AXON ENTERPRISE INC
For the period ended Jun 30, 2024. Filed Aug 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 7, 2024
AXON$313.00-18.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-07.
0001069183-24-000032
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0001069183-24-000049
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 81 previous paragraphs and 99 current paragraphs.
38 unchanged; 20 reworded; 34 added; 20 removed; 3 previous and 7 current paragraphs rearranged.
Tables are not compared: 22 previous and 36 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (34)
Current report
Our revenues for the three months ended June 30, 2024, were $504.1 million, an increase of $129.5 million, or 34.6%, from the comparable period in the prior year. We had income from operations of $32.9 million, compared to $40.3 million for the same period in the prior year. Gross margin dollars increased $71.6 million but decreased as a percentage of revenue to 60.3% from 62.0% compared to the three months ended June 30, 2023. The decrease was primarily driven by higher stock-based compensation expense and related payroll taxes, as well as amortization of acquired intangibles. Excluding the impacts of stock-based compensation expense and intangibles amortization in the cost of goods sold, gross margin increased from 62.4% to 62.5% year over year. Operating expenses increased by $79.0 million, reflecting increased headcount, increased sales, marketing, and commission expenses and an increase in stock-based compensation expense. Net income of $40.8 million included a noncash unrealized gain of $7.8 million in our marketable securities. Net income of $12.4 million for the comparable period in the prior year included a noncash unrealized gain of $10.0 million in our marketable securities and a noncash unrealized impairment loss of $71.9 million, net, related to a strategic equity investment and related warrants.
Current report
As a percentage of net sales, gross margin for the TASER segment decreased to 60.4% from 60.5% for the three months ended June 30, 2024 and 2023, respectively. The decrease was primarily due to increased stock-based compensation expense. Excluding the impacts of stock-based compensation expense, gross margin for the TASER segment was 62.9% for the three months ended June 30, 2024, compared to 60.9% for the same period in 2023. The increase is primarily driven by investment in automation and cost reduction initiatives.
Current report
Stock-based compensation expense increased $23.7 million in comparison to the prior-year comparable period, which was primarily related to the 2024 Employee XSP and the 2024 CEO Performance Award that were approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount. As of June 30, 2024, we consider some of the tranches probable and will recognize the expense ratably over their respective expected vesting periods. This may result in volatility and higher upfront expense recognition and is subject to change based on periodic probability assessments.
Current report
Salaries, benefits and bonus expense increased $8.4 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Current report
Stock-based compensation expense increased $12.4 million in comparison to the prior-year comparable period, which was primarily related to the 2024 Employee XSP that was approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.
Current report
Salaries, benefits and bonus expense increased $13.8 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Current report
Other Income (Loss), Net
Current report
Other income (loss), net, was as follows (dollars in thousands):
Current report
Provision for (benefit from) income taxes and effective tax rates were as follows (dollars in thousands):
Current report
Net sales within the TASER segment increased by approximately $18.2 million, or 10.2%, during the three months ended June 30, 2024 compared to the prior quarter. The increase is primarily related to increased TASER 10 device and cartridge volumes. Net sales for Axon Evidence and cloud services increased $2.0 million in the three months ended June 30, 2024 due to an increase in the number of cloud-connected TASER devices in the field, as well as more users on our VR platform.
Current report
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Current report
Net sales for the TASER segment increased $87.0 million or 30.1% during the six months ended June 30, 2024, primarily due to an increase of $50.9 million in TASER devices and $26.4 million in cartridge revenue. The increase is primarily related to increased TASER 10 device and cartridge volumes. The increase in revenue from Axon Evidence and cloud services of $10.7 million was driven by an increase in TASER software as well as more users on our VR platform.
Current report
Gross Margin
Current report
As a percentage of net sales, gross margin for the Software and Sensors segment decreased to 60.1% from 60.5% for the six months ended June 30, 2024 and 2023, respectively. Within the Software and Sensors segment, hardware gross margin was 38.8% for the six months ended June 30, 2024 compared to 45.4% for the same period in 2023. Excluding the
Current report
impacts of stock-based compensation expense and intangibles amortization, hardware gross margin decreased to 43.4% for the six months ended June 30, 2024, compared to 45.6% for the same period in 2023 due to manufacturing overhead reallocations made in the second quarter of 2023 and inventory reserve charges associated with legacy products in second quarter of 2024. Service margin increased to 72.6% for the six months ended June 30, 2024 compared to 71.3% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, service margin increased to 74.8% for the six months ended June 30, 2024, compared to 72.0% for the same period in 2023, due to cloud and professional services cost efficiencies.
