
been redeemed, repurchased, converted or defeased in full. Additionally, the credit agreement has an accordion feature
which allows for an increase in the total line of credit up to $300.0 million, subject to each lender’s sole discretion. At
December 31, 2022 and 2021, there were no borrowings under the line.
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.
Our agreement with the bank requires us to comply with a net leverage ratio, defined as consolidated total
indebtedness to EBITDA, of no greater than 3.50 to 1.00 based upon a trailing four fiscal quarter period. At
December 31, 2022, our net leverage ratio was 0.97 to 1.00. Additionally, we must comply with a consolidated interest
coverage ratio, defined as EBITDA to consolidated interest expense, of no less than 3.50 to 1.00 based upon a trailing
four fiscal quarter end. We are compliant with the consolidated interest coverage ratio, which is not meaningful for
the year ended December 31, 2022.
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
47
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. Our strategy includes continuing 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 continue to offer
products and services 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 at December 31, 2022 and successful convertible senior notes offering
completed during 2022, we believe financing will be available, both through our existing credit line and possible
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 investments, income and
payroll tax payments for net-settled stock awards, 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, 2022 (dollars in thousands):
Operating lease obligations
Purchase obligations
Principal amount payable on our convertible senior notes
Total contractual obligations
$
Short
Total
Term
55,893 $ 8,448 $
915,102 544,341
—
690,000
Long
Term
47,445
370,761
690,000
$ 1,660,995 $ 552,789 $ 1,108,206
Purchase obligations in the table above represent $499.7 million of open purchase orders and $415.4 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.
For additional information regarding our convertible senior notes, refer to Note 12 in the notes to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We are subject to U.S. federal income tax as well as income taxes imposed by state and foreign jurisdictions. As
of December 31, 2022, we had $21.5 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 $0.9 million within the next 12 months.
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
48
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.
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. As of December 31, 2022 and 2021, our warranty reserve was
approximately $0.8 million and $2.8 million, respectively. Warranty expense for the years ended December 31, 2022,
2021 and 2020 was $0.2 million, $2.9 million and $0.0 million, respectively. Warranty expense for the year ended
December 31, 2022 was impacted by lower than expected warranty claims for the Axon on-officer body cameras and
TASER 7 handles. Warranty expense for the year ended December 31, 2021, was impacted by higher battery
degradation resulting in shorter battery lives for the Axon Body 3 on-officer body camera and warranty claims for
TASER 7 handles. 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.
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, determined on the first-in, first-out (“FIFO”) basis, or net realizable
value, net of an inventory valuation allowance. We use a standard cost methodology to approximate the cost basis for
our inventories. Costs include allocations for materials, labor, and overhead. All variances between actual costs and
standard costs are apportioned to inventory and cost of product sales based upon inventory turnover. Additional
provisions are made to reduce excess, obsolete or slow-moving 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, 2022, we recorded provisions to reduce inventories to their lower of cost
and net realizable value of approximately $1.5 million compared to $0.9 million during the year ended December 31,
2021.
Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable and Contract Assets
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.
49
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, 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
50
confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written
off when determined to be uncollectible.
Valuation of Goodwill, Intangible and Long-lived Assets
We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life
of long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful
lives, may warrant revision or that the remaining balance of these assets may not be recoverable. Such circumstances
could include, but are not limited to, a change in the product mix, a change in the way products are created, produced
or delivered, or a significant change in the way products are branded and marketed. In performing the review for
recoverability, we estimate 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.
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 goodwill and intangible asset impairment tests in the fourth quarter of each year.
During the year ended December 31, 2022, we recorded $5.3 million of impairment charges. Of this total,
$3.3 million related to the cease-use of a portion of our Seattle office. An additional $1.4 million related to the decision
to slow pacing on construction of our new Scottsdale, Arizona campus. During the year ended December 31, 2021,
we recorded an immaterial amount of impairment charges. 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. During the year ended December 31, 2022, these charges were included in
sales, general and administrative expense, except for $2.7 million related to the Seattle office lease cease-use, which
was recorded in R&D, in the accompanying consolidated statements of operations.
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 and state 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 $21.5 million as of
December 31, 2022. We expect the amount of the unrecognized tax benefit to increase by approximately $0.9 million
within the next 12 months. Should the unrecognized tax benefit of $21.5 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.
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
51
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 actual 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 have state net operating loss (“NOLs”) of $89.5 million, which expire at various dates between 2026 and
2041 or carryforward indefinitely. 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,
unrealized investment losses for which realization is uncertain, and specific identified intangibles with an indefinite
life, a reserve of $26.4 million has been recorded as a valuation allowance against deferred tax assets as of
December 31, 2022.
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 16 of the notes to our consolidated financial statements within this
Annual Report on Form 10-K.
We have granted a total of approximately 15.3 million performance-based awards (options and restricted stock
units) of which approximately 3.8 million are outstanding as of December 31, 2022, 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.
Of the 3.8 million performance-based awards that are outstanding, 1.4 million are options that are exercisable.
52
Compensation expense for performance awards will be recognized based on management’s best 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 13 of
our consolidated financial statements within this Annual Report on Form 10-K.
Reserve for Expected Credit Losses
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.
Additionally, specific allowance 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.
Based on the balances of our financial instruments as of December 31, 2022, a hypothetical 25 percent increase
in expected credit loss rates across all pools would result in a $0.8 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 “available-for-sale”. We report available-for-sale investments at fair value
as of each balance sheet date and record any unrealized gains or losses as a component of stockholders’ equity. The
cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in
interest and other income, net within the consolidated statements of operations. When the fair value is below the
amortized cost of a marketable security, an estimate of expected credit losses is made. The credit-related impairment
53
amount is recognized in the consolidated statements of operations. Credit losses are recognized through the use of an
allowance for credit losses account in the consolidated balance sheet and subsequent improvements in expected credit
losses are recognized as a reversal of an amount in the allowance account. If we have the intent to sell the security or
it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, then
the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value
is recorded in the consolidated statements of operations. Based on investment positions as of December 31, 2022, a
hypothetical 100 basis point increase in interest rates across all maturities would result in a $3.4 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 $200.0 million line of credit borrowing facility which bears interest at SOFR
1.25 to 1.75% per year determined in accordance with a pricing grid based on our net leverage ratio and consolidated
interest coverage ratio. Under the terms of the line of credit, available borrowings are reduced by outstanding letters
of credit, which totaled $7.0 million at December 31, 2022. At December 31, 2022, there was no amount outstanding
under the line of credit, and the available borrowing under the line of credit was $193.0 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.
54
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended
December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm (PCAOB ID No. 248)
Page
56
57
58
59
60
100
55
AXON ENTERPRISE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Short-term investments
Accounts and notes receivable, net of allowance of $2,176 and $2,203 as of
December 31, 2022 and December 31, 2021, 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
Strategic investments
Other long-term 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 liability, net
Long-term lease liabilities
Convertible notes, net
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity:
December 31,
2022
December 31,
2021
$
353,684 $
39,240
581,769
356,332
72,180
14,510
358,190
196,902
202,471
73,022
1,805,278
169,843
156,866
12,158
44,983
156,207
5,210
45,170
296,563
159,616
2,851,894 $
59,918 $
155,934
360,037
20,399
6,358
602,646
248,003
10,745
6,285
1
37,143
673,967
4,613
1,583,403
320,819
180,421
108,688
56,540
1,109,490
138,457
127,193
15,470
43,592
31,232
11,256
29,753
83,520
98,247
1,688,210
32,220
103,707
265,591
10,463
6,540
418,521
185,721
3,797
5,679
811
20,440
-
5,392
640,361
$
$
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and
outstanding as of December 31, 2022 and December 31, 2021, respectively
Common stock, $0.00001 par value; 200,000,000 shares authorized; 71,474,581 and
70,896,856 shares issued and outstanding as of December 31, 2022 and December 31,
2021, respectively
Additional paid-in capital
Treasury stock at cost, 20,220,227 shares as of December 31, 2022 and December 31, 2021
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
1
1,174,594
(155,947)
257,022
(7,179)
1,268,491
2,851,894 $
1
1,095,229
(155,947)
109,883
(1,317)
1,047,849
1,688,210
$
The accompanying notes are an integral part of these consolidated financial statements.
56
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
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 (benefit) 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
Unrealized losses on available-for-sale investments
Comprehensive income (loss)
$
$
$
$
$
$
$
For the Years Ended December 31,
2021
608,525 $
254,856
863,381
260,098
62,373
322,471
540,910
515,007
194,026
709,033
(168,123)
26,748
(141,375)
(81,357)
(60,018) $
2022
801,388
388,547
1,189,935
363,219
98,078
461,297
728,638
401,575
233,810
635,385
93,253
103,265
196,518
49,379
147,139
2020
500,250
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)
$
2.07
2.03
71,093
72,534
147,139
(4,818)
(1,044)
141,277
$
$
$
$
(0.91) $
(0.91) $
66,191
66,191
(60,018) $
(1,251)
(207)
(61,476) $
(0.03)
(0.03)
61,782
61,782
(1,724)
1,237
—
(487)
The accompanying notes are an integral part of these consolidated financial statements.
