Axon Enterprise (AXON) Financial History

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 under the 2027 Note Hedge transactions at that time.

If any of the 2027 Note Hedge or Warrant transactions do not perform as anticipated, counterparties may unwind their positions, which could adversely affect our stock price.

Additionally, the option counterparties or their affiliates may adjust their hedge positions by entering into or unwinding various derivatives linked to our common stock, or by buying or selling our common stock or ot…

In connection with the pricing of the 2027 Notes, we entered into 2027 Note Hedge transactions and Warrant transactions with the option counterparties.

Our ability to meet our debt obligations, including making, scheduled principal and interest payments or refinancing obligations, depends on our future performance and external factors beyond our control.

Fulfilling our debt obligations requires significant cash resources, which may exceed our available cash flow.

The choice of forum provision may increase costs to bring a claim, discourage claims or limit a shareholder’s ability to bring a claim in a judicial forum viewed by the shareholder as more favorable for disputes with…

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 discl…

We are subject to changing rules and regulations promulgated by several governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market and the FASB.

We are subject to evolving corporate governance and public disclosure regulations and expectations that could expose us to numerous risks.

The cost of compliance with these laws and regulations is high and is likely to increase in the future.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including laws and regulations related to: privacy, data protection, security, retentio…

Open-source software is typically freely accessible, usable and modifiable.

Regardless of the outcome, the prosecution of patent and other intellectual property claims is both costly and time-consuming.

Once established, there is no guarantee that our intellectual property rights will remain in force.

Our protective measures may prove inadequate for reasons outside of our control.

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 agreemen…

Many companies own intellectual property rights that are directly or indirectly related to public safety technologies.

We have been and could in the future be involved in litigation, government inquiries and regulatory matters relating to our products, contracts, employees and business relationships, including litigation against perso…

We also face exposure to class action lawsuits related to the design, performance, safety, pricing or advertising of our products.

As a result of these and other factors, we believe that short-term period-to-period comparisons of our operating results may not provide meaningful insights, and our performance in a particular period may not be indic…

•adverse publicity surrounding our products, including product safety or use;

Furthermore, recommendations from the OECD for a global minimum income tax and other changes are being implemented or considered in jurisdictions where we operate.

Our tax provision could also be impacted by changes in U.S.

We are subject to potential tax examinations in multiple jurisdictions.

We also import selected components that are used in the manufacturing of some of our products.

For non-U.S.

If any of these depository institutions were to fail, and their assets were insufficient to cover deposits, or if governments did not take action to support deposits exceeding existing insurance limits, we could incur…

We hold the majority of our cash balances, some of which are not insured, at three depository institutions.

Our contracts typically have fixed terms with early termination rights, with the possibility of extension at the discretion of the contracting entity.

Governmental agencies often procure products and services through an open bidding process, which typically involves publishing a list of requirements and soliciting proposals from potential vendors.

Additionally, government procurement processes are often subject to scheduling delays and uncertainties, which can disrupt anticipated sales.

A significant portion of our end-user customers are government agencies, which typically lack direct control over their budgets.

Our SaaS revenue is generally recognized ratably over the terms of the contracts.

Any of these factors could result in significant fluctuations in our gross margin.

•increased amortization of purchased intangible assets, including from acquisitions; and

•increases in materials, labor, manufacturing, or supply chain logistics costs;

•expanding into new markets or lower-margin markets, including through acquisitions or internal development;

Our gross margin could decline in future periods due to various factors, including:

Our strategy includes maintaining a significant portion of our business through a subscription model, which aligns with the municipal budgeting process of our customers and allows for multiple product offerings to be…

Such revision or restatement may also result in stockholder litigation against us, or adverse regulatory consequences.

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 fina…

Federal and state legislatures frequently consider legislation relating to the regulation of firearms, including the amendment or repeal of existing legislation.

The ATF conducts periodic audits of our facilities that hold federal firearms licenses.

The TASER 10 CED is primarily regulated by the Bureau of Alcohol, Tobacco, Firearms and Explosives (the “ATF”), which regulates the manufacture, sale and import of firearms in the United States primarily under the Nat…

In addition, our compensation arrangements, such as our equity incentives, may not always be successful in attracting new employees and retaining and motivating our existing employees.

Trade regulations include, among other categories, environmental regulations, climate- and sustainability-related regulations, tax and statutory financial regulations, export and import controls, customs and duties re…

•restrictions on foreign ownership and investments, and foreign exchange controls, could limit our ability to repatriate cash earned in countries outside the United States;

We have significant international operations and plan to continue growing internationally by acquiring existing entities and establishing new legal entities in additional markets.