Current report
Sales, General and Administrative Expenses
Current report
Stock-based compensation expense increased $31.4 million in comparison to the prior-year comparable period, which was primarily related to the 2024 Employee XSP and the 2024 CEO Performance Award that were approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.
Current report
Salaries, benefits, and bonus expense increased $14.0 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Current report
Research and Development Expenses
Current report
Salaries, benefits, and bonus expense increased $27.9 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Current report
Stock-based compensation expense increased $17.2 million in comparison to the prior-year comparable period, which was primarily related to the 2024 Employee XSP that was approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.
Current report
Interest Income, Net
Current report
Other Income (Loss), Net
Current report
Other income (loss), net, was as follows (dollars in thousands):
Current report
Provision for Income Taxes
Current report
Provision for (benefit from) income taxes and effective tax rates were as follows (dollars in thousands):
Current report
Net Income
Current report
Net cash provided by operating activities was $66.8 million for the first six months of 2024, while we used $13.7 million in the comparable period in the prior year. The $80.5 million increase is due to changes in the following (in thousands):
Current report
Net cash provided by operating activities was $66.8 million for the first six months ended June 30, 2024 compared to cash used in operating activities of $13.7 million for the comparable period in the prior year. The net operating cash inflow in the current period is driven by net income of $174.0 million, noncash income statement items totaling $20.8 million, and a decrease of $128.0 million for the net change in operating assets and liabilities. Included in noncash items was $149.9 million in stock-based compensation, an increase of $83.7 million for the comparable period in the period year. The increase is primarily related to the impacts of the 2024 Employee XSP and the 2024 CEO Performance Award grants along with the enhanced equity compensation opportunities provided to employees with income below a certain threshold. Offsetting the increase in noncash items was $147.7 million in fair value adjustments for the realized and unrealized gains (losses) on our strategic investments and marketable securities. The change in accounts and notes receivable is largely due to increased cash collection efficiency. This is partly offset by the change in deferred revenue due to the timing of billing events. The change in inventory and accounts payable is largely due to advanced raw material purchases for Axon Body 4 and TASER 10 CEDs to support future sales. The change in deferred income taxes is primarily driven by the Flock mark-to-market gain in the first three months ended March 31, 2024 as well as additional tax amortization of intangibles and R&D capitalization, partially offset by additional GAAP expense related to unvested stock compensation.
Current report
Net cash used in investing activities was $91.9 million for the six months ended June 30, 2024 compared to cash provided by investing activities of $81.3 million for the comparable period in the prior year. The net investing cash outflow is driven by $237.8 million for our business acquisition, $76.6 million for strategic investments, and $27.5 million for purchases of property and equipment, net of proceeds, partially offset by $250.0 million of proceeds from calls, maturities and sales of available-for-sale investments, net of purchases. This net cash outflow is primarily driven by greater business acquisition and strategic investment activities in the current period, when contrasted with the prior comparable period.
Current report
Stock-Based Compensation
Current report
On May 10, 2024, our shareholders approved the 2024 Employee XSP. The 2024 Employee XSP includes an approved pool of shares of common stock to be reserved for grants of awards of the 2024 XSUs to employees under the 2024 Employee XSP. The 2024 XSUs are grants of performance-based RSUs that vest in seven substantially equal tranches. The tranches will vest upon certification by the Compensation Committee of the Board of Directors upon achievement of three independent vesting conditions: (1) stock price goals; (2) operational goals; and (3) minimum service conditions.
Current report
Additionally, shareholders approved the grant of the 2024 CEO Performance Award to our CEO, Patrick W. Smith. The stock price goals and operational goals under the 2024 CEO Performance Awardare identical to those under the 2024 Employee XSP, but Mr. Smith is subject to a longer minimum required service period.
Current report
Refer to Note 12 included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Removed paragraphs (20)
Previous report
The following table presents our revenues disaggregated by geography (in thousands):
Previous report
Net Sales
Previous report
Net sales by product line were as follows (dollars in thousands):
Previous report
Stock-based compensation expense increased $7.7 million in comparison to the prior year comparable period, which was primarily related to increased headcount and additional grants that were awarded to employees whose compensation was under a specified threshold.
