AXON ENTERPRISE INC
For the period ended Mar 31, 2025. Filed May 7, 2025.
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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.
Mar 31, 2025 · Filed May 7, 2025
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 2024-09-30; filed 2024-11-08.
0001069183-24-000061
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-07.
0001069183-25-000077
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 104 previous paragraphs and 72 current paragraphs.
28 unchanged; 19 reworded; 23 added; 44 removed; 13 previous and 2 current paragraphs rearranged.
Tables are not compared: 23 previous and 13 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 (23)
Current report
Effective in the first quarter of 2025, we realigned our business to better reflect our continued growth and expansion of product, software and service offerings (the “Segment Realignment”). Previously reported within two reportable segments, TASER and Software and Sensors, we prospectively realigned our business in a manner that provides increased transparency and distinction between our hardware and software and services components. As a result of the Segment Realignment and effective as of the three months ended March 31, 2025, our financial results are reported in two reportable segments, Connected Devices and Software & Services. As a result of the Segment Realignment, we have recast our segment disclosures for the three months ended March 31, 2024 to conform to the new presentation.
Current report
The following table presents our revenues disaggregated by geography (dollars in thousands):
Current report
International revenue increased compared to the prior year comparative period, primarily driven by increased sales in our Americas region (i.e., South America and Canada).
Current report
Net Sales
Current report
As a result of the Segment Realignment, we have updated and recast our disaggregated revenue categories. Net sales by product line were as follows (dollars in thousands):
Current report
(1)'TASER' includes TASER handles, cartridges and related extended warranties.
Current report
(2)'Personal Sensors' primarily includes body cameras and accessories, signal sidearm, and related extended warranties.
Current report
(3)'Platform Solutions' primarily includes interview room, fleet in-car video, fixed cameras, drones and counter-drone equipment, virtual reality training hardware, and related extended warranties.
Current report
Net sales for the Connected Devices segment increased 26.1% for the three months ended March 31, 2025 as compared to the prior-year quarter. The increase of $30.9 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $20.4 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $19.2 million increase in Platform Solutions is primarily driven by higher volume for virtual reality training and counter-drone equipment.
Current report
Net sales for the Software and Services segment increased 38.7% for the three months ended March 31, 2025 as compared to the prior-year quarter. The increase in the aggregate number of users and growing adoption of our premium add-on features by existing customers drove the majority of the increase of $73.3 million.
Current report
As a percentage of net sales, gross margin for the Connected Devices segment increased to 50.1% from 43.7% for the three months ended March 31, 2025 and 2024, respectively. The increase was primarily due to higher stock-based compensation in the comparable period. Adjusted gross margin for the Connected Devices segment, which excludes stock-based compensation expense and intangibles amortization, was 52.8% for the three months ended March 31, 2025, compared to 54.1% for the same period in 2024. The decrease is primarily driven by higher mix of Personal Sensors and Platform Solutions which generally have a lower gross margin than TASER devices.
Current report
As a percentage of net sales, gross margin for the Software and Services segment increased to 74.2% from 74.1% for the three months ended March 31, 2025 and 2024, respectively. The increase was primarily due to higher stock-based compensation expense in the comparable period. Adjusted gross margin for Software and Services segment, which excludes stock-based compensation expense and intangibles amortization, increased to 77.7% for the three months ended March 31, 2025, compared to 76.1% for the same period in 2024 due to higher software mix.
Current report
Selling, General and Administrative Expenses
Current report
Salaries, benefits and bonus expense increased $12.7 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Current report
Sales and marketing expense increased $3.1 million in comparison to the prior-year comparable period, which was primarily attributable to increased commissions and in-person events.
Current report
Salaries, benefits and bonus expense increased $16.7 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Current report
(1)Interest expense increased in comparison to the prior-year comparable period primarily as a result of the issuance of the Senior Notes in March 2025, as discussed further within Note 10.
Current report
(1)Reflects the inducement expense associated with the early repurchase of a portion of our 2027 Notes, as discussed further within Note 10.
