Axon Reports Strong Second Quarter Revenue up 26%; International Revenue up 80%, Annual Recurring Revenue up 42%

SCOTTSDALE, Ariz., Aug. 6, 2020 /PRNewswire/ --

Dear Shareholders,

When we began investing in body cameras in 2008, we faced numerous skeptics. But, we knew that body cameras -- and the accountability and transparency they bring -- were the future. And we were confident in our institutional knowledge about policing, due to our close connection to our customers through the success of our TASER devices.

Body cameras started to gain traction after a wave of protests began in Ferguson, Mo., in 2014, which was also the birth of the Black Lives Matter movement. Axon was delivering the right products at the right time and our investments in cloud software made body camera programs feasible and affordable for all agencies.

In 2020, we are humbled to be developing solutions that once again find themselves relevant to a national conversation about policing. The pandemic has amplified the deep inequities in our society, with disproportionate burdens of unemployment, illness and death among Black and Brown people and historically marginalized populations. We understand and see the pain and nuance behind the demands to defund the police, which is really about reforming and reshaping the justice system. We also know that public safety is a fundamental right of all communities, and our pipeline continues to strengthen as communities see the power of our platform to drive positive change. We believe we will look back on 2020 as a time that set in motion the next wave of policing reform.

Technology is not a panacea but it can have an outsized impact on creating a world where everyone feels safer in their neighborhoods, and gets home safely at the end of the day. We have the privilege to imagine how the world can and should be different and we have the capability to create and drive that change.

After the killing of George Floyd in Minneapolis in May, Axon employees began to brainstorm ways to leverage our expertise to do even more in service of our mission to protect human life. We expanded our existing vision to also center on racial equity, diversity and inclusion in the justice system, and created a new position within our sales team to put a greater focus on incorporating community input into our product development process. Axon engineers are developing software that addresses the need for better data collection, accountability, investigation and compliance for force events, and helps agencies to better document, analyze and report on force incidents. We are eager to build upon our existing leadership in driving down injury rates and providing use-of-force accountability. TASER devices have the lowest likelihood of death or serious injury compared with other use-of-force options and provide the best combination of stopping power while also keeping both officers and the public safe. TASER devices also document the duration of an energy discharge, the quality of the connection and the type of deployment, and when armed, are able to trigger body-worn cameras to begin recording.

This is also a year where we have walked beside our customers in one of the most challenging environments they have ever faced -- whether through our personal protective equipment charitable campaign for first responders, or through helping agencies respond to and comply with demands for more transparency and source technology amid greater public budget scrutiny, we aspire to be a true partner. We are emboldened by the opportunity to continue to re-imagine public safety and support our customers and communities.

Key business highlights:

    --  Adriane Brown joined Axon's board:
        --  After an extensive search, we welcomed Adriane Brown to our board of
            directors in May. Adriane brings a wealth of experience and global
            business leadership to Axon. She sits on the board of directors for
            eBay and the Washington Research Foundation, and is the Board Chair
            at Seattle's Pacific Science Center. She has served on boards for
            Raytheon, Allergan and Harman. In 2018, Adriane was appointed as a
            venture partner at Flying Fish Partners, a firm that invests capital
            and expertise in startups focused on machine learning and artificial
            intelligence. Prior to that, Adriane served as president and COO at
            Intellectual Ventures, as president and CEO of Honeywell
            Transportation Systems, and rose from shift supervisor to vice
            president and general manager of the Environmental Products Division
            during her 19-year tenure at Corning. Adriane's appointment expands
            the total number of independent directors on Axon's board to eight.
    --  New international markets unlocked:
        --  International revenue was 24% of the total in Q2 2020, and grew 80%
            year over year. Three new countries topped $1 million in revenue for
            the first time in the quarter: Indonesia, Panama, and Thailand.
        --  The Gujarat State Police became the first major police agency in
            India to deploy TASER devices when it purchased the X2. Axon began
            investing in the sales channel in India in late 2018 and we are
            committed to expanding our presence in the world's most populous
            democracy.
        --  Chile's National Police Force, Carabineros de Chile, is equipping
            more than 600 officers with Axon body-worn cameras and Axon
            Evidence, positioning Chile as one of the most significant adopters
            of advanced policing technology in the world, alongside the US, UK,
            and Australia. Chile has the largest number of Axon body-worn
            cameras in Latin America.
    --  Baltimore Police Department to deploy Axon Records:
-- We are thrilled to welcome Baltimore as a major city Axon Records customer. Baltimore's Axon Records capability is included in their subscription to Officer Safety Plan 7+, our highest value bundle. We first announced that Baltimore adopted OSP 7+ in August 2019, and their decision to adopt the Axon Records benefit of the plan showcases the plan's value to customers. -- Axon's cloud-based records management solution, which we first brought to market September 2019, integrates police reports with body-worn video footage, promotes transparency and accountability and saves officers time. It includes the Axon Standards use-of-force reporting module, which helps agencies mitigate risk and understand performance at the officer and agency-wide levels. This product is relevant to the national discussion about use-of-force tracking and reporting and is an easy way for agencies to begin using Axon Records, even before they are ready to fully replace their legacy records management system. -- Axon Records falls within our "Productivity" suite of products. This suite also includes Axon Performance, which allows supervisors to ensure that cameras are recording when they're supposed to be and access key body-worn camera metrics in near real time.
    --  Real-time situational awareness use grows:
-- We are advancing communications beyond the radio, providing more and better real-time situational awareness to central command, and supporting our go-to-market strategy for our cloud-based 911 Dispatch product. -- These tools in our "Communications" suite have proven useful for major city agencies in managing resources during civil unrest. We've seen increased adoption and engagement with Axon Aware location, alerts, and live-streaming. Without this technology, staff would have had to keep relying heavily on officers' ongoing verbal description of their location and the situation on the ground. -- We've also seen significant interest in this platform from international agencies exploring ways to bring supplemental resources, such as mental health and social services, to support unfolding incidents. -- Finally, in the quarter we launched the Axon Aware mobile app, with real-time alerts, officer location, and live-streamed video built in. This new feature is included in OSP 7+. Here is a 20 second video on how it works: https://player.vimeo.com/video/443194883
    --  Axon Body 3 is in Europe, solid feedback from customers:
        --  We began delivering Axon Body 3 to European customers in Q2 2020 and
            we expect to expand Axon Body 3 to Australia, New Zealand and the
            rest of the Asia-Pacific region in the back half. Axon Body 3 first
            began shipping September 2019, and represents our first camera that
            supports GPS-enabled location services and LTE-communications
            capability.