Previous report
Salaries, benefits and bonus expense increased $14.1 million in comparison to the prior year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Previous report
Stock-based compensation expense increased $4.8 million in comparison to the prior year comparable period, which was primarily related to increased headcount.
Previous report
Other Income, Net
Previous report
$13.0 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested and stock options that were exercised during the three months ended March 31, 2023, primarily attributable to the vesting of tranche 10 of the eXponential Stock Plan (“2019 XSPP”) in March 2023.
Previous report
Net Sales
Previous report
Net sales by product line were as follows (dollars in thousands):
Previous report
Net sales within the TASER segment increased by approximately $17.4 million, or 10.8%, during the three months ended March 31, 2024 compared to the prior quarter. The increase is related to strong adoption of TASER 10 and higher international cartridge volume. Fluctuations in cartridge revenue are generally attributable to customers who are not on cartridge subscriptions plans and periodically purchase in bulk.
Previous report
As of March 31, 2024, we had $403.9 million of cash and cash equivalents, a decrease of $194.7 million as compared to December 31, 2023. Cash and cash equivalents and available-for-sale investments totaled $964.1 million as of March 31, 2024, representing a decrease of $278.5 million from December 31, 2023.
Previous report
As of March 31, 2024, we had letters of credit outstanding of $7.5 million, leaving the net amount available for borrowing of $192.5 million. The credit agreement will mature on the earlier of December 15, 2027 or the date that is six months prior to the stated maturity date of our 2027 Notes unless the Notes have been redeemed, repurchased, converted or defeased in full. Additionally, the credit agreement has an accordion feature that allows for an increase in the total line of credit up to $300.0 million, in each lender’s sole discretion. At March 31, 2024 and December 31, 2023, there were no borrowings outstanding under the line.
Previous report
Our agreement with the bank requires us to comply with a net leverage ratio, defined as consolidated total indebtedness to EBITDA, of no greater than 3.50 to 1.00 based upon a trailing four fiscal quarter period. At March 31, 2024, our net leverage ratio was (0.15) to 1.00. Additionally, we must comply with a consolidated interest coverage ratio, defined as EBITDA to consolidated interest expense, of no less than 3.50 to 1.00 based upon a trailing four fiscal quarter end. At March 31, 2024, our consolidated interest coverage ratio was 51.03 to 1.00.
Previous report
TASER subscription and installment purchase arrangements typically involve amounts invoiced in five equal installments at the beginning of each year of the five-year term. This is in contrast to a traditional CED sale in which the entire amount being charged for the hardware is invoiced upon shipment. This impacts liquidity in a commensurate fashion, with the cash for the subscription or installment purchase received in five annual installments rather than up front. Our strategy includes continuing to shift an increasing amount of our business to a subscription model, to better match the municipal budgeting process of our customers as well as to allow for multiple product offerings to be bundled into existing subscriptions. We carefully considered the cash flow impacts of this strategic shift and regularly revisit our cash flow forecast with the goal of maintaining a comfortable level of liquidity as we continue to offer products and services in which we incur upfront cash costs to produce and fulfill hardware sales ahead of the cash inflows from our customers.
Previous report
Net cash used by operating activities in the first three months of 2024 of $15.9 million reflects net income of $133.2 million, non-cash income statement items totaling $33.8 million, and a decrease of $115.4 million for the net change in operating assets and liabilities. Included in the non-cash items were a gain of $97.4 million on strategic
Previous report
investments and marketable securities, $75.1 million in stock-based compensation expense, a $42.3 million gain on remeasurement of a previously held minority interest, net, $20.7 million related to an increase in deferred income taxes, $11.6 million in depreciation and amortization expense, and $5.0 million in bond amortization. Cash used in operations was impacted by an increase in accounts and notes receivable and contract assets of $51.1 million, an increase of $0.7 million in inventory, and a decrease in accounts payable, accrued and other liabilities of $84.3 million. Offsetting this activity was an increase in deferred revenue of $20.7 million. The increase in accounts and notes receivable and contract assets was due to increased sales and timing of satisfied performance obligations compared to customer payments of accounts receivable. The decrease in accounts payable, accrued and other liabilities was driven primarily by lower commissions payable and by the timing of the annual bonus payout.