57
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T
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Amortization of issuance cost
Coupon interest expense
Purchase accounting adjustments to goodwill
Loss on disposal and abandonment of intangible assets
Loss on disposal and impairment of property, equipment, and other assets, net
Realized and unrealized gains on strategic investments and marketable securities, net
Stock-based compensation
Deferred income taxes
Unrecognized tax benefits
Bond amortization
Noncash lease expense
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
Exercise of warrants of strategic investments
Proceeds from sale of strategic investments
Purchases of property and equipment
Proceeds from disposal of property and equipment
Purchases of intangible assets
Strategic investments
Business acquisition, net of cash acquired
Net cash provided by (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
Net proceeds from issuance of convertible senior notes
Proceeds from issuance of warrants
Purchase of convertible note hedge
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
For the Years Ended December 31,
2020
2021
2022
$ 147,139 $
(60,018)
$
(1,724)
24,381
198
211
58
110
5,452
(98,943)
106,176
22,090
3,475
(1,463)
6,725
699
(73,228)
(95,987)
(52,207)
80,757
159,718
235,361
(764,374)
72,138
(6,555)
—
(55,802)
287
(307)
(74,250)
(2,104)
(830,967)
(74)
—
(4,870)
673,769
124,269
(194,994)
598,100
(3,380)
(886)
356,438
$ 355,552 $
18,694
—
—
—
146
92
(23,035)
303,331
(81,303)
(706)
5,217
5,573
(214)
(205,769)
(18,272)
(40,158)
45,301
175,615
124,494
(362,479)
718,617
—
14,546
(49,886)
43
(392)
(45,500)
(22,393)
252,556
105,514
51,614
(331,309)
—
—
—
(174,181)
(1,982)
200,887
155,551
356,438
12,475
—
—
—
320
1,722
—
133,572
(16,528)
671
3,345
4,104
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)
306,779
295
(7,809)
—
—
—
299,265
1,976
(16,804)
172,355
$ 155,551
The accompanying notes are an integral part of these consolidated financial statements.
59
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 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 mission is to protect life in service of promoting peace, justice and strong institutions.
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,
valuation of strategic investments,
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, term deposits, U.S. Government bonds, municipal bonds, agency bonds, U.S. Treasury bills, and U.S.
Treasury inflation-protected securities. 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 and less than two years in accordance with our investment policy.
We report available-for-sale investments at fair value as of each balance sheet date and record any unrealized gains
or losses as a component of stockholders’ equity. The cost of securities sold is determined on a specific identification
basis, and realized gains and losses are included in interest and other income, net within the consolidated statements of
operations. When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses
is made. The credit-related impairment amount is recognized in the consolidated statements of operations. Credit losses
are recognized through the use of an allowance for expected credit losses account in the consolidated balance sheet and
subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If
we have the intent to sell the security or it is more likely than not that we will be required to sell the security prior to
recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized
cost basis of the asset over its fair value is recorded in the consolidated statements of operations. We do not intend to sell
60
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the investments and it is not more likely than not that we will be required to sell the investments before recovery of their
amortized cost bases. There were no credit losses recorded on our investment portfolio during the years ended
December 31, 2022 and 2021.
Restricted Cash
Restricted cash balances of $1.9 million and $0.1 million as of December 31, 2022 and 2021, 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. As of December 31, 2022, approximately $1.8 million was included in prepaid expenses and other assets on
our condensed consolidated balance sheet, with the remainder in other long-term assets.
Inventory
Inventories are stated at the lower of cost, determined on the first-in, first-out (“FIFO”) basis, or net realizable value,
net of an inventory valuation allowance. We use a standard cost methodology to approximate the cost basis for our
inventories. Costs include allocations for materials, labor, and overhead. All variances between actual costs and standard
costs are apportioned to inventory and cost of product sales based upon inventory turnover. Additional provisions are made
to reduce excess, obsolete or slow-moving 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.
61
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Valuation of Goodwill, Intangible and Long-lived Assets
We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives,
may warrant revision or that the remaining balance of these assets may not be recoverable. Such circumstances could
include, but are not limited to, a change in the product mix, a change in the way products are created, produced or delivered,
or a significant change in the way products are branded and marketed. In performing the review for recoverability, we
estimate 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.
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 goodwill and intangible asset impairment tests in the fourth quarter of each year.
During the year ended December 31, 2022, we recorded $5.3 million of impairment charges. Of this total,
$3.3 million related to the cease-use of a portion of our Seattle office. An additional $1.4 million related to the decision to
slow pacing on construction of our new Scottsdale, Arizona campus. During the year ended December 31, 2021, we
recorded an immaterial amount of impairment charges. 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, as well as recognized impairment charges totaling $0.5 million related to improvements and remodeling of
certain of our offices. During the year ended December 31, 2022, these charges were included in sales, general and
administrative expense, except for $2.7 million related to the Seattle office lease cease-use, which was recorded in research
and development (“R&D”), in the accompanying consolidated statements of operations.
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 and Contract Assets
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
62
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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,
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 $3.6 million and $3.3 million as of December 31, 2022 and 2021, 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.
63
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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
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 $2.3 million,
$2.6 million and $1.3 million in the years ended December 31, 2022, 2021 and 2020, 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
Balance, end of period
Research and Development Expenses
Year Ended December 31,
2021
2020
2022
$
$
2,822 $
(2,209)
198
811 $
769
(873)
2,926
2,822
$
$
1,476
(700)
(7)
769
We expense as incurred R&D costs that do not meet the qualifications to be capitalized. We incurred R&D expense
of $233.8 million, $194.0 million and $123.2 million in 2022, 2021 and 2020, 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 carryforwards. 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.
64
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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
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 14 for additional
information regarding the change in unrecognized tax benefits.
The Tax Cuts and Jobs Act of 2017 contains a provision which subjects a U.S. parent of a foreign subsidiary to
current U.S. tax on its global intangible low-taxed income (“GILTI”). GILTI is eligible for a deduction which lowers the
effective tax rate on GILTI to 10.5% for calendar years 2018 through 2025 and 13.125% after 2025. We report the tax
impact of GILTI as a period cost when incurred. Accordingly, we do not provide deferred taxes for basis differences
expected to reverse as GILTI.
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 three depository institutions. As of December 31, 2022, the aggregate
balances in such accounts were $139.9 million. Our balances with these three institutions regularly exceed Federal Deposit
Insurance Corporation insured limits for domestic deposits and various deposit insurance programs covering our deposits
in Australia, Canada, Finland, France, 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, 2022, 2021 or 2020. At
December 31, 2022, and 2021, 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, Malaysia, Mexico, Republic of Korea,
Taiwan, and Vietnam. We may source from other countries as well. Although we currently obtain many of these
components from single source suppliers, we own the injection molded component tooling, most of the designs, and test
fixtures used in their production for all custom components. As a result, we believe we could obtain alternative suppliers
in most cases. Although we have experienced supply chain disruptions relating to materials and port constraints, we have
remained focused on closely managing our supply chain. We continue to bolster our strategic relationships in our supply
chain, identifying secondary/alternate sourcing, adjusting build plans accordingly, and building in logistic modes in
support of our increasing demand while working to minimize disruption to customers. We acquire most of our components
on a purchase order basis and do not currently have significant long-term purchase contracts with most component
suppliers.
Fair Value Measurements and 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
65
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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,
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, 2022 were comprised of money market funds,
certificates of deposit, commercial paper, corporate bonds, term deposits, U.S. Government bonds, municipal bonds,
agency bonds, U.S. Treasury bills, and U.S. Treasury inflation-protected securities. Cash equivalents and investments at
December 31, 2021 were comprised of money market funds, corporate bonds, municipal bonds, and U.S. Government
agency bonds. 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, 2022 and 2021 was $4.3 million and $5.3 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.
We have investments in marketable securities, for which changes in fair value are recorded in the consolidated
statement of operations as unrealized gain or (loss) on marketable securities, which is included in interest and other income,
net.
We have strategic investments in various unconsolidated affiliates as of December 31, 2022. The estimated fair value
of the investments was determined based on Level 3 inputs. In determining the estimated fair value of our strategic
investments in privately held companies, we utilize observable data available to us as discussed further in Note 8.
We have convertible senior notes, for which the fair value is determined based on the closing trading price per $1,000
of the Notes as of the last day of trading for the period. We consider the fair value of the Notes at December 31, 2022 to
be a Level 2 measurement as they are not publicly traded. The fair value of the Notes is primarily affected by the trading
price of our common stock and market interest rates.
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 consolidated balance
sheet.
Segment and Geographic Information
Our operations are comprised of two reportable segments: the development, manufacture and sale of 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 (collectively, the “Software and Sensors” segment); and the manufacture and sale
of conducted electrical devices (“CEDs”), batteries, accessories, extended warranties and other products and services
(collectively, the “TASER” segment). In both segments, we report sales of products and services. Service revenue in both
segments includes sales related to Axon Evidence. In the Software and Sensors segment, service revenue also includes
66
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes
referred to as “Axon Cloud revenue.”
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 20.
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, 2022, 2021 and 2020, 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
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 less than 0.1 million XSUs
were granted during the year ended December 31, 2022.
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.
67
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 17.6% 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 0.5% and 4.1%,
expected term of between 5.2 and 8.0 years, expected volatility of between 46.4% and 55.8%, 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.
No options were awarded during the years ended December 31, 2022, 2021, or 2020.