        --  Buying trends indicate that customers buying Axon Body 3 are doing
            so because of the value-added features such as LTE and GPS, which we
            believe indicates solid product-market fit with our latest
            generation camera. We expect location-based services, enabled by the
            body camera, to become standard across a number of major cities over
            the next 18 to 24 months, seeding the market for greater use of our
            real-time operations platform and communications suite of tools.
    --  Axon Fleet 3 with ALPR trending toward successful launch:
-- We remain confident that our next-generation in-car video system will be a disruptive game-changer. In recent weeks, we have installed Axon Fleet 3 engineering validation test systems to begin field testing and we expect Fleet 3 sales to start contributing to growth next year. -- We intend to make it easier and more cost effective for police departments to deploy a network of fixed and mobile automated license plate reader (ALPR) sensors by integrating and bundling Flock Safety's solution alongside our upcoming Axon Fleet 3 in-car solution. Axon is re-inventing the traditional ALPR model by leveraging AI to reduce cost, making it affordable for police departments to deploy ALPR in every vehicle. And unlike traditional systems, Axon is ethically designing its ALPR solution from the ground up to improve data security, transparency and privacy relative to historical legacy solutions.
    --  Successful follow-on offering completed:
        --  We want to thank our new and existing shareholders who participated
            in our recent follow-on offering. In mid-June, Axon raised just over
            $300 million at $92 per share, which enabled us to fortify our
            balance sheet, strengthen our relationships with existing
            shareholders and provide an opportunity for new investors to join us
            on the next leg of our growth journey. We finished Q2 2020 with more
            than $675 million in cash and investments, and zero debt.

Summary of Q2 2020 results:

    --  Revenue of $141 million grew 26% year over year, with strength being
        driven by our body camera and cloud software solutions (Software and
        Sensors segment revenue grew 37%) and increased momentum outside of the
        US (international revenue grew 80% year over year to a quarterly record
        of $34 million)


    --  Gross margin of 62.4% was the highest it has been since Q3 2018, driven
        by improved yields on TASER 7 and our highest-ever mix of high-margin
        cloud software revenue, which was 30% of the total in the quarter. We
        expect gross margin in Q3 2020 to be approximately 700 basis points
        lower on a sequential basis, as we fulfill several large shipments of
        lower-margin body camera hardware to large major city customers.


    --  Operating expenses of $102 million included $34 million in stock-based
        compensation expense and $4 million in costs related to FTC litigation.
        (An update on the FTC litigation is below, under "Update on Legal
        Matters.")
        --  SG&A included $27 million in stock-based compensation expense,
            including nearly $11 million in "catch up" expense. R&D included $6
            million in stock-based compensation expense, including $1 million in
            "catch up" expense. Excluding stock-based compensation expense,
            operating expenses declined 1% sequentially.
        --  The "catch up" expense is tied to Axon's CEO Performance Award and
            eXponential Stock Performance Plan ("XSPP"), for which two
            additional operational goals became probable of attainment during Q2
            2020 due to our strengthened outlook, bringing the total number of
            operational goals that are statistically probable to eleven.


        --  For more details about Axon's innovative stock-based compensation
            plans, which were approved by shareholders and align the interests
            of management and employees with shareholders, please see our online
            FAQ at investor.axon.com.


    --  GAAP EPS was ($0.51); and Non-GAAP EPS was ($0.01).
        --  GAAP EPS includes the "catch-up" stock-based compensation expense
            referred to above.
        --  Both GAAP EPS of ($0.51) and Non-GAAP EPS of ($0.01) include $19
            million, or $0.31 per share, of income tax expense.


        --  Our income or loss before taxes has diverged widely from our taxable
            income, largely due to differences between GAAP accounting and tax
            treatment for stock-based compensation expense, the most significant
            of which is driven by the large stock-based compensation expense
            associated with the CEO Performance Award. When those options vest
            and are subsequently exercised in future periods, IRS limitations
            will prevent us from deducting large portions of today's stock-based
            compensation expense on those future tax returns. This difference
            between GAAP and IRS treatment of stock-based compensation expense
            is the primary factor driving our large effective tax rate for
            year-to-date 2020.


    --  Quarterly Adjusted EBITDA grew 142% year over year. Adjusted EBITDA of
        $28 million represented a 20% margin on revenue, and delivered a 57%
        incremental contribution margin on revenue when compared with Q2 2019.


    --  Cash and cash equivalents and investments totaled $687 million at June
        30, 2020, or $676 million after adjusting for an investment payable of
        $20 million, which net of receivables was $10 million.
        --  Uses of cash in the second quarter included $35 million tied to
            building up hardware inventory, which helped us respond to strong
            product demand while preparing us to stagger factory work schedules
            due to COVID-19, and $7 million tied to selling long-term hardware
            subscriptions, which results in recognizing revenue when we deliver
            hardware to our customers ahead of invoicing for the full value of
            that hardware.
            --  As we indicated in May, our elevated inventory build over the
                course of 2020 is a proactive approach to building safety stock
                in an effort to minimize shipping disruptions. We are committed
                to working through COVID-19 supply chain challenges as they
                arise to support our customers and deliver mission critical
                equipment.
            --  Finished goods inventory totaled $45 million at second quarter
                end, including $9 million of Axon Body 3 cameras and associated
                hardware due for customer shipments in the back half.


        --  Accounts payable of $40 million included the above mentioned $20
            million payable, which settled in early July.
    --  Axon has zero debt.

Financial commentary by segment:

TASER:




               
            
          
             THREE MONTHS ENDED                                   CHANGE


             30 JUN 2020                                    31 MAR 2020 30 JUN 2019              QoQ YoY


                 
            
          
             (in thousands)


     Net                    $
         70,490                                           $
     75,895            $
     60,572  (7.1)       16.4
      sales                                                                                                          %          %


     Gross                           61.4                                                60.1                 59.9
      margin                            %                                                  %                   %   130    
     bp 150   
     bp

    --  TASER segment revenue of $70 million grew 16% year-over-year due to
        strength in TASER 7 units and international demand for our legacy,
        two-shot weapon.
    --  Gross margin increased to 61.4% due to improvements to the production
        process and our ability to drive better yields. Gross margin improvement
        was offset by about $760,000, or about 100 basis points, of COVID-19
        related manufacturing overhead and other precautionary measures to keep
        our workers safe. These measures included staggered shifts, an on-site
        nurse, hazard pay, extra cleaning and paying manufacturing employees who
        did not work, either due to belonging to a high risk group or to reduce
        the number of people in our production facility to ensure adequate
        spacing and physical distancing.