Previous report
Net cash used in operating activities in the first three months of 2023 of $56.3 million reflects net income of $45.1 million, non-cash income statement items totaling $16.0 million, and a decrease of $117.4 million for the net change in operating assets and liabilities. Included in the non-cash items were $34.4 million in stock-based compensation expense, a decrease of $9.7 million in deferred income taxes, net, $6.7 million in depreciation and amortization expense, and a $15.6 million gain on the change in fair value of marketable securities. Cash provided by operations was favorably impacted by increased deferred revenue of $50.2 million, which was primarily attributable to increased sales where the customer is invoiced before performance occurs. Offsetting this activity was an increase of accounts and notes receivables and contract assets of $50.4 million, an increase in prepaid expenses and other assets of $64.3 million, an increase of $15.8 million in inventory, and a decrease in accounts payable, accrued and other liabilities of $37.0 million. The increase in accounts and notes receivable and contract assets is due to increased sales and timing of satisfied performance obligations compared to customer payments of accounts receivable. Inventory increases were a result of advance purchases to support future sales. Of the increase in prepaid expenses and other assets, $33.0 million was primarily driven by a receivable for proceeds from shares sold to cover the tax liability and option cost for options exercised during the first three months of 2023, but settled in April 2023. The decrease in accounts payable, accrued and other liabilities was driven primarily by the timing of the annual bonus payout.
Previous report
Cash used in investing activities during the first three months of 2024 was $174.0 million. Cash inflows from investing activities included $89.0 million of proceeds from calls, maturities and sales of available-for-sale investments, net of purchases. The outflows from investing activities included $237.8 million for a business acquisition, $9.1 million for a strategic investment, and $16.2 million for purchases of property and equipment, net of proceeds.
Previous report
We used $72.7 million of cash for investing activities during the first three months of 2023. Cash outflows from investing activities included $64.0 million for the purchase of available-for-sale investments, net of proceeds from calls and maturities. Property and equipment purchases totaled $8.5 million.
Reworded paragraphs (20)
Previous wording
The following discussion and analysis of our financial condition as of March 31, 2024, and results of operations for the three months ended March 31, 2024 and 2023, should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Part II, Item 1A. Risk Factors.” See also “Special Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.
Current wording
The following discussion and analysis of our financial condition as of June 30, 2024, and results of operations for the three and six months ended June 30, 2024 and 2023, should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Part II, Item 1A. Risk Factors.” See also “Special Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.
Previous wording
Our revenues for the three months ended March 31, 2024 were $460.7 million, an increase of $117.7 million, or 34.3%, from the comparable period in the prior year. We had income from operations of $16.3 million compared to $16.6 million for the comparable period in the prior year. Gross margin dollars increased $55.9 million and decreased as a percentage of revenue to 56.4% from 59.5% compared to the three months ended March 31, 2023. The decrease was primarily driven by higher stock-based compensation expense and payroll taxes related to vesting events from a one-time RSU program for employees under a specified compensation threshold, as well as intangibles amortization from acquired developed technology. Excluding the impacts of stock-based compensation expense and intangibles amortization in cost of goods sold, gross margin increased to 63.2% for the three months ended March 31, 2024, compared to 59.9% for the same period in the prior year due to increased mix of high-margin Axon Cloud & Services revenue and the absence of one-time items related to inventory and other cost adjustments recognized in the first quarter of 2023. Operating expenses increased $56.3 million, reflecting an increase in salaries, benefits and stock-based compensation expense and an increase in professional and consulting expense related to transaction costs. For the three months ended March 31, 2024, we recorded net income of $133.2 million, which included a realized gain of $42.3 million related to our acquisition in Fusus, an unrealized gain of $75.6 million related to a strategic investment, and noncash unrealized gain of $21.8 million related to our investment in CLBT. Net income of $45.1 million for the comparable period in the prior year included an unrealized gain of $15.6 million related to our investment in CLBT.
Current wording
Our revenues for the six months ended June 30, 2024, were $964.8 million, an increase of $247.2 million, or 34.4%, from the comparable period in the prior year. We had income from operations of $49.2 million, compared to $56.9 million for the same period in the prior year. Gross margin dollars increased $127.6 million but decreased as a percentage of revenue to 58.4% from 60.8% compared to the six months ended June 30, 2023. The decrease was primarily driven by higher stock-based compensation expense and related payroll taxes, as well as amortization of acquired intangibles. Excluding the impacts of stock-based compensation expense and intangibles amortization in the cost of goods sold, the gross margin increased to 62.9% for the six months ended June 30, 2024, compared to 61.2% for the same period in the prior year, primarily due to an increased mix of high-margin Axon Cloud & Services revenue and investments in TASER automation and cost-reduction initiatives. Operating expenses increased $135.2 million, reflecting an increase in salaries, benefits, and stock-based compensation expenses, as well as an increase in professional and consulting expenses related to transaction costs. For the six months ended June 30, 2024, we recorded net income of $174.0 million, which included realized and unrealized gains of $147.7 million related to our acquisition of Fusus, strategic equity investment and marketable securities. Net income of $57.6 million for the comparable period in the prior year reflected an unrealized net loss of $46.3 million related to our marketable securities and impairment loss of our strategic equity investment and related warrants.