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 effects of outstanding stock options, unvested
restricted stock units, our 2027 convertible senior notes (the “Notes” or “2027 Notes”), and warrants to acquire the number
of shares of our common stock (the “Warrants” or “2027 Warrants”) are excluded from the computation of diluted net
income per share in periods in which the effect would be antidilutive. 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,
2021
2020
2022
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
Net income (loss) per common share:
Basic
Diluted
$ 147,139 $ (60,018) $
(1,724)
71,093
1,441
72,534
66,191
—
66,191
61,782
—
61,782
$
$
2.07 $
2.03 $
(0.91) $
(0.91) $
(0.03)
(0.03)
68
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Potentially dilutive securities that are not included in the calculation of diluted net income per share because doing
so would be antidilutive are as follows (in thousands):
Stock-based awards
2027 Notes
2027 Warrants
Total potentially dilutive securities
2022
For the Year Ended December 31,
2021
7,690
—
—
7,690
3,264
3,017
3,017
9,298
2020
12,150
—
—
12,150
For additional information regarding our convertible senior notes, refer to Note 12.
Recently Issued Accounting Guidance
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for
convertible instruments with conversion features that are not required to be accounted for as derivatives under Derivatives
and Hedging (Topic 815), or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a
convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other
features require bifurcation and recognition as derivatives. The guidance also requires the if-converted method to be
applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with
early adoption permitted. Adoption of the standard requires using either a modified retrospective or a full retrospective
approach. Effective January 1, 2022, we adopted ASU 2020-06. There was no impact upon adoption as we had no
outstanding debt upon adoption.
In November 2021, FASB issued ASU No. 2021-10, Government Assistance (Topic 832). The guidance improves
the transparency of government assistance accounting as it requires business entities to disclose transactions that involve
government assistance received if the transactions were accounted for by applying a grant or contribution accounting
model by analogy. The ASU is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-10
on January 1, 2022 and will apply the disclosure requirement prospectively to all transactions within the scope of the
amendments that are reflected in the financial statements at the date of the initial application along with new transactions
that are entered into after the date of initial application. Adoption of this ASU did not have a material impact on our
consolidated financial statements.
Reclassification of Prior Year Presentation
Certain prior year amounts 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.
Correction of an Immaterial Error
During the fourth quarter of 2022 we recorded out of period adjustments related to prior periods reflecting an
$8.5 million increase to net sales and a $2.1 million increase to provision for income taxes. This increase to net sales relates
primarily to Axon Cloud SaaS, software and professional services performance obligations which were fulfilled in prior
periods, including $2.3 million which related to prior years. Based on our quantitative and qualitative analysis, we do not
consider the out of period impact to be material to our financial position or results of operations for any prior periods or
for the year ended December 31, 2022.
69
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 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 Consumer devices
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Axon Evidence and cloud services
Extended warranties
Other
Total
TASER 7
TASER X26P
TASER X2
TASER Consumer devices
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Axon Evidence and cloud services
Extended warranties
Other
Total
Year Ended December 31, 2022
TASER
$ 224,905
33,725
24,068
6,420
181,686
—
—
—
—
18,752
29,008
13,002
$ 531,566
Software and
Sensors
Total
$
— $ 224,905
33,725
—
24,068
—
—
6,420
181,686
—
124,164
124,164
3,031
3,031
63,017
63,017
30,086
30,086
390,641
371,889
78,773
49,765
16,417
29,419
$ 1,189,935
$ 658,369
Year Ended December 31, 2021
Software and
Sensors
Total
TASER
$ 135,906 $
40,629
58,081
7,132
152,842
—
—
—
—
9,159
24,125
9,053
75,484
4,155
24,319
24,441
246,005
33,686
18,364
$ 436,927 $ 426,454
— $ 135,906
40,629
—
58,081
—
—
7,132
— 152,842
75,484
4,155
24,319
24,441
255,164
57,811
27,417
$ 863,381
Year Ended December 31, 2020
Software and
Sensors
TASER
$
$
$
107,506
41,724
60,107
9,407
115,193
—
—
—
—
2,935
20,754
8,926
366,552
$
— $
—
—
—
—
57,150
4,082
20,108
19,723
176,797
24,408
12,183
314,451 $
Total
107,506
41,724
60,107
9,407
115,193
57,150
4,082
20,108
19,723
179,732
45,162
21,109
681,003
The following table presents our revenues disaggregated by geography (in thousands):
Year Ended December 31,
2021
83 % $ 686,914
17
176,467
100 % $ 863,381
2020
80 % $ 535,079
20
145,924
100 % $ 681,003
79 %
21
100 %
United States
Other Countries
Total
2022
$
987,975
201,960
$ 1,189,935
70
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contract Balances
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 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 $8.9 million as of December 31, 2022, 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, 2022 (in thousands):
Contract assets, net
Contract liabilities (deferred revenue)
Revenue recognized in the period from:
Year Ended December 31,
2021
210,174 $
451,312
2022
242,072 $
608,040
2020
84,044
275,181
$
Amounts included in contract liabilities at the beginning of the period
261,271
177,812
135,513
During the year ended December 31, 2022, our contract assets balance increased by $31.9 million or 15.2% due to
increased sales under subscription plans. Contract liabilities increased $156.7 million or 34.7% for the year ended
December 31, 2022 due to increased subscription invoicing for Software and Sensors hardware and services in advance of
fulfilling performance obligations to customers.
71
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contract liabilities (deferred revenue) consisted of the following (in thousands):
Warranty:
TASER
Software and Sensors
Hardware:
TASER
Software and Sensors
Services:
TASER
Software and Sensors
Total
TASER
Software and Sensors
Total
Current
December 31, 2022
Long-Term
Total
Current
December 31, 2021
Long-Term
Total
$ 14,207
26,229
40,436
$ 17,618
15,338
32,956
$ 31,825
41,567
73,392
$ 21,257 $
23,175
44,432
4,766
18,137
22,903
$ 26,023
41,312
67,335
49,361
50,426
99,787
12,640
109,227
121,867
62,001
159,653
221,654
12,944
34,862
47,806
28,727
81,223
109,950
41,671
116,085
157,756
7,637
212,177
219,814
$ 360,037
9,501
83,679
93,180
$ 248,003
17,138
295,856
312,994
$ 608,040
2,701
170,652
173,353
3,482
49,386
52,868
$ 265,591 $ 185,721
6,183
220,038
226,221
$ 451,312
Current
$ 71,205
288,832
$ 360,037
December 31, 2022
Long-Term
$ 39,759
208,244
$ 248,003
Total
$ 110,964
497,076
$ 608,040
Current
December 31, 2021
Long-Term
$ 36,902 $ 36,975
148,746
$ 265,591 $ 185,721
228,689
Total
$ 73,877
377,435
$ 451,312
Remaining Performance Obligations
As of December 31, 2022, we had approximately $4.6 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, 2022. We expect to recognize between approximately 15% - 25% of this balance over the next twelve
months, and expect the remainder to be recognized over the following ten years, subject to risks related to delayed
deployments, budget appropriation or other contract cancellation clauses.
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.
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022, 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, 2022 December 31, 2021
19,962
54,028
73,990
29,405 $
93,213
122,618 $
$
(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, 2022, 2021 and 2020, we recognized $24.2 million, $16.6 million, and
$11.3 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.
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 years
ended December 31, 2022, 2021, and 2020, we recorded interest income of $0.6 million, $1.0 million, and $1.5 million,
respectively.
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
73
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
Note 3 - Cash, Cash Equivalents and Investments
The following table summarizes our cash, cash equivalents, marketable securities, and available-for-sale investments
at December 31, 2022 (in thousands):
Amortized
Cost
143,744
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
—
$
— $
Fair Value
143,744
Cash and
Cash
Equivalents
143,744
$
Marketable
Securities
Short-Term
Investments
$
—
$
— $
Long-Term
Investments
—
As of December 31, 2022
2,669
164,486
121,650
90,000
378,805
4,980
5,002
200,000
257,422
30,525
2,503
160,241
660,673
1,183,222
$
$
—
6
18
—
24
—
—
—
33
—
—
—
33
57
—
(263)
(3)
(50,760)
(51,026)
2,669
164,229
121,665
39,240
327,803
(33)
4,947
—
—
(1,159)
(159)
5,002
200,000
256,296
30,366
2,669
—
113,100
—
115,769
—
—
25,000
28,883
—
—
—
—
39,240
39,240
—
—
—
—
—
—
69,862
8,565
—
78,427
4,947
5,002
175,000
168,074
30,366
—
94,367
—
—
94,367
—
—
—
59,339
—
(2)
—
(1,353)
(52,379)
2,501
160,241
659,353
1,130,900
$
$
—
40,288
94,171
353,684
$
—
—
—
39,240
$
—
119,953
503,342
581,769
$
2,501
—
61,840
156,207
$
Cash
Level 1:
Money market
funds
Agency bonds
Treasury bills
Marketable
securities
Subtotal
Level 2:
State and
municipal
obligations
Certificate of
deposits
Term deposits
Corporate bonds
U.S. Government
Treasury
inflation-protected
securities
Commercial paper
Subtotal
Total
As of December 31, 2022, we had $349.6 million of available-for-sale investments with unrealized losses.
During the year ended December 31, 2021, we acquired 9,000,000 shares of common stock of Cellebrite DI Ltd
(“CLBT”) with a fair value of $90.0 million. The CLBT common stock is recorded as marketable securities in the
accompanying consolidated balance sheets and its fair value is adjusted every reporting period. Changes in fair value are
recorded in the consolidated statement of operations as unrealized gain or (loss) on marketable securities, which is included
in interest and other income, net. During the year ended December 31, 2022, we recorded a $32.9 million unrealized loss
on marketable securities from our investment in CLBT.