Software & Sensors:




                                       THREE MONTHS ENDED                                   CHANGE


             30 JUN 2020                                  31 MAR 2020 30 JUN 2019              QoQ YoY


              
              
        
              (in thousands)


     Axon
      Cloud                                                                                                        %       %
      net
      sales                $
       41,891                                            $
     39,154            $
     31,822    7.0     31.6


     Axon
      Cloud                          %                                                   %                   %
      gross
      margin                      77.9                                                 75.3                 73.0    260 bp   490 bp




     Sensors
      and                                                                                                          %       %
      Other
      net
      sales                $
       28,878                                            $
     32,113            $
     19,968 (10.1)    44.6


     Sensors
      and                            %                                                   %                   %
      Other
      gross
      margin                      42.6                                                 42.0                 30.1     60 bp 1,250 bp

    --  Axon Cloud revenue grew 32% year over year, and for the first time,
        represented 30% of total company revenue.
    --  Axon Cloud gross margin of 77.9% includes some low-to-no margin
        professional services that support new installations for SaaS customers.
        The software-only revenue in this segment, which includes cloud storage
        and compute costs, has consistently carried a gross margin above 80%. We
        expect a slightly higher mix of lower margin professional services in Q3
        2020.
    --  Sensors & Other revenue grew 45% in the quarter on strong demand for
        Axon Body 3 cameras. Revenue declined sequentially, which we anticipated
        following stronger-than-expected performance in Q1 2020.
    --  Sensors & Other gross margin was 42.6%. As a reminder, we manage toward
        a 25% gross margin for camera and sensors hardware, and the gross margin
        will fluctuate quarter to quarter depending on the customer mix. In Q3
        2020, we expect gross margin on devices to be about 15%, due to Axon
        Body 3 shipments to our largest customers.

Forward-looking performance indicators:

<hr/>




                    30 JUN 2020                                    31 MAR 2020                31 DEC 2019                30 SEP 2019                    30 JUN 2019


                                
         
          
        ($ in thousands)


     Annual
      recurring
      revenue (1)                   $
        183,498                                $
       173,919               $
       161,277                 $
       141,540           $
        129,452


     Net revenue                              119                                         119                        121
      retention (2)                             %                                          %                         %               
       *            
            *


     Total company
      future
      contracted
      revenue                     $
        1,340,000                              $
       1,274,000             $
       1,230,000               $
       1,130,000         $
        1,050,000


     Percentage of
      TASER devices                             %                                          %                         %                           %                      %
      sold on a
      recurring
      payment plan                             46                                          43                         58                           55                      60



                                Monthly
                                  recurring
                                  license,
                                  integration,
                                  warranty, and
                                  storage
                                  revenue

              (1)               annualized.



              (2)              Refer to
                                  "statistical
                                  definitions"
                                  below.



              *                 Not disclosed.

    --  Annual Recurring Revenue grew 42% year over year to $183 million.
    --  Net revenue retention was 119% in the quarter. We drive adoption of our
        cloud software solutions through integrated bundling. We are seeing
        major cities upgrading their subscriptions at individual net dollar
        retention rates of 150% to 300% to take advantage of our growing suite
        of productivity and digital evidence management tools. Because our
        agency customers often sign up for five to ten-year subscriptions, we
        experience low annual churn. This SaaS metric purposely excludes the
        hardware portion of customer subscriptions. We further define this
        metric under "Statistical Definitions."
    --  Total company future contracted revenue grew to $1.34 billion. This
        amount is limited to revenue from arrangements that meet the definition
        of a contract under Topic 606 as of June 30, 2020. We expect to
        recognize between 20% to 25% of this balance over the next 12 months and
        generally expect the remainder to be recognized over the following five
        to seven years, subject to risks related to delayed deployments, budget
        appropriation or other contract cancellation clauses.
    --  The percentage of TASER devices sold on a subscription rose to 46% in
        the quarter, with a domestic attach rate to subscriptions of 59%.

Current market trends and outlook:

The following forward-looking statements reflect Axon's expectations as of August 6, 2020, and are subject to substantial uncertainty due to the COVID-19 pandemic.

What we're seeing in the market:

We executed well through a challenging second quarter -- while demand for our products remained robust, US domestic customers often lacked bandwidth to make purchasing decisions as they focused on personnel outages due to COVID-19, employee safety and caution about uncertain budgets. Even with these challenges, Q2 2020 revenue was generally in line with our pre-pandemic expectation.

Total company quarterly bookings in Q2 2020 on contracts of five years or fewer were flat year-over year, with domestic bookings down 6% and international bookings up 36%. Domestic body camera bookings grew 13% in the quarter, with domestic COVID-19-related purchasing delays largely affecting only the TASER segment.

Bookings in Q2 were strongest, on a year-over-year percentage growth basis, in international TASER and domestic Fleet, demonstrating our ability to diversify our exposure to new geographies and product segments. We are seeing the benefits of investing in geographic and customer diversity this year, especially as we realize increasing orders from corrections departments and international markets, including UK, Australia, Canada and new markets including Indonesia, Brazil, Panama, Thailand, India and Chile, to name a few.

In the first weeks of Q3 2020, TASER and body camera bookings are trending ahead of April. We have a loaded pipeline for our back half and we are expecting a strong Q3 2020 and even stronger Q4 2020 -- tracking toward the range we gave at the start of the year.

We also have a strong pipeline of Officer Safety Plan 7+ opportunities that we expect to close in the next six months. As a reminder, OSP 7+ is our highest value bundle at $229 per officer per month for five years, and includes TASER 7, Axon Body 3 camera and a host of cloud software productivity and digital evidence management services, including Axon Records.

Update on formal guidance:

For the third quarter 2020, we are managing toward revenue growth of approximately 15% year over year, supporting an Adjusted EBITDA margin of approximately 12%. (Q3 2020 EBITDA margin will be affected by expected shipments of lower-margin body cameras to our largest customers.)

We expect our diluted share count in Q3 2020 to be approximately 64.5 million shares.