Previous wording
Net sales for the TASER segment increased 33.1% for the three months ended March 31, 2024 as compared to the prior-year quarter, primarily due to increases of $31.2 million in TASER devices (professional) revenue and $9.4 million of cartridge revenue. The increase in TASER devices (professional) revenue was primarily related to strong adoption of our next generation product, TASER 10, which began shipping in the first quarter of 2023. The increase in cartridge revenue was primarily related to growing sales of next generation TASER products. Net sales for Axon Evidence and cloud services increased $5.0 million in the three months ended March 31, 2024 due to an increase in the number of cloud-connected TASER devices in the field, as well as an increase in VR revenue.
Current wording
Net sales for the TASER segment increased 27.6% for the three months ended June 30, 2024 as compared to the prior-year quarter, primarily due to increases of $19.6 million in TASER devices (professional) revenue and $17.0 million of cartridge revenue. The increase in TASER devices (professional) and in cartridge revenue was primarily related to higher volume sales of TASER 10. Net sales for Axon Evidence and cloud services increased $5.7 million in the three months ended June 30, 2024 due to an increase in the number of cloud-connected TASER devices in the field, as well as an increase in VR revenue.
Previous wording
Net sales for the Software and Sensors segment increased 35.1% for the three months ended March 31, 2024 as compared to the prior-year quarter as we continue to add users and associated devices to our network. The increase in the aggregate number of users and increasing adoption of our premium add-on features by our existing customers drove the majority of the increase in Axon Evidence and cloud services revenue of $57.1 million. Net sales of Axon Body cameras and accessories increased $12.4 million due to higher volume. Partially offsetting the increases in the Software and Sensors segment was a decrease of $4.6 million in Axon Fleet revenue primarily reflecting lower unit volumes on more normalized deployment timelines. An increase in cameras, docks and Axon Fleet systems in the field drove the $4.4 million increase in extended warranties revenue, as most of those devices are sold with extended warranties.
Current wording
Net sales for the Software and Sensors segment increased 39.5% for the three months ended June 30, 2024 as compared to the prior-year quarter as we continue to add users and associated devices to our network. The increase in the aggregate number of users and increasing adoption of our premium add-on features by our existing customers drove the majority of the increase in Axon Evidence and cloud services revenue of $60.6 million. Net sales of Axon Body cameras and accessories increased $26.2 million due to higher volume sales of Axon Body 4. Partially offsetting the increases in the Software and Sensors segment was a decrease of $9.4 million in Axon Fleet revenue primarily reflecting lower unit volume on more normalized deployment timelines. The $6.3 million increase in “Other” revenue was primarily driven by demand for smaller product offerings within the Software and Sensors segment.
Previous wording
We consider total company future contracted revenues a forward-looking performance indicator. As of March 31, 2024, we had approximately $7.0 billion of total company future contracted revenue, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. We currently expect to recognize between 15% - 25% of this balance over the next 12 months, and expect the remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.
Current wording
We consider total company future contracted revenues a forward-looking performance indicator. As of June 30, 2024, we had approximately $7.4 billion of total company future contracted revenue, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. We currently expect to recognize between 15% - 25% of this balance over the next 12 months, and expect the remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.
Previous wording
As a percentage of net sales, gross margin for the Software and Sensors segment increased to 60.1% from 57.8% for the three months ended March 31, 2024 and 2023, respectively. Within the Software and Sensors segment, hardware gross margin increased to 38.7% for the three months ended March 31, 2024 compared to 38.2% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, hardware gross margin increased to 46.9% for the three months ended March 31, 2024, compared to 38.6% for the same period in 2023 due to favorable product mix and manufacturing overhead reallocations made in the second quarter of 2023. Service margin decreased to 72.8% for the three months ended March 31, 2024 from 73.2% for the same period in 2023 primarily due to increased stock-based compensation expense and payroll taxes related to vesting events from a one-time RSU program. Excluding the impacts of stock-based compensation expense and intangibles amortization, service margin increased to 74.5% for the three months ended March 31, 2024, compared to 73.8% for the same period in 2023 due to a lower mix of professional services revenue.