74
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes our cash, cash equivalents, and available-for-sale investments at December 31, 2021
(in thousands):
Cash
Level 1:
Money market
funds
Agency bonds
Marketable
securities
Subtotal
Level 2:
State and
municipal
obligations
Corporate bonds
Subtotal
Total
$
Amortized
Cost
353,488
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
—
$
— $
As of December 31, 2021
Cash and
Cash
Equivalents
353,488
Fair Value
353,488
$
Marketable
Securities
Short-Term
Investments
$
—
$
— $
Long-Term
Investments
—
2,844
10,700
90,000
103,544
—
4
—
4
—
—
(17,820)
(17,820)
2,844
10,704
72,180
85,728
2,844
—
—
2,844
—
—
72,180
72,180
—
10,704
—
10,704
—
—
—
—
2,570
32,748
35,318
492,350
$
—
1
1
5
$
(5)
(276)
(281)
(18,101)
$
2,565
32,473
35,038
474,254
$
—
—
—
356,332
$
—
—
—
72,180
$
1,400
2,406
3,806
14,510
$
1,165
30,067
31,232
31,232
During the year ended December 31, 2021, we sold held-to-maturity securities with a net carrying amount of
$165.4 million prior to their maturity.
Note 4 - Expected Credit Losses
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. Additionally,
specific allowance 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.
75
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 2022
Year Ended December 31, 2021
Balance, beginning of period
Provision for (recovery of) expected
credit losses
Amounts written off charged against the
allowance
Other, including foreign currency
translation
Balance, end of period
United States Other countries Total
$ 3,349
$
3,171
178
$
United States Other countries Total
$ 3,376
2,902 $
474
$
309
(416)
391
—
700
(416)
245
(54)
(291)
—
(46)
(54)
—
3,064
$
$
(3)
566
(3)
$ 3,630
$
78
3,171 $
(5)
178
73
$ 3,349
As of December 31, 2022 and December 31, 2021, the allowance for expected credit losses for each type of customer
receivable was as follows (in thousands):
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
Note 5 - Inventory
$
December 31, 2022 December 31, 2021
2,203
1,010
136
3,349
2,176 $
1,360
94
3,630 $
$
Inventory consisted of the following at December 31, 2022 and December 31, 2021 (in thousands):
$
December 31, 2022 December 31, 2021
38,267
70,421
108,688
72,740 $
129,731
202,471 $
$
Raw materials
Finished goods
Total inventory
76
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 6 - Property and Equipment
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
Capitalized internal software development costs
Construction-in-process
Total cost
Less: Accumulated depreciation
Property and equipment, net
$
$
N/A
3-39 years
3-5 years
3-5 years
3-5 years
5 years
3-5 years
N/A
Useful Life December 31, 2022 December 31, 2021
54,868
25,712
54,090
15,343
6,838
2,932
12,200
25,258
197,241
(58,784)
138,457
51,612
25,874
57,170
25,154
7,420
4,027
14,198
62,283
247,738
(77,895)
169,843
$
$
Construction-in-process included $28.3 million and $12.4 million related to the development of our new campus at
December 31, 2022 and December 31, 2021, respectively.
Depreciation and amortization expense related to property and equipment was $20.4 million, $15.8 million and
$9.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, of which $8.5 million, $6.3 million and
$4.0 million was included in cost of sales for the respective years.
Note 7 - Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the year ended December 31, 2022 were as follows (in
thousands):
TASER
Software and
Sensors
42,196
—
(58)
(112)
42,026
1,396 $
1,674
—
(113)
2,957 $
$
$
Total
43,592
1,674
(58)
(225)
44,983
Balance, beginning of period
Goodwill acquired
Purchase accounting adjustments
Foreign currency translation adjustments
Balance, end of period
$
$
77
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Intangible assets (other than goodwill) consisted of the following (in thousands):
December 31, 2022
December 31, 2021
Useful
Life
Gross
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
Gross
Net
Net
Amortizable (definite-lived) intangible assets:
Domain names
Issued patents
Issued trademarks
Customer relationships
Non-compete agreements
Developed technology
Total amortizable
5 ‑ 10 years $ 3,043
2,981
5 ‑ 25 years
1,119
3 ‑ 15 years
4,892
4 ‑ 8 years
447
3 ‑ 4 years
18,586
3 ‑ 5 years
31,068
$
(1,823) $ 1,220
1,474
(1,507)
406
(713)
1,897
(2,995)
—
(447)
5,342
(13,244)
10,339
(20,729)
$ 3,043 $
3,061
1,130
4,985
454
18,060
30,733
(1,518) $ 1,525
1,604
(1,457)
487
(643)
2,546
(2,439)
10
(444)
7,595
(10,465)
13,767
(16,966)
Non-amortizable (indefinite-lived) intangible assets:
TASER trademark
My90 trademark
Patents and trademarks
pending
Total non-amortizable
Total intangible assets
900
168
—
—
900
168
900
168
—
—
900
168
751
1,819
$ 32,887
—
—
751
1,819
$ (20,729) $ 12,158
635
1,703
635
1,703
$ 32,436 $ (16,966) $ 15,470
—
—
Amortization expense of intangible assets was $4.0 million, $2.9 million and $3.3 million for the years ended
December 31, 2022, 2021 and 2020, respectively. Estimated amortization for intangible assets with definitive lives for the
next five years ended December 31, and thereafter, is as follows (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total
Note 8 - Strategic Investments
$
$
3,786
3,722
887
688
354
902
10,339
Strategic investments include investments in a number of non-public technology-driven companies. We account for
strategic investments under the ASC Topic 321 measurement alternative for equity securities without readily determinable
fair values, as there are no quoted market prices for the investments. The investments are measured at cost less impairment,
adjusted for observable price changes and are assessed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
In conjunction with certain of our strategic investments, we have the ability to commit additional capital over time
through warrants and call options; for some investments, the exercisability and exercise prices are conditional on the
achievement of certain performance metrics.
78
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables provide a roll-forward of the balance of strategic investments (in thousands):
Year Ended December 31, 2022
Year Ended December 31, 2021
Strategic
Call
Strategic
Balance, beginning of period
Investments
Observable price changes:
Realized gains
Unrealized gains
Unrealized losses
Exercises
Sales
Balance, end of period
Investments
Observable price changes:
Realized gains
Unrealized gains
Unrealized losses
Exercises
Sales
Balance, end of period
investments Warrants
$
$ 80,775
56,914
2,745
459
options
Total
$
— $ 83,520
74,606
17,233
investments Warrants
$ 9,500 $ 2,211
—
45,500
Total
$ 11,711
45,500
—
44,376
(1,108)
96,719
—
$ 277,676
—
28,539
—
(30,089)
—
1,654
$
—
—
—
—
—
$ 17,233
—
72,915
(1,108)
66,630
12,312
28,009
—
—
— (14,546)
—
12,312
534
28,543
—
—
—
—
— (14,546)
$ 83,520
$ 296,563
$ 80,775 $ 2,745
Strategic
Inception to date
investments Warrants
$ 109,482
$
3,047 $
17,233
Call options
Total
$ 129,762
12,312
74,817
(1,108)
96,719
(14,546)
$ 277,676
$
—
29,073
(377)
(30,089)
—
1,654 $
12,312
—
— 103,890
(1,485)
—
—
66,630
(14,546)
—
$ 296,563
17,233
As part of our strategy, we continuously evaluate opportunities for strategic investments that align with our mission.
During the year ended December 31, 2022 our investment areas included real-time crime center software, drones and
related software, biometric sensors, and weapon detection solutions.
In the year ended December 31, 2022, we exercised warrants in one of our strategic investees for a total exercise
price of $6.6 million, resulting in an unrealized gain of $60.1 million that was recognized in earnings for the year ended
December 31, 2022. The estimated fair value of the investments were calculated using valuation techniques that included
both observable and unobservable inputs. This estimated fair value reflects a value that was lower than the issue per share
of the new equity issued by the strategic investees because of different characteristics of the newly issued equity
instruments compared to our existing investments. The valuation techniques included both Level 2 and Level 3 inputs as
defined by ASC Topic 820.
Note 9 - Variable Interest Entities
We evaluate our investments and other significant relationships to determine whether any investee is a variable
interest entity (“VIE”). If we conclude that an investee is a VIE, we evaluate our power to direct the activities of the
investee, our obligation to absorb the expected losses of the investee and our right to receive the expected residual returns
of the investee to determine whether we are the primary beneficiary of the investee. If we are the primary beneficiary of a
VIE, we consolidate such entity and reflect the non-controlling interest of other beneficiaries of that entity.
79
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We determine whether we are the primary beneficiary of a VIE by performing an analysis that principally considers:
• The VIE’s purpose, design, and risks the VIE was designed to create and pass through to its variable interest
holders;
• The VIE’s capital structure;
• The terms between the VIE and its variable interest holders and other parties involved with the VIE; and
• Related-party affiliations.
The table below presents a summary of the nonconsolidated VIEs in which we hold variable interests:
Total nonconsolidated variable interest entities:
Carrying value of variable interest - assets
Carrying value of variable interest - liabilities
Maximum exposure to loss:
Non-public equity (1)
Total
December 31, 2022 December 31, 2021
$
$
11,530 $
—
11,530
11,530 $
895
—
895
895
(1)
The maximum exposure to loss is limited to the carrying value of the interest.
In the table above:
• The nature of our variable interest is described in the row under maximum exposure to loss.
• Our exposure to the obligations of the VIE is limited to our interest in the entity.