In light of macro uncertainties, we are maintaining the decision we made last quarter to refrain from providing formal full year guidance. The impact of COVID-19 remains fluid, and we are monitoring state and local mandates as we approach the fall. Shut-down activity could bring renewed caution from police departments on budgeting. Thus, while our bookings are trending in a positive direction, COVID-19 risk remains. We are not seeing changes in buying activity due to police defunding concerns. We have seen some anecdotal acceleration of body camera buying decisions due to agencies wishing to provide transparency to their communities.

Internal estimates & visibility:

At this time, our best estimate for our 2020 performance remains in line with our previously issued guidance, but there is enough uncertainty in how the current crisis will affect our customers that we don't feel that our internal estimates should be considered formal guidance.

Axon remains confident in its long-term, multi-year outlook, and we firmly believe we will emerge from 2020 even stronger. Our confidence is supported by our strong first half 2020 performance and the state of our current pipeline, which remains robust and is more geographically diverse than ever.

While our contracts are subject to appropriations risk, at this point in time, the revenue realized in 1H 2020 plus the recurring revenue under contract for the remaining two quarters gives Axon visibility into approximately 65% of the midpoint of the previously issued full-year revenue guidance range of $615 million to $625 million.

Axon's mission to protect life and drive transparency and accountability in policing has motivated us for more than a decade. Whether these issues are in the foreground of national attention as they are today, or in the background, they've always been important to society, and to us. We're privileged to be working on solutions to some of society's most entrenched challenges.

Signed,
Rick Smith, CEO
Luke Larson, President
Jawad Ahsan, CFO

Quarterly conference call and webcast

We will host our Q2 2020 earnings conference call on Thursday, August 6 at 2 p.m. PT / 5 p.m. ET.

The webcast will be available via a link on Axon's investor relations website at https://investor.axon.com (https://investor.axon.com/), or can be accessed directly via https://axon.zoom.us/j/92337281166.

Statistical Definitions

Dollar-based net revenue retention is an important metric to measure our ability to retain and expand our relationships with existing customers. We calculate it as the software and camera warranty subscription and support revenue from a base set of agency customers from which we generated Axon Cloud subscription revenue in the last month of a quarter divided by the software and camera warranty subscription and support revenue from the year-ago month of that same customer base. This calculation includes high-margin warranty but purposely excludes the lower-margin hardware subscription contingent of the customer contracts, as it is meant to be a SaaS metric that we use to monitor the health of the recurring revenue business we are building. This calculation also excludes the implied monthly revenue contribution of customers that were added since the year-ago quarter, and therefore excludes the benefit of new customer acquisition. The metric includes customers, if any, that terminated during the annual period, and therefore, this metric is inclusive of customer churn. This metric is downwardly adjusted to account for the effect of phased deployments -- meaning that for the year-ago period, we consider the total contractually obligated implied monthly revenue amount, rather than monthly revenue amounts that might have been in actuality smaller on a GAAP basis due to the customer not having yet fully deployed their Axon solution.

For more information relative to our revenue recognition policies, please reference our SEC filings.

Non-GAAP Measures

To supplement the Company's financial results presented in accordance with GAAP, we present the non-GAAP financial measures of EBITDA, Adjusted EBITDA, Non-GAAP Net Income, Non-GAAP Diluted Earnings Per Share and Free Cash Flow. The Company's management uses these non-GAAP financial measures in evaluating the Company's performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented herein.

    --  EBITDA (Most comparable GAAP Measure: Net income) - Earnings before
        interest expense, investment interest income, income taxes, depreciation
        and amortization.
    --  Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings
        before interest expense, investment interest income, income taxes,
        depreciation, amortization, non-cash stock-based compensation expense
        and pre-tax certain other items (described below).
    --  Non-GAAP Net Income (Most comparable GAAP Measure: Net income) - Net
        income excluding the costs of non-cash stock-based compensation and
        excluding pre-tax certain other items, including, but not limited to,
        net gain/loss/write-down/disposal/abandonment of property, equipment and
        intangible assets; loss on impairment; and costs related to business
        acquisitions. The Company tax-effects non-GAAP adjustments using the
        blended statutory federal and state tax rates for each period presented.
    --  Non-GAAP Diluted Earnings Per Share (Most comparable GAAP Measure:
        Earnings Per share) - Measure of Company's Non-GAAP Net Income divided
        by the weighted average number of diluted common shares outstanding
        during the period presented.
    --  Free Cash Flow (Most comparable GAAP Measure: Cash flow from operating
        activities) - cash flows provided by operating activities minus
        purchases of property and equipment, intangible assets and cash flows
        related to business acquisitions and other equity investments.

Caution on Use of Non-GAAP Measures

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing the Company's operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

    --  these non-GAAP financial measures are limited in their usefulness and
        should be considered only as a supplement to the Company's GAAP
        financial measures;
    --  these non-GAAP financial measures should not be considered in isolation
        from, or as a substitute for, the Company's GAAP financial measures;
    --  these non-GAAP financial measures should not be considered to be
        superior to the Company's GAAP financial measures; and
    --  these non-GAAP financial measures were not prepared in accordance with
        GAAP or under a comprehensive set of rules or principles.

Further, these non-GAAP financial measures may be unique to the Company, as they may be different from similarly titled non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies.

About Axon

Axon is the global leader in connected public safety technologies. We are 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, where everyone has access to a fair and effective justice system and where racial equity, diversity and inclusion is centered in all of our work. Axon is also a leading provider of body cameras for US law enforcement, providing more transparency and accountability to communities than ever before.

You may learn about our Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) efforts by reading our ESG disclosure at investor.axon.com.

We work hard for those who put themselves in harm's way for all of us. More than 236,000 lives and countless dollars have been saved with the Axon network of devices, apps and people. Learn more at www.axon.com or by calling (800) 978-2737. Axon is a global company with headquarters in Scottsdale, Ariz. and global software engineering hub in Seattle, Wash., as well as additional offices in Australia, Canada, Finland, Vietnam, the UK and the Netherlands.

Allergan is a trademark of Allergan, Inc.; eBay is a trademark of eBay, Inc.; Facebook is a trademark of Facebook, Inc.; Harman is a trademark of Harman International Industries, Inc.; Honeywell is a trademark of Honeywell International, Inc.; Intellectual Ventures is a service mark of Penky LLC, LTE is a trademark of the European Telecommunications Standards Institute; Raytheon is a trademark of Raytheon Company; Twitter is a trademark of Twitter, Inc. and Zoom is a trademark of Zoom Video Communications, Inc. Axon, Axon Aware, Axon Evidence, Axon Records, Axon Standards, Axon Fleet, TASER, TASER 7, X2, Protect Life and the Delta Logo are trademarks of Axon Enterprise, Inc., some of which are registered in the US and other countries. For more information, visit www.axon.com/legal. © 2020 Axon Enterprise, Inc. All rights reserved.