Current wording
As a percentage of net sales, gross margin for the Software and Sensors segment decreased to 60.1% from 63.0% for the three months ended June 30, 2024 and 2023, respectively. Within the Software and Sensors segment, hardware gross margin decreased to 38.9% for the three months ended June 30, 2024 compared to 52.9% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, hardware gross margin decreased to 40.1% for the three months ended June 30, 2024, compared to 52.9% for the same period in 2023 due to manufacturing overhead reallocations made in the second quarter of 2023 and nonrecurring inventory reserves associated with legacy products in the second quarter of 2024. Service margin increased to 72.4% for the three months ended June 30, 2024 from 69.7% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, service margin increased to 75.0% for the three months ended June 30, 2024, compared to 70.5% for the same period in 2023 due to lower professional services costs related to installations of Axon Fleet hardware.
Previous wording
expense increased $2.6 million due to higher seasonal travel for company events compared to the prior-year comparable period.
Current wording
Sales and marketing and travel expense increased $7.8 million in comparison to the prior-year comparable period. The increase was partially attributable to an increase in travel expense of $2.6 million due to higher seasonal travel for company events compared to the prior-year comparable period. Commissions increased $2.2 million as a result of higher revenue.
Previous wording
The provision for income taxes was $32.5 million for the three months ended March 31, 2024, which was an effective tax rate of 19.6%. Our estimated annual effective income tax rate for 2024, before discrete period adjustments, is 21.9%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits and net gain related to an investment transaction not recognized for tax, offset by the executive compensation limitation under IRC Section 162(m) on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $4.1 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested during the three months ended March 31, 2024.
Current wording
Our estimated annual effective income tax rate for 2024, before discrete period adjustments, is 22.9%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits and net gain related to an investment transaction not recognized for tax, partially offset by the executive compensation limitation under IRC Section 162(m) on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $3.4 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested during the three months ended June 30, 2024.
Previous wording
We recorded net income of $133.2 million for the three months ended March 31, 2024 compared to net income of $45.1 million for the same period in 2023. Net income per basic share was $1.77 for the three months ended March 31, 2024 compared to $0.62 net income per basic share for the same period in 2023. Net income per diluted share was $1.73 for the three months ended March 31, 2024 compared to $0.61 net income per diluted share for the comparable period in 2023.
Current wording
We recorded net income of $40.8 million for the three months ended June 30, 2024 compared to net income of $12.4 million for the same period in 2023. Net income per basic share was $0.54 for the three months ended June 30, 2024 compared to $0.17 net income per basic share for the same period in 2023. Net income per diluted share was $0.53 for the three months ended June 30, 2024 compared to $0.16 net income per diluted share for the comparable period in 2023.
Previous wording
Within the Software and Sensors segment, net sales increased $11.2 million, or 4.1%, during the three months ended March 31, 2024 compared to the prior quarter. The increase in the aggregate number of users and increasing adoption of our premium add-on features by our existing customers drove the majority of the increase in Axon Evidence and cloud services revenue of $10.3 million. Axon Fleet revenue increased $5.9 million primarily due to higher unit sales. Partially offsetting the increases in the Software and Sensors segment was a decrease in Axon Body cameras and accessories revenue of $7.7 million on lower units sales due to seasonality, partially offset by premium product mix. An increase in Axon Body cameras, docks and Axon Fleet systems in the field drove the $1.2 million increase in extended warranties revenue, as most of those devices are sold with extended warranties.
Current wording
Net sales for the Software and Sensors segment increased $160.2 million, or 37.3%, during the six months ended June 30, 2024, as we continued to add users and associated devices to our network. The increase in the aggregate number of users and the growing adoption of our premium add-on features by existing customers drove the majority of the increase in Axon Evidence revenue, totaling $117.8 million, as well as increases in professional services revenue from Fleet installations. Axon Body cameras and accessories revenue increased $38.7 million due to higher units sales. Partially offsetting the increase was a $13.9 million decrease in Axon Fleet systems revenue primarily reflecting lower unit volumes on more normalized deployment timelines. An increase in cameras, docks and Fleet systems in the field drove the $7.5 million increase in extended warranties, as most of those devices are sold with extended warranties. The $10.2 million increase in “Other” revenue was primarily driven by demand for smaller product offerings within the Software and Sensors segment.