The primary purpose of our U.S-based, nonconsolidated VIE investments is to create strategic partnerships within
market-leading providers of law enforcement technology solutions. We present all variable interests in unconsolidated
VIEs as strategic investments within the long-term assets section of the condensed consolidated balance sheet.
We have provided financial support to the nonconsolidated VIEs in exchange for preferred equity as well as other
financial instruments that give us the ability to commit additional capital overtime. Financial support provided to the
nonconsolidated VIEs is used to continue to finance their operations. We have no explicit or implicit arrangements to
provide additional financial support to the VIEs and we have no liabilities to the VIEs as of December 31, 2022 and
December 31, 2021.
Note 10 - 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 (1)
Restricted cash
Operating lease assets
Deferred implementation costs (2)
Prepaid expenses, deposits and other
Total other long-term assets
$
December 31, 2022 December 31, 2021
5,276
54,028
57
23,270
3,915
11,701
98,247
4,274 $
93,213
54
38,370
3,045
20,660
159,616 $
$
(1) Represents the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions.
These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized
80
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
consistent with the recognition timing of the revenue for the underlying performance obligations. See Note 2 “Costs
to Obtain a Contract”.
(2) During the year ended December 31, 2021, we completed an implementation of several software-as-a-service
applications supporting our internal operations. Following the implementation, we placed $4.3 million of deferred
implementation costs assets related to these applications into service.
Note 11 - 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
Note 12 - Convertible Senior Notes
2027 Notes
$
December 31, 2022 December 31, 2021
62,425
7,152
2,822
3,736
9,945
17,627
103,707
97,882 $
3,861
811
13,559
10,548
29,273
155,934 $
$
In December 2022, we issued $690.0 million aggregate principal amount of our 0.50% Convertible Senior Notes due
2027 in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option
to purchase up to an additional $90.0 million principal amount of the Notes. The Notes mature on December 15, 2027 and
bear interest at a fixed rate of 0.500% per annum, payable semiannually in arrears on June 15 and December 15 of each
year, beginning on June 15, 2023. The total net proceeds from the issuance of the Notes, after deducting initial purchasers’
discounts and commissions and estimated debt issuance costs of $16.2 million, were approximately $673.8 million.
The Notes are our senior unsecured obligations and rank senior in right of payment to any indebtedness that is
expressly subordinated in right of payment to the Notes; equal in right of payment to any unsecured indebtedness that is
not so subordinated; effectively junior in right of payment to any secured indebtedness to the extent of the value of the
assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables)
of our subsidiaries.
Upon conversion, the Notes will be settled in cash up to the aggregate principal amount of the Notes to be converted,
and in cash, shares of our common stock or a combination thereof, at our option, in respect of the remainder, if any, of the
conversion obligation in excess of the aggregate principal amount of the Notes being converted.
December 31, 2022
2027 Notes
Maturity
Date
December 15, 2027 $
Initial Conversion
Price per Share
228.73
4.3720 shares
Initial Conversion
Rate per
$1,000 Par Value
Initial Number
of Shares
3,016,680
81
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Notes are convertible, in multiples of $1,000 principal amount, at the option of the holders prior to the close of
business on the business day immediately preceding September 15, 2027 only under the following circumstances:
•
•
•
•
during any calendar quarter commencing after the calendar quarter ending on March 31, 2023 (and only during
such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether
or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day
of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each
applicable trading day;
during the five business day period after any ten consecutive trading day period (“the 2027 Measurement
Period”) in which the trading price (as defined in the 2027 indenture governing the Notes) per $1,000 principal
amount of the Notes for each trading day of the 2027 Measurement Period was less than 98% of the product of
the last reported sale price of our common stock and the conversion rate in effect on each such trading day;
if we call any or all of the Notes for redemption, but only with respect to the Notes called (or deemed called) for
redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding
the redemption date;
upon the occurrence of specified corporate events as set forth within the indenture governing the Notes.
On or after September 15, 2027 until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders may convert all or any portion of their notes, in integral multiples of $1,000 principal
amount, at their option, regardless of the foregoing conditions.
If we undergo a fundamental change (as defined in the indenture governing the Notes), subject to certain conditions,
holders may require us to repurchase for cash all or any portion of their Notes, in principal amounts of $1,000 or a multiple
thereof, at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased,
plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following
certain corporate events or if we issue a notice of redemption, it will, under certain circumstances, increase the conversion
rate for holders who elect to convert their notes in connection with such corporate event or during the relevant redemption
period.
We may not redeem the Notes prior to December 22, 2025. We may redeem for cash all or any portion of the Notes,
at our option, on or after December 22, 2025 and prior to December 15, 2027, if the last reported sale price of our common
stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive)
during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the
trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100%
of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the
redemption date. No sinking fund is provided for the Notes.
In accounting for the Notes after adoption of ASU 2020-06, the Notes are accounted for as a single liability, and the
carrying amount of the Notes is $674.0 million as of December 31, 2022, with principal of $690.0 million, net of
unamortized debt issuance costs of $16.0 million. The Notes were classified as long-term liabilities as of December 31,
2022. The issuance costs related to the Notes are being amortized to interest expense over the contractual term of the Notes
at an effective interest rate of 0.99%.
82
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The net carrying amount of the Notes was as follows (in thousands):
Principal
Unamortized debt issuance costs
Convertible notes carrying amount, net
$
December 31, 2022 December 31, 2021
—
—
—
690,000
(16,033)
673,967
$
$
$
The total fair value of the Notes was $687.3 million as of December 31, 2022. The fair value was determined based
on the closing trading price per $1,000 of the Notes as of the last day of trading for the period. We consider the fair value
of the Notes at December 31, 2022 to be a Level 2 measurement as they are not publicly traded. The fair value of the Notes
is primarily affected by the trading price of our common stock and market interest rates.
There have been no changes to the initial conversion price of the Notes since issuance.
Interest expense related to the Notes was as follows (in thousands):
Contractual interest expense
Amortization of debt issuance costs
Total interest expense
Note Hedge
$
December 31, 2022 December 31, 2021
—
—
—
211
198
409
$
$
$
To reduce the impact of potential economic dilution upon conversion of the Notes, we entered into a convertible note
hedge transaction (the “Note Hedge” or “2027 Note Hedge”) with certain investment banks, with respect to our common
stock, concurrently with the issuance of the 2027 Notes.
2027 Note Hedge
$
194,994
Purchase Price
Shares Purchased
3,016,680
The Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial
conversion price of the respective Notes, subject to adjustment, and are exercisable upon conversion of the Notes. If
exercised, we may elect to receive cash, shares of our common stock, or a combination of cash and shares. We have
accounted for the aggregate amount of purchase price for the Note Hedge as a reduction to additional paid-in capital. The
Note Hedge will expire upon the maturity of the Notes. The Note Hedge is intended to reduce the potential economic
dilution upon conversion of the Notes in the event that the fair value per share of our common stock at the time of exercise
is greater than the conversion price of the Notes. The Note Hedge is a separate transaction and is not part of the terms of
the Notes. Holders of the Notes do not have any rights with respect to the Note Hedge. The Note Hedge does not impact
earnings per share, as it was entered into to offset any dilution from the Notes. As of December 31, 2022, 3,016,680 shares
remain subject to the Note Hedge.
83
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note Warrants
2027 Warrants
Proceeds
$
124,269
Shares
3,016,680
Strike Price
First Expiration
338.86 March 15, 2028
$
Separately, we entered into warrant transactions with certain investment banks, whereby we sold warrants to acquire,
subject to adjustment, the number of shares of our common stock shown in the table above. If the average market value
per share of our common stock, on each expiration date exceeds the strike price of the Warrants expiring on that day, such
Warrants would have a dilutive effect on our earnings per share to the extent we report net income. According to the terms
of the Warrants, the Warrants will be automatically exercised over a 60-trading day period beginning on the first expiration
date as set forth above.
Note 13 - Commitments and Contingencies
Data Storage Commitment
In June 2022, we entered into a purchase agreement for cloud hosting with a six year term beginning July 1, 2022.
The purchase agreement includes a total commitment of $425.0 million. Storage fees under this agreement were
$23.8 million for the year ended December 31, 2022. The remaining purchase commitment at December 31, 2022 was
$401.2 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, 2022, we had approximately $499.7 million of open purchase orders
and $415.4 million of other purchase obligations, inclusive of the data storage commitment noted above.
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
four lawsuits 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 administrative enforcement action in January 2020 regarding
our May 2018 acquisition of an insolvent body worn camera competitor, Vievu LLC. The FTC alleges the
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
merger was anticompetitive and adversely affected the body worn camera and digital evidence management market for
“large metropolitan police departments,” which we deny. The administrative hearing remains stayed pending our federal
court constitutional challenges to the FTC’s structure and administrative processes. Even if we ultimately are required to
divest Vievu and other assets, any such result will not interfere with our ability to meet contractual obligations or
implement our solutions.
Prior to the FTC’s enforcement action, we 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. The district court dismissed the action, without
prejudice, for lack of jurisdiction. The Ninth Circuit affirmed in a split decision but granted our motion to stay the appellate
mandate pending the filing of our petition for certiorari with the U.S. Supreme Court. On January 24, 2022, the Supreme
Court granted our petition. Oral argument was held November 7, 2022. The FTC’s administrative case will remain stayed
pending resolution of the Supreme Court proceedings.
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 Axon.