Our business may also be harmed if our customers and potential customers believe our services are unreliable.

We rely on third party cloud service providers located in the United States and other countries to deliver our cloud services.

We may also face increased scrutiny regarding data privacy and security risks related to the data we use to train and evaluate AI models, as breaches or misuse of this data and associated terms and conditions could ex…

Compliance with new or changing laws, regulations, or industry standards relating to AI may impose significant operational costs and constrain our ability to develop, deploy or use AI technologies.

The development, adoption, integration and use of generative AI technology remains in the early stages and consequently, our AI technology may contain material defects or errors.

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 such data.

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.

Security breaches of our products and services could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our customers’ data.

Delays in product development schedules could adversely affect our revenues and cash flows.

As significant tariffs or other restrictions continue to be placed on foreign imports by the United States, our sales and results of operations may be harmed.

Additionally, if our suppliers do not allocate sufficient production, decommit from agreed supply levels, or inaccurately forecast demand, we may face reduced access to components and need to secure new suppliers.

We cannot assure you that the anticipated benefits of any acquisition or investment will be realized, that projected synergies will materialize, or that we will not be exposed to unknown liabilities or risks.

•challenges transitioning acquired customers to our systems, processes, and contractual terms, including risks related to contract assignability or change-of-control provisions;

•credit risks, or other financial impacts associated with acquired customers or contractual obligations;

•difficulties supporting legacy products, software, or infrastructure of the acquired business;

•unionization, labor organization efforts, or grievances leading to work stoppages, strikes, or operational disruptions;

•cultural misalignment with the acquired company, disruptions to our workplace environment, or adverse impacts on investor perception;

•identification of previously unknown cybersecurity vulnerabilities in acquired technologies that expose us to security or privacy risks;

•failure to obtain required regulatory approvals, clearances or certifications;

Our business strategy has included, and may continue to include, acquiring or investing in complementary products, technologies, or businesses.

In addition, unfavorable media or investor and analyst reports related to our industry, company, brand, marketing, personnel, operations, business performance, or prospects may affect our common stock price and the pe…

Our reputation and our brands have in the past been, and could in the future be, damaged by negative publicity, whether or not merited.

Our business depends on the reputation of the Axon brand.

The technology associated with law enforcement devices and software is rapidly evolving.

We cannot assure you that new products or product features will achieve market acceptance.

Additionally, customers’ requirements for these products are complex and varied.

We have devoted, and continue to devote, significant resources to develop and deploy SaaS solutions to a large number of customers.

A decrease in the selling prices of or demand for these products, or failure to maintain broad market acceptance, could significantly harm our competitive position, and adversely affect our business operating results…

•failure to offer complementary products that enhance the functionality of our offerings;

Additionally, our CEDs and other offerings or products could fail to maintain or attain sufficient customer acceptance for many reasons, some of which are beyond our control, including:

We derive a significant portion of our revenues from sales of CEDs and related products and services, whether sold individually or as part of a subscription plan offering.

We substantially depend on sales of our CEDs, and if these products do not continue to be widely accepted, our growth prospects, operating results and financial condition will be diminished.

•We are subject to evolving corporate governance and public disclosure regulations and expectations that could expose us to numerous risks.

•We hold the majority of our cash balances, some of which are not insured, at three depository institutions.

A default by an option counterparty could lead us to suffer adverse tax consequences and result in greater dilution of our common stock than we currently anticipate.

Future changes made to our accounting standards related to the Notes could have a material effect on our reported financial results.

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.

As of January 1, 2022, we adopted ASU 2020-06, which affects the accounting treatment of the Notes.

Changes in the accounting treatment for the Notes could have a material effect on our reported financial results.

The conversion of some or all of the Notes could dilute our shareholders’ ownership interests.

Conversion of the Notes may dilute the ownership interest of our shareholders or could depress the price of our common stock.

If the conditional conversion feature of the Notes is triggered, holders of Notes may choose to convert their Notes during specified periods at their discretion.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

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 discl…

Our protective measures may prove inadequate for reasons outside of our control.

increased competition prior to the anticipated end of contracts.

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 fina…

talent, including senior executives.

Trade regulations include, among other categories, environmental regulations, climate- and sustainability-related regulations, tax and statutory financial regulations, export and import controls, customs and duties re…

•import and export requirements, tariffs, trade disputes, product certification mandates, sanctions, and customs could hinder our ability to offer products or services in certain countries or obtain necessary parts an…

Our business will also be harmed if our customers and potential customers believe our service is unreliable.