Previous wording
As a percentage of net sales, gross margin for the TASER segment decreased to 50.7% from 62.2% for the three months ended March 31, 2024 and 2023, respectively. The decrease was primarily due to increased stock-based compensation expense and payroll taxes related to vesting events from a one-time RSU program. Excluding the impacts of stock-based compensation expense, gross margin for the TASER segment is 61.8% for the three months ended March 31, 2024, compared to 62.4% for the same period in 2023. The decrease is due to the introduction of our next generation device, TASER 10, which began shipping at the end of the first quarter of 2023 and is still ramping toward full scale in manufacturing, partially offset by the absence of non-recurring inventory reserves recognized in the first quarter of 2023.
Current wording
As a percentage of net sales, gross margin for the TASER segment decreased to 55.8% from 61.3% for the six months ended June 30, 2024 and 2023, respectively. The decrease was primarily due to increased stock-based compensation expense. Excluding the impacts of stock-based compensation expense, gross margin for the TASER segment is 62.4% for the six months ended June 30, 2024, compared to 61.6% for the same period in 2023. The increase is primarily due to the absence of inventory reserve charges incurred in the first quarter of 2023 and investments in automation and cost reduction initiatives.
Previous wording
We anticipate an increase in stock-based compensation expense reflected within cost of goods sold as a result of RSUs granted in January 2024 that generally vest in five annual installments from March 2024 through March 2028. These RSUs were granted to employees whose compensation was under a specified threshold, including production-line employees. As previously disclosed in Note 15 to our consolidated financial statements included within our Annual Report on Form 10-K for the year ended December 31, 2023, Patrick W. Smith, our Chief Executive Officer, agreed to compensation in a lesser amount than the Compensation Committee of our Board of Directors was otherwise willing to provide so that the Company could instead provide enhanced compensation opportunities to other employees of the Company. If instead he had accepted higher compensation, it would have been reflected in SG&A expenses over a similar period.
Current wording
For the six month period ended June 30, 2024, we have seen an increase in stock based compensation expense within our cost of goods sold as a result of RSUs granted in January 2024 that generally vest in five annual installments from March 2024 through March 2028. These RSUs were granted to employees whose compensation was under a specified threshold, including production-line employees. As previously disclosed in Note 15 to our consolidated financial statements included within our Annual Report on Form 10-K for the year ended December 31, 2023, Patrick W. Smith, our Chief Executive Officer, agreed to compensation in a lesser amount than the Compensation Committee of our Board of Directors was otherwise willing to provide so that the Company could instead provide enhanced compensation opportunities to other employees of the Company. If instead he had accepted higher compensation, it would have been reflected in SG&A expenses over a similar period.
Previous wording
Sales and marketing and travel expense increased $7.3 million in comparison to the prior year comparable period. The increase was primarily attributable to an increase of commissions of $5.2 million as a result of higher revenue. Travel
Current wording
Sales and marketing and travel expenses increased $15.0 million in comparison to the prior-year comparable period. The increase was partially attributable to an increase in travel expense of $5.2 million due to higher seasonal travel for company events compared to the prior-year comparable period. Commissions increased $7.4 million as a result of higher revenue.
Previous wording
Professional and consulting expense increased $8.3 million in comparison to the prior year comparable period, which was primarily attributable to transaction costs related to the recent acquisition of Fusus.
Current wording
Professional and consulting expenses increased $12.0 million in comparison to the prior-year comparable period, which was primarily attributable to transaction costs related to the acquisition of Fusus and expected acquisition of Dedrone.
Previous wording
The provision for income taxes was a benefit of $3.3 million for the three months ended March 31, 2023, which was an effective tax rate of -7.8%. Our estimated full year effective income tax rate for 2023, before discrete period adjustments, is 22.8%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits and decrease in valuation allowance offset by the executive compensation limitation under IRC Section 162(m) and an increase in unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was favorably impacted by a
Current wording
Our estimated annual effective income tax rate for 2024, before discrete period adjustments, is 22.9%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits and net gain related to an investment transaction not recognized for tax, partially offset by the executive compensation limitation under IRC Section 162(m) on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $7.5 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested during the six months ended June 30, 2024.