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, 2022, we have determined that it is
not reasonably possible that these losses, if any, from 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 Axon cameras and related technologies. Certain
of our letters of credit and surety bonds have stated expiration dates with others being released as the contractual
performance terms are completed. At December 31, 2022, we had outstanding letters of credit issued under our credit
facility of $7.0 million that are expected to expire throughout 2023 and 2024. Additionally, we had $18.0 million of
outstanding surety bonds at December 31, 2022, with $7.5 million expiring in 2023 and the remaining $10.5 million
expiring in 2024.
85
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 14 - Income Taxes
Income (loss) before provision (benefit) for income taxes included the following components for the years ended
December 31 (in thousands):
United States
Foreign
Total
2022
2021
$ 191,631 $ (146,995) $ (11,529)
5,238
$ 196,518 $ (141,375) $ (6,291)
5,620
4,887
2020
Significant components of the provision (benefit) for income taxes were 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)
2022
2021
2020
$
$ 10,804
10,118
2,892
23,814
(331)
85
(60)
(306)
$
5,277
3,886
1,943
11,106
26,238
(2,002)
(2,146)
22,090
3,475
(65,557)
(15,266)
478
(80,345)
(706)
$ 49,379 $ (81,357)
(10,175)
(3,111)
(3,131)
(16,417)
744
$ (4,567)
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
Other permanent differences (1)
Foreign derived intangible income deduction
Executive compensation limitation
R&D credits
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
2022
$ 41,283
7,928
(428)
1,771
(2,597)
5,784
(13,340)
(757)
3,215
(4,616)
10,216
(417)
1,337
$ 49,379
2021
$ (29,691)
(12,717)
(155)
1,842
—
180,509
(34,376)
204
10,188
(205,483)
8,961
96
(735)
$ (81,357)
2020
$ (1,321)
935
(86)
794
(902)
15,463
(10,246)
(1,078)
987
(9,002)
163
(389)
115
$ (4,567)
25.1 %
57.5 %
72.6 %
(1) Other permanent differences include certain expenses that are not deductible for tax purposes including meals and
entertainment, lobbying fees, and taxable income as a result of global intangible low-tax income (“GILTI”).
86
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
R&D tax credit carryforward
Reserves, accruals, and other
R&D capitalization, net
Convertible debt, net
Total deferred income tax assets
Deferred income tax liabilities:
Customer contract asset
Right of use asset
Depreciation
Strategic investments
Prepaid expenses
Other
Total deferred income tax liabilities
Net deferred income tax assets before valuation allowance
Valuation allowance
Net deferred income tax assets
2022
2021
$
4,874
47,586
1,575
9,973
1,279
15,374
2,820
12,826
17,732
46,122
48,378
208,539
$
68,353
27,031
1,414
5,886
684
10,913
2,672
29,249
14,717
—
—
160,919
(552)
(8,748)
(10,272)
(4,615)
(1,119)
—
(25,306)
183,233
(26,368)
(1,104)
(5,008)
(8,938)
(2,653)
(594)
(72)
(18,369)
142,550
(16,168)
$ 156,865 $ 126,382
We have $89.5 million of state net operating losses (“NOLs”) which will expire at various dates between 2026 and
2041 or carry forward indefinitely. We have $4.4 million of federal R&D credits, which expire between 2034 and 2041,
and $0.1 million of which is subject to limitation under IRC Section 382. We have $21.6 million of state R&D credits
carrying forward, which expire at various dates between 2023 and 2037, or carry forward indefinitely. In the U.K., we
have $4.1 million of NOLs which may be carried forward indefinitely.
In preparing our condensed consolidated financial statements, management assesses the likelihood that its deferred
tax assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets,
management considers all available positive and negative evidence, 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 tax assets will not be realized.
Management exercises significant judgment in determining our provision for income taxes, our deferred tax assets and
liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our
deferred tax assets.
As of December 31, 2022, management continues to believe the positive evidence from projected future earnings
outweighs the negative evidence and a valuation allowance is only needed on specific deferred tax assets. We have
concluded that a valuation allowance is necessary against unrealized investment losses as well as transaction costs incurred
in connection with certain investments. Additionally, we do have Arizona R&D tax credits expiring unutilized each year;
therefore, management has concluded that it is more likely than not that our Arizona R&D deferred tax asset will not be
realized, and a valuation allowance has been recorded against this net asset.
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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 asset where there is not an expectation that the asset may be realized. Therefore, we continue to
have 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 and we have not made a provision for U.S. or additional
foreign withholding taxes of the excess of the amount for financial reporting over the tax basis of investments in foreign
subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance
of dividends and under certain other circumstances. We have determined the amount of deferred tax liability related to
investments in these foreign subsidiaries is immaterial. If we decide to repatriate the undistributed foreign earnings, we
will 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 and state 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 $21.5 million as of
December 31, 2022. Should the unrecognized benefit of $21.5 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
$
2022
$ 18,249
232
3,343
(332)
2021
7,657
22
11,416
(846)
$ 21,492 $ 18,249
2020
6,861
(34)
950
(120)
7,657
$
$
Federal income tax returns for 2019 through 2021 remain open to examination by the U.S. Internal Revenue Service
(the “IRS”), while state and local income tax returns for 2018 through 2021 also generally remain open to examination by
state taxing authorities. The 2008 through 2017 state and local 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 2018 through 2021. The foreign
tax returns for 2018 through 2021 also generally remain open to examination, although some foreign statutes can audit
returns up to ten years.
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, 2022, and 2021, we had accrued interest of $0.3 million and $0.2 million, respectively.
Note 15 - Line of Credit
In December 2022, we entered into a Credit Agreement that provides for a senior unsecured multi-currency revolving
credit facility in an aggregate principal amount of up to $200.0 million, $30.0 million of which is available for the issuance
of letters of credit. The credit agreement will mature on the earlier of December 15, 2027 or the date that is six months
prior to the stated maturity date of the 0.50% convertible senior notes due 2027 unless such Notes have been redeemed,
repurchased, converted or defeased in full. Additionally, the credit agreement has an accordion feature which allows for
an increase in the total line of credit up to $300.0 million, subject to each lender’s sole discretion.
88
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2022, 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, 2022, we had letters of credit outstanding of
approximately $7.0 million under the facility and available borrowing of $193.0 million, excluding amounts available
under the accordion feature. Advances under the line of credit bear interest at Term SOFR plus 1.25 to 1.75% per year
determined in accordance with a pricing grid based on our net debt to earnings before interest, taxes, depreciation and
amortization (“EBITDA”) ratio.
We are required to comply with a net leverage ratio, defined as consolidated total indebtedness to EBITDA, of no
greater than 3.50 to 1.00 based upon a trailing four fiscal quarter period. At December 31, 2022, our leverage ratio was
0.97 to 1.00. Additionally, we must comply with a consolidated interest coverage ratio, defined as EBITDA to consolidated
interest expense, of no less than 3.50 to 1.00 based upon a trailing four fiscal quarter end. We are compliant with the
consolidated interest coverage ratio, which is not meaningful for the year ended December 31, 2022.
Note 16 - 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 talented personnel. Service-based grants generally have
a vesting period of 1 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.
In May 2022, our shareholders approved the Axon Enterprise, Inc. 2022 Stock Incentive Plan (the “2022 Plan”)
authorizing an additional 2.5 million shares, plus remaining available shares under prior plans, for issuance under the new
plan. Combined with the 2019 Plan and other legacy stock incentive plans, there are 2.7 million shares available for grant
as of December 31, 2022.
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
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 for each pair of performance and market conditions
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.
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
CEO Performance Award
On May 24, 2018, 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 attainment 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 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 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, interest
and other income (such as dividends) earned on investments in marketable securities, provision (benefit) for income taxes,
depreciation and amortization, and stock-based compensation expense.
Revenue Goal (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
Achievement Status
Achieved
Achieved
Achieved
Probable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Adjusted EBITDA
(in thousands)
Goal #1, $125,000
Goal #2, $155,000
Goal #3, $175,000
Goal #4, $190,000
Goal #5, $200,000
Goal #6, $210,000
Goal #7, $220,000
Goal #8, $230,000
Achievement Status
Achieved
Achieved
Achieved
Achieved
Achieved
Achieved
Achieved
Achieved
(1)
In connection with the business acquisition that was completed during the three months ended June 30, 2018, the
revenue goals were adjusted for the acquiree’s Target Revenue, as defined in the CEO Performance Award agreement.
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 ten market capitalization goals have been achieved as of December 31, 2022. As of December 31,
2022, 5.3 million stock options have been certified by the Compensation Committee and vested. The eleventh market
capitalization goal has not yet been attained, though the related operational goal has been achieved as of December 31,
2022. As twelve operational goals have been achieved or are considered probable of achievement, we recorded stock-
based compensation expense of $243.9 million related to the CEO Performance Award from the grant date through
December 31, 2022. The number of stock options that would vest related to the remaining unvested tranches is
approximately 1.1 million shares. As of December 31, 2022, we had $2.1 million of total unrecognized stock-based
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
compensation expense for the performance goals that were considered probable of achievement, which will be recognized
over a weighted-average period of 0.2 years.
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. Initial awards under the plan were granted
in January 2019, with additional employee awards granted since that date. During the year ended December 31, 2022 we
granted an additional seventy-four thousand XSUs.
The XSUs are grants of Restricted Stock Units (“RSUs”), 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. Beginning with the quarter ended June 30, 2021, new XSU grants are divided into a reduced
number of tranches depending on employee eligibility and current market capitalization attainment.