Follow Axon here:

    --  Axon on Twitter: https://twitter.com/axon_us
    --  Axon on Facebook: https://www.facebook.com/Axon.ProtectLife/

Forward-looking statements

These forward-looking statements include, without limitation, statements regarding: the impact of the COVID-19 pandemic; proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; the impact of pending litigation; our outlook for 2020 with respect to revenue, legal expenses relating to the FTC litigation, stock compensation expense, and income tax rate; trends relating to subscription plan programs and revenues; our anticipation that contracts with governmental customers will be fulfilled; expected trends, including the benefits of, research and development investments; the sufficiency of our liquidity and financial resources; that we may repurchase our common stock; expectations about customer behavior; the impact on our investment portfolio of changes in interest rates; trends in the percentage of our revenues denominated in foreign currencies; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management's strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Form 10-K for the year ended December 31, 2019. 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. The following important factors could cause actual results to differ materially from those in the forward-looking statements: the potential global impacts of the COVID-19 pandemic; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; the impact of stock compensation expense, impairment expense, and income tax expense on our financial results; customer purchase behavior, including adoption of our software as a service delivery model; negative media publicity regarding our products; the impact of product mix on projected gross margins; defects in our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including our reliance on third party cloud-based storage providers; exposure to international operational risks; delayed cash collections and possible credit losses due to our subscription model; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our product by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and to evolving regulations surrounding privacy and data protection; our ability to integrate acquired businesses; our ability to attract and retain key personnel; and counter-party risks relating to cash balances held in excess of FDIC insurance limits. Many events beyond our control may determine whether results we anticipate will be achieved. 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. Our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q list 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 the Annual Report on Form 10-K and in the Quarterly Report on Form 10-Q, 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 SEC.

Update on Legal Matters:

Axon v. FTC

Axon continues to both vigorously prosecute its Federal court case against the FTC and defend the FTC's separate administrative action against the company. The FTC's administrative action had been stayed until July 7, 2020, due to the COVID-19 pandemic, but discovery has resumed and the administrative hearing is scheduled to begin on October 13, 2020. Separately, Axon's case against the FTC was dismissed on April 8, 2020, without prejudice, for lack of jurisdiction, holding that Axon must first bring its constitutional claims through the FTC's administrative process. Axon appealed that ruling to the Ninth Circuit Court of Appeals (No. 20-15662), which granted expedited consideration and held oral argument on July 17, 2020. Copies of Axon's Federal Court filings, including its most recent appellate brief, can be found on Axon's FTC Investor Briefing page at https://www.axon.com/ftc. In parallel to these matters, Axon is evaluating strategic alternatives to litigation, which Axon 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. While Axon continues to believe the acquisition of Vievu in 2018 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. As of Q2 2020, Vievu software licenses represented approximately 4% of Axon's annual recurring revenue of $183 million.

For investor relations information please contact Andrea James via email at IR@axon.com.


                                                                                                  
            
                AXON ENTERPRISE, INC.
                                                                                                
             CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                                 (Unaudited)
                                                                                                    (in thousands, except per share data)






                                                                 THREE MONTHS ENDED                                                                          SIX MONTHS ENDED


                                       30 JUN 2020                                  31 MAR 2020                                                 30 JUN 2019       30 JUN 2020                30 JUN 2019


      Net sales from products                        $
       98,755                                                                         $
              107,288                  $
          80,391               $
         206,043 $
        168,480


      Net sales from services                             42,504                                                                                      39,874                          31,971                       82,378        59,692




     Net sales                                          141,259                                                                                     147,162                         112,362                      288,421       228,172




     Cost of product sales                               43,825                                                                                      48,884                          38,220                       92,709        77,820



     Cost of service sales                                9,257                                                                                       9,670                           8,582                       18,927        15,875




     Cost of sales                                       53,082                                                                                      58,554                          46,802                      111,636        93,695




     Gross margin                                        88,177                                                                                      88,608                          65,560                      176,785       134,477




     Operating expenses:


      Sales, general and
       administrative                                     72,293                                                                                      63,027                          43,362                      135,320        86,254


      Research and development                            29,560                                                                                      26,381                          23,493                       55,941        46,847



      Total operating expenses                           101,853                                                                                      89,408                          66,855                      191,261       133,101



      Income (loss) from operations                     (13,676)                                                                                      (800)                        (1,295)                    (14,476)        1,376


      Interest and other income, net                       1,613                                                                                         941                           1,845                        2,554         4,158



      Income (loss) before provision
       for income taxes                                 (12,063)                                                                                        141                             550                     (11,922)        5,534


      Provision for (benefit from)
       income taxes                                       18,696                                                                                     (3,933)                          (188)                      14,763       (1,623)




     Net income (loss)                            $
       (30,759)                                                                          $
              4,074                     $
          738              $
         (26,685)  $
        7,157



      Net income (loss) per common and
       common equivalent shares:



     Basic                                          $
       (0.51)                                                                           $
              0.07                    $
          0.01                $
         (0.44)   $
        0.12



     Diluted                                        $
       (0.51)                                                                           $
              0.07                    $
          0.01                $
         (0.44)   $
        0.12


      Weighted average number of
       common and common equivalent
       shares outstanding:



     Basic                                               60,346                                                                                      59,609                          59,187                       59,977        59,051



     Diluted                                             60,346                                                                                      60,394                          60,000                       59,977        59,876


                                                                                                                                                    
       
                AXON ENTERPRISE, INC.
                                                                                                                                                           SEGMENT REPORTING
                                                                                                                                                              (Unaudited)
                                                                                                                                                         (dollars in thousands)




                                                           THREE MONTHS ENDED                                         THREE MONTHS ENDED                                            THREE MONTHS ENDED


                                        
           
       
              30 JUN 2020                                
     
           
        31 MAR 2020                  
        
                
                  30 JUN 2019


                                                                                      Software                                                                                                         Software                                                   Software


                                                                                         and                                                                                                              and                                                        and


                                          TASER                               Sensors                         Total                         TASER            Sensors                                     Total             TASER    Sensors      Total



               Net sales from products
                (1)                             $
     69,877                                      $
     28,878                                 $
     98,755                         $
              75,175                   $
     32,113        $
         107,288        $
     60,423           $
      19,968  $
       80,391