Current report
The effective tax rate is 18.8% for the three months ended March 31, 2025, compared to 19.6% for the three months ended March 31, 2024. The decrease was primarily attributable to higher R&D tax credits and discrete benefit for excess tax benefits from stock-based compensation. These were partially offset by higher tax expense related to the executive compensation limitation under IRC Section 162(m), increased unrecognized tax benefits, state income taxes, a partially non-deductible expense related to the induced conversion of our 2027 Notes, and the absence of a prior-year gain related to an investment transaction not recognized for tax. The overall change in the effective tax rate also reflects the impact of a lower pre-tax book income base in the current period, which magnifies the relative effect of permanent and discrete items.
Current report
In addition, our Credit Agreement is available for additional working capital needs or investment opportunities. The Credit Agreement provides for a senior unsecured multi-currency revolving credit facility in an aggregate principal amount of up to $300.0 million, $50.0 million of which is available for the issuance of letters of credit. As of March 31, 2025, and December 31, 2024, respectively, no amounts were drawn under the Credit Agreement. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. As of March 31, 2025, we had letters of credit outstanding of approximately $8.7 million under the facility and available borrowing of $291.3 million. Refer to Note 13 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details related to our Credit Agreement and outstanding letters of credit.
Current report
We also have an aggregate of $1.75 billion of Senior Notes outstanding. As of March 31, 2025, none of our subsidiaries guarantee the Senior Notes. Our non-guarantor subsidiaries accounted for approximately 12% of our total revenue for the three months ended March 31, 2025, and approximately 18% and 6% of our total consolidated assets and liabilities (excluding the effect of intercompany transactions), respectively, as of March 31, 2025. Refer to Note 10 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details related to our Senior Notes.
Current report
Going forward, we expect to continue to be an opportunistic issuer of debt securities and may issue new debt securities from time to time to fund our growth or refinance future debt maturities, among other things. In addition, from time to time, we may acquire our debt securities through open market purchases, redemptions, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as we may from time to time determine, for cash or other consideration.
Current report
Net cash provided by financing activities was $1.3 billion for the three months ended March 31, 2025 compared to cash used by financing activities of $2.7 million for the comparable period in the prior year. Financing cash inflow was driven by gross proceeds of $1.8 billion from the Senior Notes issuance. Gross proceeds from the issuance were partially offset by $407.5 million of principal payments related to the induced conversion for our 2027 Notes, $24.2 million of transaction costs related to the induced conversion, debt issuance, and revolver modifications, and payments totaling $5.0 million for income and payroll taxes on behalf of employees who net-settled stock awards during the period.
Removed paragraphs (44)
Previous report
Our revenues for the three months ended September 30, 2024 were $544.3 million, an increase of $131.0 million, or 31.7%, from the comparable period in the prior year. We had income from operations of $24.1 million, compared to $57.4 million for the same period in the prior year. Gross margin dollars increased $74.1 million but decreased as a percentage of revenue to 60.8% from 62.1% compared to the three months ended September 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 62.7% to 63.2% year over year due to an increased mix of high-margin Axon Cloud & Services revenue. Operating expenses increased by $107.4 million, reflecting increased headcount and an increase in stock-based compensation expense. Net income of $67.0 million included a noncash unrealized gain of $44.0 million in our marketable securities. Net income of $61.3 million for the comparable period in the prior year included a noncash unrealized gain of $4.1 million on our investment in marketable securities.
Previous report
International revenue decreased compared to the prior year comparable period, primarily driven by a large hardware deal in our Europe, Middle East and Africa (“EMEA”) region during the third quarter of 2023.
Previous report
Net sales for the TASER segment increased 36.4% for the three months ended September 30, 2024 as compared to the prior-year quarter, primarily due to increases of $43.8 million in TASER devices (professional) revenue and $5.9 million of cartridge revenue. The increases are primarily related to increased TASER 10 device and cartridge volumes. Net sales for Axon Evidence and cloud services increased $4.9 million in the three months ended September 30, 2024 due to an increase in the number of cloud-connected TASER devices in the field.
Previous report
Net sales for the Software and Sensors segment increased 28.7% for the three months ended September 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 $52.0 million. Net sales of Axon Body cameras and accessories increased $17.9 million due to higher volume sales of Axon Body 4. The $2.8 million increase in “Other” revenue was primarily driven by demand for smaller product offerings within the Software and Sensors segment.