Previous wording
Our most significant source of liquidity continues to be funds generated by operating activities and available cash and cash equivalents and short-term investments. In addition, our $200.0 million revolving credit facility is available for additional working capital needs or investment opportunities. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. Advances under the line of credit bear interest at Term SOFR plus 1.25% to
Current wording
Our most significant source of liquidity continues to be funds generated by operating activities and available cash and cash equivalents and short-term investments. In addition, our Credit Agreement of $200.0 million revolving credit facility is available for additional working capital needs or investment opportunities.
Previous wording
1.75% per year determined in accordance with a pricing grid based on our net debt to EBITDA ratio, which for purposes of the credit agreement excludes investment interest income.
Current wording
As of June 30, 2024, no amounts were drawn under the Credit Agreement and outstanding letters of credit totaled $8.0 million. Advances under the line of credit bear interest at Term SOFR plus 1.25 to 1.75% per year determined in accordance with a pricing grid based on our net debt to earnings before interest expense, taxes, depreciation and amortization ratio, which for the purposes of the Credit Agreement excludes investment interest income. “SOFR” is defined as a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York or a successor administrator of the secured overnight financing rate. As of June 30, 2024, we are in compliance with the associated covenants under the Credit Agreement.
Previous wording
Net cash provided by financing activities was $38.0 million during the first three months of 2023 and was primarily attributable to proceeds of $39.2 million from the exercise of stock options where shares were sold to cover the exercise price and net proceeds of $33.7 million received from our ATM offering. Partially offsetting net cash provided by financing activities was $34.8 million for the payment of income and payroll taxes on behalf of employees who net-settled stock awards during the period related to the vesting of tranche 10 of the 2019 XSPP.
Current wording
Net cash used in financing activities was $4.9 million for the six months ended June 30, 2024 compared to cash provided by financing activities of $52.3 million for the comparable period in the prior year. The net financing cash outflow in the current period is driven by the payment of income and payroll taxes on behalf of employees who net-settled stock awards during the period, whereas the net financing cash inflow in the prior comparable period was primarily driven by net proceeds from our ATM offering and cash received from the exercise of stock options where shares were sold to cover the exercise price, partially offset by the payment of income and payroll taxes on behalf of employees who net-settled stock awards during the period.
Previous wording
The discussion under the heading off-balance sheet arrangements in Note 13 to our condensed consolidated financial statements within this Quarterly Report on Form 10-Q is incorporated by reference herein.
Current wording
The discussion under the heading off-balance sheet arrangements in Note 14 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference herein.
Previous wording
Our significant accounting policies are discussed in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Except as noted below, there have been no significant changes to these policies for the three months ended March 31, 2024.
Current wording
Our significant accounting policies are discussed in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Except as noted below, there have been no significant changes to these policies for the six months ended June 30, 2024.
Rearranged current paragraphs (7)
Current report — wording carried from elsewhere
International revenue increased compared to the prior-year comparable period, primarily driven by increased sales in our Europe, Middle East and Africa region.
Current report — wording carried from elsewhere
Within the Software and Sensors segment, net sales increased $25.2 million, or 8.9%, during the three months ended June 30, 2024 compared to the prior quarter. The increase in the aggregate number of users and increasing adoption of our premium add-on features by our existing customers drove the majority of the increase in Axon Evidence and cloud services revenue of $17.3 million. Axon Body cameras and accessories revenue increased $7.8 million on higher unit sales.
Current report — wording carried from elsewhere
The following table presents data from our condensed consolidated statements of operations as well as the percentage relationship to total net sales of items included in our statements of operations (dollars in thousands):
Current report — wording carried from elsewhere
SG&A expenses were comprised as follows (dollars in thousands):
Current report — wording carried from elsewhere
R&D expenses were comprised as follows (dollars in thousands):
Current report — wording carried from elsewhere
Interest income, net, was as follows (dollars in thousands):
Current report — wording carried from elsewhere
We recorded net income of $174.0 million for the six months ended June 30, 2024 compared to net income of $57.6 million for the same period in 2023. Net income per basic share was $2.31 for the six months ended June 30, 2024 compared to $0.78 net income per basic share for the same period in 2023. Net income per diluted share was $2.25 for the six months ended June 30, 2024 compared to $0.77 net income per diluted share for the comparable period in 2023.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Salaries, benefits and bonus expense increased $5.7 million in comparison to the prior year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Previous report — wording carried elsewhere
Other income, net, was as follows (dollars in thousands):
Previous report — wording carried elsewhere
Net cash used in financing activities was $2.7 million during the first three months of 2024 and was primarily attributable to income and payroll taxes on behalf of employees who net-settled stock awards during the period.