               Net sales from services
                (2)                                   613                                         41,891                                    42,504                                        720                      39,154                39,874              149               31,822       31,971




              Net sales                            70,490                                         70,769                                   141,259                                     75,895                      71,267               147,162           60,572               51,790      112,362



               Cost of product sales                27,242                                         16,583                                    43,825                                     30,248                      18,636                48,884           24,262               13,958       38,220


               Cost of service sales                                                               9,257                                     9,257                                                                 9,670                 9,670                                8,582        8,582




              Cost of sales                        27,242                                         25,840                                    53,082                                     30,248                      28,306                58,554           24,262               22,540       46,802




              Gross margin                         43,248                                         44,929                                    88,177                                     45,647                      42,961                88,608           36,310               29,250       65,560



    Gross margin %                                  61.4                                           63.5                                      62.4                                       60.1                        60.3                  60.2             59.9                 56.5         58.3
                                                         %                                             %                                        %                                         %                          %                    %               %                   %           %




               Research and development              3,762                                         25,798                                    29,560                                      3,032                      23,349                26,381            3,087               20,406       23,493




                                                    SIX MONTHS ENDED                                         SIX MONTHS ENDED


                               
          
        
               30 JUN 2020                               
     
           
        30 JUN 2019


                                                                             Software                                                                       Software


                                                                                and                                                                            and


                                TASER                                Sensors                         Total                       TASER   Sensors              Total



               Net sales from
                products (1)            $
      145,052                                   $
      60,991                              $
     206,043         $
     125,724          $
       42,756 $
      168,480


               Net sales from
                services (2)                  1,333                                       81,045                                  82,378                239               59,453      59,692



               Net sales                    146,385                                      142,036                                 288,421            125,963              102,209     228,172



               Cost of product
                sales                        57,490                                       35,219                                  92,709             47,540               30,280      77,820


               Cost of service
                sales                                                                    18,927                                  18,927                                 15,875      15,875



               Cost of sales                 57,490                                       54,146                                 111,636             47,540               46,155      93,695



               Gross margin                  88,895                                       87,890                                 176,785             78,423               56,054     134,477



    Gross margin %                           60.7                                         61.9                                    61.3               62.3                 54.8        58.9
                                                  %                                           %                                      %                 %                   %          %




               Research and
                development                   6,794                                       49,147                                  55,941              6,799               40,048      46,847






              (1)              Software and
                                  Sensors
                                  "products"
                                  revenue
                                  consists of
                                  sensors,
                                  including on-
                                  officer body
                                  cameras, Axon
                                  Fleet
                                  cameras,
                                  other
                                  hardware
                                  sensors,
                                  warranties on
                                  sensors, and
                                  other
                                  products, and
                                  is sometimes
                                  referred to
                                  as Sensors
                                  and Other
                                  revenue.





              (2)                Software and
                                    Sensors
                                    "services"
                                    revenue
                                    comprises
                                    sales related
                                    to the Axon
                                    Cloud, which
                                    includes Axon
                                    Evidence,
                                    cloud-based
                                    evidence
                                    management
                                    software
                                    revenue,
                                    other
                                    recurring
                                    cloud-hosted
                                    software
                                    revenue and
                                    related
                                    professional
                                    services, and
                                    is sometimes
                                    referred to
                                    as Axon Cloud
                                    revenue.


                                                                
       
                AXON ENTERPRISE, INC.
                                                                  
            UNIT SALES STATISTICS
                                                                          (Unaudited)
                                                                    Units in whole numbers




                   THREE MONTHS ENDED          SIX MONTHS ENDED


                   30 JUN             30 JUN  Unit                                       Percent       30 JUN     30 JUN      Unit        Percent


                     2020                2019  Change                                      Change          2020        2019      Change       Change



     TASER 7       9,014               8,135     879                                          10.8        20,444      16,970       3,474           20.5
                                                                                               %                                                %


      TASER X26P    7,658               9,493 (1,835)                                       (19.3)       18,661      24,478     (5,817)        (23.8)



     TASER X2     13,100               9,759   3,341                                          34.2        23,578      19,620       3,958           20.2


      TASER Pulse   5,429               3,631   1,798                                          49.5         8,690       4,884       3,806           77.9


      Cartridges  715,268             606,220 109,048                                          18.0     1,588,632   1,222,737     365,895           29.9



     Axon Body    35,066              20,346  14,720                                          72.3        74,930      46,194      28,736           62.2



     Axon Flex     1,964               3,508 (1,544)                                       (44.0)        5,038       7,099     (2,061)        (29.0)


      Axon Fleet    2,327               2,441   (114)                                        (4.7)        5,003       4,176         827           19.8



     Axon Dock     4,634               3,408   1,226                                          36.0         9,931       8,402       1,529           18.2



     TASER Cam       794               1,716   (922)                                       (53.7)        2,308       3,457     (1,149)        (33.2)


                                                                                                                                          
              
                AXON ENTERPRISE, INC.
                                                                                                                                        
       RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
                                                                                                                                                           (Unaudited)
                                                                                                                                                      Dollars in thousands






                                                                                                         THREE MONTHS ENDED                                                   SIX MONTHS ENDED


                                                                                 30 JUN 2020                                31 MAR 2020                                              30 JUN 2019    30 JUN 2020                 30 JUN 2019


                                                     EBITDA and Adjusted EBITDA:

    ---


       Net income (loss)                                                                    $
          (30,759)                                                                    $
              4,074                $
           738              $
          (26,685)  $
             7,157


        Depreciation and amortization                                                                   2,930                                                                                 2,881                       2,687                         5,811              5,487



       Interest expense                                                                                    5                                                                                     7                          17                            12                 23



       Investment interest income                                                                    (1,499)                                                                                (693)                    (1,630)                      (2,192)           (3,633)


        Provision for (benefit from) income
         taxes                                                                                         18,696                                                                               (3,933)                      (188)                       14,763            (1,623)




       EBITDA                                                                               $
          (10,627)                                                                    $
              2,336              $
           1,624               $
          (8,291)  $
             7,411






       Adjustments:


        Stock-based compensation expense                                                       $
          33,835                                                                    $
              20,195              $
           8,627                $
          54,030  $
             16,532


        Transaction costs related to
         investment in unconsolidated
         affiliate                                                                                         90                                                                                   833                                                      923


        Loss on disposal and abandonment of
         intangible assets                                                                                100                                                                                    13                                                      113                 18