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 Performance
Stock Units (“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. As of December 31, 2022, actual shares outstanding exceeded the XSU Maximum.
Accordingly, market capitalization as calculated for the purposes of achieving additional XSPP market capitalization goals
uses the lower XSU Maximum share amount rather than actual shares outstanding.
The first nine market capitalization goals have been achieved as of December 31, 2022. The tenth and eleventh
market capitalization goals have not yet been attained, though the related operational goals have been achieved as of
December 31, 2022. The first XSU tranche vested in March 2021, the second and third tranches vested in May 2021, five
tranches vested in September 2021, and one tranche vested in December 2021. As all twelve operational goals have been
achieved or are considered probable of achievement, we recorded stock-based compensation expense of $186.2 million
related to the XSU awards from their respective grant dates through December 31, 2022. The number of XSU awards that
would vest related to the remaining three tranches is approximately 1.2 million shares. As of December 31, 2022, we had
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$14.7 million of total unrecognized stock-based compensation expense, which will be recognized over a weighted-average
period of 1.2 years.
Restricted Stock Units
The following table summarizes RSU activity for the years ended December 31 (number of units and aggregate
intrinsic value in thousands):
2022
2021
2020
Units outstanding, beginning of year
Granted
Released
Forfeited
Units outstanding, end of year
Aggregate intrinsic value at year end
Number
of
Number
of
Weighted
Average
Grant-Date
Weighted
Average
Grant-Date
Weighted
Average
Grant-Date
Fair Value Units Fair Value Units Fair Value
$ 45.47
100.76
40.68
52.40
76.10
$ 76.10 1,249
577
165.67
(598)
66.23
100.64
(121)
133.40 1,107
$ 133.40
143.03
117.49
138.99
145.48
1,107
686
(554)
(124)
1,115
Number
of
Units
1,115
1,142
(541)
(151)
1,565
$ 259,729
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was
$165.93 per share on December 30, 2022, multiplied by the number of RSUs outstanding. The fair value as of the
respective vesting dates of RSUs that vested during the year was $84.9 million, $96.4 million, and $56.0 million for
the years ended December 31, 2022, 2021, and 2020, respectively.
Certain RSUs that vested in the year ended December 31, 2022 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 related to RSUs during 2022 were eleven thousand and had a value
of approximately $1.6 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.
As of December 31, 2022, we had $192.7 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 2.32 years. RSUs are released when vesting requirements are met.
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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):
2022
2021
2020
Units outstanding, beginning of year
Granted
Released
Forfeited
Units outstanding, end of year
Aggregate intrinsic value at year end
Weighted
Average
Grant-Date
Number
of
Fair Value Units
5,618
309
(4,345)
(83)
1,499
$ 39.86
106.57
107.58
41.62
43.43
Number
of
Weighted
Average
Grant-Date
Weighted
Average
Grant-Date
Fair Value Units Fair Value
$ 34.47
58.11
27.79
40.83
35.71
$ 35.71 6,033
417
77.53
(184)
37.16
40.91
(648)
39.86 5,618
Number
of
Units
1,499
158
(78)
(210)
1,369
$ 227,125
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was
$165.93 per share, multiplied by the number of PSUs outstanding. As of December 31, 2022, there was $19.2 million in
total unrecognized stock-based compensation expense 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 1.17 years. PSUs are
released when vesting requirements are met.
As of December 31, 2022, the performance criteria had been met for approximately twenty thousand of the
1.4 million PSUs outstanding.
Certain PSUs that vested in the year ended December 31, 2022 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 related to PSUs were approximately twenty-six thousand and had a
value of $3.3 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. 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):
2022
2021
2020
Options outstanding, beginning of year
Granted
Exercised
Expired / terminated
Options outstanding, end of year
Options exercisable, end of year
of
of
of
Weighted
Options Price
Number Average
Exercise
Weighted
Number Average
Exercise
Options Price
$ 28.58
—
—
— (3,928)
—
—
2,438
28.58
1,377
28.58
2,438
—
—
—
2,438
1,377
6,366 $ 28.58
—
28.58
—
28.58
28.58
Weighted
Number Average
Exercise
Options Price
$ 28.34
—
4.52
—
28.58
28.58
6,431
—
(65)
—
6,366
530
93
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We did not grant any stock options in 2022, 2021 or 2020. No options were exercised in the year ending December 31,
2022. The total intrinsic value of options exercised was $571.4 million and $5.1 million for the years ended December 31,
2021 and 2020, 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, 2022 (number of options in thousands):
Options Outstanding
Options Exercisable
Range of
Exercise Price
$28.58
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years) Exercisable
Weighted
Number of
Options
1,377
$
28.58
5.16
1,377 $
Weighted
Average
Remaining
Contractual
Life (Years)
5.16
Average
Exercise
Price
28.58
The aggregate intrinsic value of options exercisable at December 31, 2022 was $189.1 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 $165.93 on December 30, 2022.
At December 31, 2022, we had 1.1 million unvested options outstanding with a weighted average exercise price of
$28.58 per share, weighted average grant-date fair value of $35.80 per share and weighted average remaining contractual
life of 5.16 years. The aggregate intrinsic value of unvested options at December 31, 2022 was $145.7 million.
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
$
2022
2021
$
5,844
238,813
58,674
$ 303,331
25,154 $ 30,586
4,607
51,301
50,268
$ 106,176
$
$
2020
3,464
103,860
26,248
$ 133,572
$ 29,329
In September 2022, our Board of Directors adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022
Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the Inducement
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 employed by us (or following such individuals’ bona
fide periods of non-employment by us), as an inducement material to the individuals’ entry into employment with us. The
terms and conditions of the 2022 Inducement Plan are substantially similar to our 2019 Stock Inducement Plan. There are
approximately 0.1 million shares available for grant as of December 31, 2022.
At-the-Market equity offering
During the year ended December 31, 2021, we sold 577,956 shares of our common stock under our “at-the-market”
equity offering program (the “ATM”). We generated approximately $107.6 million in aggregate gross proceeds from sales
under the ATM. Aggregate net proceeds from the ATM were $105.4 million after deducting related expenses, including
94
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
commissions to the sales agent of $1.6 million and issuance costs of $0.5 million. During the year ending December 31,
2022, no shares were sold under the ATM.
We may sell up to a total of 3.0 million shares of our common stock under the ATM, of which approximately 2.4 are
remaining. The ATM expires on April 20, 2024. We intend to use the net proceeds from the ATM for general corporate
purposes, which may include, among other things, providing capital to satisfy a portion of the tax obligations related to
the vesting and settlement of stock compensation awards granted to our executive officers and other employees under our
stock incentive plans, to support our growth, and to acquire or invest in product lines, products, services, technologies or
facilities.
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, 2022
and 2021, $16.3 million remained available under the plan for future purchases.
Note 17 - Accumulated Other Comprehensive Income (loss)
The following table reflects the changes in accumulated other comprehensive income (loss), net of tax (in thousands):
Unrealized Gains (Losses)
on Available-for-Sale
Investments
Foreign Currency
Translation
Total
$
$
$
$
— $
—
— $
(207)
(207) $
(1,044)
(1,251) $
(1,096) $
1,237
141 $
(1,251)
(1,110) $
(4,818)
(5,928) $
(1,096)
1,237
141
(1,458)
(1,317)
(5,862)
(7,179)
Balance, December 31, 2019
Other comprehensive income
Balance, December 31, 2020
Other comprehensive loss
Balance, December 31, 2021
Other comprehensive loss
Balance, December 31, 2022
Note 18 - 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 convertible notes, line of credit, macroeconomic factors 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 leases for office space and logistical functions. 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.
95
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Our leases have remaining terms of less than 1 to approximately 11 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
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 had no finance
leases as of December 31, 2022.
Leases (in thousands)
Assets
Operating lease assets
Liabilities
Current
Operating
Noncurrent
Operating
Total lease liabilities
Classification
Other assets
Other current liabilities
Other long-term liabilities
December 31, 2022 December 31, 2021
$
$
$
38,370 $
23,270
6,357 $
6,540
37,143
43,500 $
20,440
26,980
The components of operating lease expense were as follows for the years ended December 31 (in thousands):
Operating lease expense
Classification
Sales, general and administrative expenses (1)
Research and development expense
Total operating lease expense (2)
$
2022
2021
2020
$
4,388
4,315
8,703
3,820 $
3,675
7,495
3,762
2,995
6,757
Sublease income
Net lease expense
Other income
—
$
8,703
$
—
7,495 $
(55)
6,702
(1) An immaterial portion of operating lease expense is included within cost of sales.
(2)
Includes short-term leases, which are immaterial.
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
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
Weighted average remaining lease term:
Operating leases
Weighted average discount rate:
Operating leases
Twelve Months Ended
December 31, 2022
Twelve Months Ended
December 31, 2021
$
9,216
$
21,815
7,506
6,726
7.2 years
4.2 years
5.44 %
2.73 %
96
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future minimum lease payments under non-cancellable leases as of December 31, 2022 were as follows (in
thousands):
2023
2024
2025
2026
2027
Thereafter
Total minimum lease payments
Less: Amount representing interest
Present value of lease payments
Operating
8,448
8,936
8,990
5,374
3,566
20,579
55,893
(12,393)
43,500
$
As of December 31, 2022, we do not have any leases that have not yet commenced that create significant rights and
obligations for us.
Note 19 - 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 sponsor defined contribution plans in Australia, Canada, Finland, and the United Kingdom.