Previous report
We consider total company future contracted revenues a forward-looking performance indicator. As of September 30, 2024, we had approximately $7.7 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 10 years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.
Previous report
As a percentage of net sales, gross margin for the TASER segment decreased to 60.8% from 62.5% for the three months ended September 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 63.0% for the three months ended September 30, 2024, compared to 62.8% for the same period in 2023. The increase is primarily driven by investment in automation and cost reduction initiatives.
Previous report
As a percentage of net sales, gross margin for the Software and Sensors segment decreased to 60.8% from 61.9% for the three months ended September 30, 2024 and 2023, respectively. Within the Software and Sensors segment, hardware gross margin decreased to 41.4% for the three months ended September 30, 2024 compared to 46.0% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, hardware gross margin decreased to 43.3% for the three months ended September 30, 2024, compared to 46.5% for the same period in 2023 due to manufacturing overhead reallocations made in the prior year. Service margin decreased to 72.3% for the three months ended September 30, 2024 from 72.7% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, service margin increased to 75.2% for the three months ended September 30, 2024, compared to 73.7% for the same period in 2023 due to higher mix of software revenue.
Previous report
Sales, General and Administrative Expenses
Previous report
Salaries, benefits and bonus expense increased $10.9 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Previous report
Sales and marketing and travel expense increased $3.8 million in comparison to the prior-year comparable period. The increase was partially attributable to an increase in travel expense of $2.3 million due to higher seasonal travel for company events compared to the prior-year comparable period. Sales and marketing fees increased $1.1 million as a result of in-person events.
Previous report
Salaries, benefits and bonus expense increased $12.9 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Previous report
Our estimated annual effective income tax rate for 2024, before discrete period adjustments, is 23.3%, which differs from the federal statutory rate primarily due to the impact of state taxes net of federal benefit and executive compensation limitation under IRC Section 162(m) on projected pre-tax income for the year, partially offset by R&D tax credits and a net gain related to an investment transaction not recognized for tax. The effective tax rate was favorably impacted by a net $5.5 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested, in addition to non-qualified stock options that were exercised during the three months ended September 30, 2024.
Previous report
Net sales within the TASER segment increased by approximately $25.0 million, or 12.7%, during the three months ended September 30, 2024 compared to the prior quarter. The increase is primarily related to higher TASER 10 device volume. The $5.2 million decrease in Cartridge revenue is due to lower international volume of legacy cartridges. Fluctuations in cartridge revenue are generally attributable to customers who are not on cartridge subscriptions plans and periodically purchase in bulk.
Previous report
Within the Software and Sensors segment, net sales increased $16.0 million, or 5.2%, during the three months ended September 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 $12.2 million. Axon Body cameras and accessories revenue increased $11.3 million on higher unit sales. Partially offsetting the increases in the Software and Sensors segment was a decrease of $3.8 million in Axon Fleet revenue primarily reflecting lower unit volume.
Previous report
Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Previous report
International revenue increased compared to the prior year comparable period. The increase was primarily attributable to large hardware orders during the period in our EMEA and Americas regions.
Previous report
(2)Software and Sensors segment “Other” includes revenue from items including Signal Sidearm, Interview Room and Axon Air.
Previous report
Net sales for the TASER segment increased $145.3 million or 32.1% during the nine months ended September 30, 2024, primarily due to an increase of $94.7 million in TASER devices and $32.3 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 $14.7 million was driven by an increase in TASER software. An increase in TASER devices in the field drove the $3.7 million increase in extended warranties, as most of those devices are sold with extended warranties
Previous report
Net sales for the Software and Sensors segment increased $231.8 million, or 34.2%, during the nine months ended September 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 $168.9 million, as well as increases in professional services revenue. Axon Body cameras and accessories revenue increased $56.5 million due to higher unit sales. Partially offsetting the increase was a $19.4 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 $8.5 million increase in extended warranties, as most of those devices are sold with extended warranties. The $17.3 million increase in “Other” revenue was primarily driven by demand for smaller product offerings within the Software and Sensors segment.
Previous report
Gross Margin
Previous report
As a percentage of net sales, gross margin for the TASER segment decreased to 57.7% from 61.8% for the nine months ended September 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 62.6% for the nine months ended September 30, 2024, compared to 62.1% for the same period in 2023. The increase is primarily due to the investments in automation and cost reduction initiatives.