        Loss on disposal and impairment of
         property and equipment, net                                                                      788                                                                                   517                       1,321                         1,305              1,563


        Costs related to FTC litigation                                                                 3,834                                                                                 6,135                                                    9,969




       Adjusted EBITDA                                                                        $
          28,020                                                                    $
              30,029             $
           11,572                $
          58,049  $
             25,524



                                    Net income (loss) as a percentage of                               (21.8)                                                                                  2.8                         0.7                         (9.3)               8.9
                                     net sales                                                              %                                                                                    %                          %                            %                 %


                                    Adjusted EBITDA as a percentage of net                               19.8                                                                                  20.4                        10.3                          20.1               11.2
                                     sales                                                                  %                                                                                    %                          %                            %                 %




                                    Stock-based compensation expense:


        Cost of product and service sales                                                         $
          836                                                                       $
              590                $
           237                 $
          1,426     $
             463


        Sales, general and administrative                                                              26,766                                                                                14,970                       4,941                        41,736              9,622



       Research and development                                                                        6,233                                                                                 4,635                       3,449                        10,868              6,447




       Total                                                                                  $
          33,835                                                                    $
              20,195              $
           8,627                $
          54,030  $
             16,532


                                                                                                                                  
              
                AXON ENTERPRISE, INC.
                                                                                                                             
     RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - continued
                                                                                                                                                   (Unaudited)
                                                                                                                                               Dollars in thousands




                                                                                              THREE MONTHS ENDED                                                  SIX MONTHS ENDED


                                                                          30 JUN 2020                            31 MAR 2020                                             30 JUN 2019             30 JUN 2020                 30 JUN 2019


                                                     Non-GAAP net income:

    ---

                                    GAAP net income (loss)                            $
     
        (30,759)                                                  $
              
                4,074                       $
      
          738              $
     
          (26,685)  $
     
           7,157



       Non-GAAP adjustments:


        Stock-based compensation expense                                                        33,835                                                                           20,195                                8,627                          54,030             16,532


        Loss on disposal and abandonment of
         intangible assets                                                                         100                                                                               13                                                                 113                 18


        Loss on disposal and impairment of
         property and equipment, net                                                               788                                                                              517                                1,321                           1,305              1,563


        Transaction costs related to
         investment in unconsolidated
         affiliate                                                                                  90                                                                              833                                                                 923


        Costs related to FTC litigation                                                          3,834                                                                            6,135                                                               9,969



       Income tax effects                                                                     (8,530)                                                                         (7,837)                             (2,517)                       (16,367)           (4,583)




       Non-GAAP net income                                                                $
        (642)                                                              $
              23,930                          $
        8,169                   $
         23,288      $
         20,687



                                                                                  THREE MONTHS ENDED             SIX MONTHS ENDED


                                                                30 JUN 2020                          31 MAR 2020        30 JUN 2019    30 JUN 2020             30 JUN 2019


                                      Non-GAAP diluted earnings
                                       per share:

    ---

        GAAP diluted earnings per
         share                                                              $
     (0.51)                                $
              0.07              $
        0.01              $
         (0.44)  $
          0.12


        Non-GAAP adjustments:


        Stock-based compensation
         expense                                                                 0.56                                             0.33                    0.14                       0.89           0.28


        Loss on disposal and
         abandonment of intangible
         assets                                                                  0.00                                             0.00                                              0.00           0.00


        Loss on disposal and
         impairment of property and
         equipment, net                                                          0.01                                             0.01                    0.02                       0.02           0.03


        Transaction costs related to
         investment in unconsolidated
         affiliate                                                               0.00                                             0.01                                              0.02


        Costs related to FTC
         litigation                                                              0.06                                             0.10                                              0.16



       Income tax effects                                                     (0.14)                                          (0.13)                 (0.04)                    (0.27)        (0.08)



        Non-GAAP diluted earnings
         per share (1)                                                      $
     (0.01)                                $
              0.40              $
        0.14                $
         0.38   $
          0.35





        Weighted average number of
         diluted common and common
         equivalent shares
         outstanding (in thousands)                                            60,346                                           60,394                  60,000                     60,671         59,876






              (1)              The per share
                                  calculations
                                  for GAAP net
                                  income, Non-
                                  GAAP
                                  adjustments
                                  and Non-GAAP
                                  diluted
                                  earnings per
                                  share are
                                  each computed
                                  independently.
                                  Per share
                                  amounts may
                                  not sum due
                                  to rounding.


                                                                       
              
                AXON ENTERPRISE, INC.
                                                                         
                CONSOLIDATED BALANCE SHEETS
                                                                                
                (in thousands)




                                                                                         30 JUN 2020                           31 DEC 2019


                                                                           (Unaudited)


                                                 ASSETS


                                  Current Assets:



     Cash and cash equivalents                                                                                 $
         319,253             $
        172,250



     Short-term investments                                                                                           237,980                   178,534


      Accounts and notes receivable, net                                                                               154,253                   146,878



     Contract assets, net                                                                                              50,799                    38,102



     Inventory, net                                                                                                    81,010                    38,845


      Prepaid expenses and other current
       assets                                                                                                           42,429                    34,866




     Total current assets                                                                                             885,724                   609,475





     Property and equipment, net                                                                                       45,386                    43,770



     Deferred tax assets, net                                                                                          34,142                    27,688



     Intangible assets, net                                                                                            11,146                    12,771



     Goodwill                                                                                                          24,905                    25,013



     Long-term investments                                                                                            129,580                    45,499


      Long-term notes receivable, net of
       current portion                                                                                                  26,115                    31,598


      Long-term contract assets, net                                                                                    12,108                     9,644



     Other assets                                                                                                      63,806                    40,181



                                  Total assets                                                                $
         1,232,912             $
        845,639





                                  LIABILITIES AND STOCKHOLDERS' EQUITY


                                  Current Liabilities:



     Accounts payable                                                                                                  40,105                    25,874



     Accrued liabilities                                                                                               64,467                    45,001


      Current portion of deferred revenue                                                                              129,518                   117,864



     Customer deposits                                                                                                  3,858                     2,974



     Other current liabilities                                                                                          4,882                     3,853




     Total current liabilities                                                                                        242,830                   195,566




      Deferred revenue, net of current
       portion                                                                                                          83,150                    87,936


      Liability for unrecognized tax
       benefits                                                                                                          4,445                     3,832


      Long-term deferred compensation                                                                                    3,990                     3,936



     Deferred tax liability                                                                                               447                       354