Our matching contributions for all defined contribution plans for the years ended December 31, 2022, 2021 and 2020,
were approximately $10.9 million, $7.4 million and $5.6 million, respectively.
Note 20 - 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.
97
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, 2022
Software and
Sensors
TASER
$
511,010
20,556
531,566
194,957
—
194,957
336,609
51,607
$
$
290,378
367,991
658,369
168,262
98,078
266,340
392,029
182,203
$
$
$
For the year ended December 31, 2021
Software and
Sensors
TASER
426,916
10,011
436,927
149,739
145
149,884
287,043
46,136
$
$
$
181,609
244,845
426,454
110,359
62,228
172,587
253,867
147,890
$
$
$
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
$
$
$
Total
801,388
388,547
1,189,935
363,219
98,078
461,297
728,638
233,810
Total
608,525
254,856
863,381
260,098
62,373
322,471
540,910
194,026
Total
500,250
180,753
681,003
224,131
40,541
264,672
416,331
123,195
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
$
$
$
$
$
$
$
$
$
98
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 21 - 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
2022
2021
2020
$ 353,684
1,868
$
$ 356,332
106
$
$ 155,440
111
$
$ 355,552
$ 356,438
$ 155,551
Cash paid for income taxes, net of refunds
$ 10,508 $
5,108
$ 10,893
Non-cash transactions:
Property and equipment purchases in accounts payable
Non-cash purchase consideration related to business combinations
$
1,056 $
—
1,994
3,920
878
—
99
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, 2022 and 2021, the related consolidated statements of operations
and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2022, 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, 2022
and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2022, 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, 2022, 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 28, 2023 expressed an adverse 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 matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts
or disclosures that are material to the financial statements and (2) involved 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 matter below, providing separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
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. 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.
100
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).
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 contractual terms and the appropriateness of material right determinations.
- Obtained management’s contract review assessment and corroborate 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.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Phoenix, Arizona
February 28, 2023
101
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, 2022 our disclosure controls and procedures were not effective
because of the material weakness in our internal control over financial reporting described below.
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) or 15d-15(f) under the Exchange Act). Management has assessed the effectiveness of our internal
control over financial reporting as of December 31, 2022 based on criteria established in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this
assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was not
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.
During the year ended December 31, 2022, we identified a material weakness in our internal control over financial
reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will
not be prevented or detected on a timely basis.
Specifically, during the year ended December 31, 2022, we identified a material weakness in our internal controls
stemming from control deficiencies with respect to the risks of understatement of software and services revenue and
overstatement of deferred revenue. This material weakness in internal control over financial reporting resulted from a
failure to effectively manage the migration of triggering events for certain software and services performance obligations
during the quote-to-cash phase of the implementation of our Enterprise Resource Planning (“ERP”) and related systems
in 2021. Additionally, there were limited instances of invoicing errors resulting from ineffective change management of
the quote-to-cash systems implementation. The manual business processes for tracking open software and services
performance obligations and for monitoring billing events were not sufficiently robust to prevent the errors. The related
business processes and account reconciliation detective controls were not designed to operate with a sufficient degree of
precision to identify these errors on a timely basis. These deficiencies resulted in immaterial understatements of revenue
that accumulated over time and were corrected in the fourth quarter of 2022 as disclosed in Note 1 of the consolidated
financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
102
Grant Thornton LLP has independently assessed the effectiveness of our internal control over financial reporting and
its report is included below.
Remediation Plan
To remediate the material weakness described above, we are designing and implementing new business processes
and automation of integrations between our systems as well as enhancing our reconciliation controls and monitoring
procedures to properly ensure transactions are identified and recorded timely and accurately.
We are in the process of documenting, assessing and testing the necessary changes in our internal control over
financial reporting as part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act.
The material weaknesses will not be considered remediated until the applicable remedial controls operate for a
sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2023.
Changes in Internal Control over Financial Reporting
Except for the changes noted above, there have been no other changes in our internal control over financial reporting
during the fiscal quarter ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
103
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, 2022, 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, because of the effect of the material weakness described in the following paragraphs on the achievement of
the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as
of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material weakness has been
identified and included in management’s assessment. Management has identified a material weakness resulting from a
failure to effectively manage the migration of triggering events for certain software and services performance obligations
and invoicing errors during the quote-to-cash cycle. The related business processes and account reconciliation detective
controls were not designed to operate with a sufficient degree of precision to identify these errors on a timely basis.
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,
2022. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests
applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report dated
February 28, 2023 which 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. 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.
104
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 28, 2023
105
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 2023 Annual Meeting of Stockholders (the “2023 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, 2022.
Item 11. Executive Compensation
The information required to be disclosed by this item is incorporated herein by reference to our 2023 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 16 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, 2022:
Number of
Securities to be
Issued upon
Exercise of Outstanding
Weighted
Average
Exercise Price
Number of Securities
Remaining Available for
Future Issuance Under Equity
of Outstanding Options, Compensation Plans (Excluding Securities
Options, Warrants and Rights Warrants and Rights
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders(2)
Total
(a)
(b) (1)
5,096,956
$
28.58
275,095
5,372,051
$
—
Reflected
in Column (a)) (c)
2,749,539
112,505
2,862,044
(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 2022, our Board of Directors adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022
Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the Inducement
Plan. 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 2022 and 2019 Inducement Plans were adopted without stockholder approval pursuant to Rule
5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules. The Inducement Plans 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 2022 Plan and 2019 Plan, respectively. 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
106
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 2023 Proxy
Statement.
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 2023 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 2023 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
4.3
4.4
10.1+
10.2+
Description
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Quarterly Report on Form 10-Q, filed August 9, 2022)
Bylaws, as amended and restated (incorporated by reference to Exhibit 3.2 to the Quarterly Report on
Form 10-Q, filed August 9, 2022)
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
(incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K, filed February 28, 2020)
Indenture, dated as of December 9, 2022, between Axon Enterprise, Inc. and U.S. Bank Trust Company,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, filed December 9, 2022)
Form of 0.50% Convertible Senior Note due 2027 (incorporated by reference to Exhibit A in Exhibit 4.1
to the Current Report on Form 8-K, filed December 9, 2022)
Form of Indemnification Agreement between the Company and its directors (incorporated by reference to
to Registration Statement on Form SB-2, effective May 11, 2001 (Registration
Exhibit 10.4
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 10.5
No. 333-55658))
10.3+
TASER International, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to
Form 8-K, filed on July 12, 2013)
10.4+
2016 Stock Incentive Plan (incorporated by reference to Annex B of 2016 Proxy Statement, filed on
April 15, 2016)
10.5+
Axon Enterprise, Inc. 2018 Stock Incentive Plan (incorporated by reference to Annex B of the Company’s
Proxy Statement, filed on April 13, 2018)
107
Exhibit
Number
10.6+
Description
CEO Performance Award (incorporated by reference to Annex A of the Company’s Proxy Statement, filed
on April 13, 2018)
10.7+
Axon Enterprise, Inc. 2019 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s
Proxy Statement, filed on December 31, 2018)
10.8+
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)
10.9+
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)
10.10+
Executive Employment Agreement by and between Axon Enterprise, Inc. and Joshua M. Isner
10.11+
(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)
10.12+
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)
10.13+
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)
10.14±
Construction Management Agreement, dated February 23, 2022, by and between Axon Enterprise, Inc.
and Okland Construction Company, Inc. (incorporated by reference to Exhibit 10.19 to the Annual Report
on Form 10-K, filed February 24, 2022)
10.15+
Executive Employment Agreement by and between Axon Enterprise, Inc. and James C. Zito (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed August 9, 2022)
10.16+
Axon Enterprise, Inc. 2022 Stock Incentive Plan (incorporated by reference to Annex B of the Company’s
Proxy Statement, filed April 8, 2022)
10.17+
Axon Enterprise, Inc. 2022 Stock Inducement Plan (incorporated by reference to Exhibit 99.1 to the
registration statement on Form S-8, filed September 23, 2022)
10.18+
10.19
Executive Employment Agreement by and between Axon Enterprise, Inc. and Brittany Bagley
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed November 9, 2022)
Form of Convertible Note Hedge Confirmation (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K, filed December 9, 2022)
10.20
Form of Warrant Confirmation (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, filed December 9, 2022)
10.21*
Credit Agreement, dated December 15, 2022, by and between Axon Enterprise, Inc. and JPMorgan Chase
Bank, N.A.
21.1*
23.1*
24.1*
31.1*
31.2*
32**
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 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
101.CAL*
101.LAB*
101.PRE*
104
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, 2022, formatted in
Inline XBRL
+ Management contract or compensatory plan or arrangement
108
* Filed herewith
** Furnished herewith
± Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”)
because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly
disclosed.
Item 16. Form 10-K Summary
Not applicable.
109
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 28, 2023
Date: February 28, 2023
By:
By:
/s/ PATRICK W. SMITH
Chief Executive Officer, Director
(Principal Executive Officer)
/s/ BRITTANY BAGLEY
Chief Financial Officer and Chief Business Officer
(Principal Financial and Accounting Officer)
110
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/ BRITTANY BAGLEY
Brittany Bagley
/s/ ADRIANE M. BROWN
Adriane M. Brown
/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 28, 2023
Chief Financial Officer and Chief Business Officer February 28, 2023
(Principal Financial and Accounting Officer)
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
Director
Director
Director
Director
Director
Director
Director
111
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AXON.COM
2022–2023