     Other long-term liabilities                                                                                       28,237                    10,520



                                  Total liabilities                                                                    363,099                   302,144




                                  Stockholders' Equity:



     Preferred stock



     Common stock                                                                                                           1                         1



     Additional paid-in capital                                                                                       883,609                   528,272



     Treasury stock                                                                                                 (155,947)                (155,947)



     Retained earnings                                                                                                144,940                   172,265


      Accumulated other comprehensive loss                                                                             (2,790)                  (1,096)



                                  Total stockholders' equity                                                           869,813                   543,495



                                  Total liabilities and stockholders'
                                   equity                                                                     $
         1,232,912             $
        845,639


                                                                                                                        
              
                AXON ENTERPRISE, INC.
                                                                                                                      
      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                                                 
                (in thousands)




                                                                                       THREE MONTHS ENDED                                                SIX MONTHS ENDED


                                                                  30 JUN 2020                             31 MAR 2020                                           30 JUN 2019        30 JUN 2020                  30 JUN 2019


                                  Cash flows from operating
                                   activities:



     Net income (loss)                                                       $
       (30,759)                                                                 $
              4,074                     $
           738              $
          (26,685)  $
           7,157


      Adjustments to reconcile net
       income to net cash provided by
       operating activities:


      Depreciation and amortization                                                   2,930                                                                              2,881                            2,687                         5,811            5,487


      Loss on disposal and abandonment
       of intangible assets                                                             100                                                                                 13                                                           113               18


      Loss on disposal and impairment
       of property and equipment, net                                                   788                                                                                517                            1,321                         1,305            1,563


      Stock-based compensation                                                       33,835                                                                             20,195                            8,627                        54,030           16,532



     Deferred income taxes                                                         (4,604)                                                                           (1,548)                         (1,888)                      (6,152)         (1,311)


      Unrecognized tax benefits                                                         271                                                                                341                              306                           612              613



     Other noncash, net                                                              1,440                                                                              1,156                              926                         2,596            1,822


      Provision for expected credit
       losses                                                                         (244)                                                                               902                                                           658


      Change in assets and liabilities:


      Accounts and notes receivable and
       contract assets                                                                  325                                                                            (9,700)                          10,988                       (9,375)        (11,006)



     Inventory                                                                    (34,641)                                                                           (8,630)                         (3,579)                     (43,271)         (7,515)


      Prepaid expenses and other assets                                            (10,828)                                                                             2,277                          (2,609)                      (8,551)         (5,761)


      Accounts payable, accrued
       liabilities and other
       liabilities                                                                   20,270                                                                            (3,562)                         (9,468)                       16,708         (16,752)



     Deferred revenue                                                                  725                                                                              4,499                            3,345                         5,224            6,577



      Net cash provided by (used in)
       operating activities                                                        (20,392)                                                                            13,415                           11,394                       (6,977)         (2,576)


                                  Cash flows from investing
                                   activities:


      Purchases of investments                                                    (193,085)                                                                          (99,512)                        (36,670)                    (292,597)       (141,992)


      Proceeds from call /maturity of
       investments                                                                   74,355                                                                             84,315                           25,319                       158,670           25,319


      Purchases of property and
       equipment                                                                    (5,342)                                                                           (2,209)                         (2,590)                      (7,551)         (7,861)


      Purchases of intangible assets                                                   (66)                                                                              (45)                           (182)                        (111)           (344)


      Proceeds of disposal from
       property and equipment                                                                                                                                              78                                                            78


      Investment in unconsolidated
       affiliate                                                                                                                                                      (4,700)                                                      (4,700)



      Net cash used in investing
       activities                                                                 (124,138)                                                                          (22,073)                        (14,123)                    (146,211)       (124,878)


                                  Cash flows from financing
                                   activities:


      Net proceeds from equity offering                                             306,779                                                                                                                                         306,779


      Proceeds from options exercised                                                   267                                                                                 28                                4                           295              104


      Income and payroll tax payments
       for net-settled stock awards                                                   (577)                                                                           (5,190)                           (873)                      (5,767)         (2,132)



      Net cash provided by (used in)
       financing activities                                                         306,469                                                                            (5,162)                           (869)                      301,307          (2,028)


                                  Effect of exchange rate changes
                                   on cash and cash equivalents                         775                                                                            (1,890)                           (319)                      (1,115)           (252)



      Net increase (decrease) in cash
       and cash equivalents and
       restricted cash                                                              162,714                                                                           (15,710)                         (3,917)                      147,004        (129,734)


      Cash and cash equivalents,
       beginning of period                                                          156,645                                                                            172,355                          225,210                       172,355          351,027



      Cash and cash equivalents, end of
       period                                                                  $
       319,359                                                                $
              156,645                 $
           221,293               $
          319,359 $
           221,293


                                                                                      
      
               AXON ENTERPRISE, INC.
                                                                                       
       SELECTED CASH FLOW INFORMATION
                                                                                              (Unaudited)
                                                                                            (in thousands)




                                                       THREE MONTHS ENDED                             SIX MONTHS ENDED


                                    30 JUN 2020                           31 MAR 2020                        30 JUN 2019   30 JUN 2020              30 JUN 2019


     Net cash provided by (used in)
      operating activities                      $
     (20,392)                                             $
              13,415             $
        11,394              $
       (6,977)  $
       (2,576)


     Purchases of property and
      equipment                                     (5,342)                                                        (2,209)                 (2,590)                  (7,551)       (7,861)


     Purchases of intangible assets                    (66)                                                           (45)                   (182)                    (111)         (344)


     Investment in unconsolidated
      affiliate                                                                                                    (4,700)                                          (4,700)



     Free cash flow, a non-GAAP
      measure                                   $
     (25,800)                                              $
              6,461              $
        8,622             $
       (19,339) $
       (10,781)


                                              
            
               AXON ENTERPRISE, INC.
                                                  
               SUPPLEMENTAL TABLES
                                                     
               (in thousands)




                                                  30 JUN 2020                            31 DEC 2019


                                      (Unaudited)


      Cash and cash equivalents                                      $
              319,253             $
     172,250


      Short-term investments                                                     237,980                178,534



     Long-term investments                                                      129,580                 45,499


      Investment payable, net of
       receivable                                                               (10,400)



      Total cash and cash equivalents
       and investments, net                                          $
              676,413             $
     396,283

CONTACT:

Investor Relations
Axon Enterprise, Inc.
IR@axon.com

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SOURCE Axon