Previous report
As a percentage of net sales, gross margin for the Software and Sensors segment decreased to 60.6% from 60.8% for the nine months ended September 30, 2024 and 2023, respectively. Within the Software and Sensors segment, hardware gross margin was 39.6% for the nine months ended September 30, 2024, compared to 45.4% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, hardware gross margin decreased to 43.3% for the nine months ended September 30, 2024, compared to 45.7% for the same period in 2023 due to inventory reserve charges associated with legacy products in the second quarter of 2024. Service margin increased to 72.7% for the nine months ended September 30, 2024 compared to 71.7% for the same period in 2023. Excluding the impacts of stock-based compensation expense and intangibles amortization, service margin increased to 75.2% for the nine months ended September 30, 2024, compared to 72.8% for the same period in 2023, due to higher software mix and cloud cost efficiencies.
Previous report
For the nine months ended September 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 report
Sales, General and Administrative Expenses
Previous report
Salaries, benefits, and bonus expense increased $25.0 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Previous report
Sales and marketing and travel expenses increased $18.9 million in comparison to the prior-year comparable period. The increase was partially attributable to an increase in travel expense of $7.4 million due to higher seasonal travel for company events compared to the prior-year comparable period. Commissions increased $7.9 million as a result of higher revenue.
Previous report
Professional and consulting expenses increased $13.8 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 report
Other SG&A expenses increased $21.7 million in comparison to the prior-year comparable period, which was attributable to an increase of $4.7 million in computer license expenses and an increase of $1.9 million for credit losses. Additionally, the prior-year comparable period had a $3.3 million gain related to insurance proceeds received as a result of storm damages, which did not recur in the current year.
Previous report
Research and Development Expenses
Previous report
Salaries, benefits, and bonus expense increased $40.8 million in comparison to the prior-year comparable period, which was primarily attributable to an increase in headcount and higher wages.
Previous report
Interest Income, Net
Previous report
Other Income (Loss), Net
Previous report
Other income (loss), net, was as follows (dollars in thousands):
Previous report
Provision for Income Taxes
Previous report
Our estimated annual effective income tax rate for 2024, before discrete period adjustments, is 23.3%, which differs from the federal statutory rate primarily due to the impact of state taxes net of federal benefit and executive compensation limitation under IRC Section 162(m) on projected pre-tax income for the year, partially offset by R&D tax credits and a net gain related to an investment transaction not recognized for tax. The effective tax rate was favorably impacted by a net $13.0 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested, in addition to non-qualified stock options that were exercised during the nine months ended September 30, 2024.
Previous report
Net Income
Previous report
Net cash used in financing activities was $12.6 million for the nine months ended September 30, 2024 compared to cash provided by financing activities of $45.1 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 report
Off-Balance Sheet Arrangements
Previous report
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 report
Business Combinations
Showing the first 40 of 44 passages. Open the source sections for the rest.
Reworded paragraphs (19)
Previous wording
The following discussion and analysis of our financial condition as of September 30, 2024, and results of operations for the three and nine months ended September 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.
Current wording
The following discussion and analysis of our financial condition as of March 31, 2025, and results of operations for the three months ended March 31, 2025 and 2024, should be read in conjunction with the unaudited 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 amended 2024 Annual Report on Form 10-K/A for the year ended December 31, 2024, filed with the SEC on May 7, 2025. 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
Axon is a technology leader in global public safety. Our moonshot goal is to cut gun-related deaths between police and the public by 50% before 2033. Axon is building the public safety operating system of the future by integrating a suite of hardware devices and cloud software solutions that lead modern policing. Axon’s technology suite includes TASER energy devices, body-worn cameras, in-car cameras, cloud-hosted digital evidence management solutions, productivity software and real-time operations capabilities. Axon’s growing global customer base includes first responders across international, federal, state, and local law enforcement, fire, corrections, and emergency medical services, as well as the justice sector, commercial enterprises, and consumers.
Current wording
Axon is a technology leader in global public safety. Our moonshot goal is to cut gun-related deaths between police and the public in the United States in half by 2033. Axon is building the public safety operating system of the future by integrating a suite of hardware devices and cloud software solutions that not only revolutionize modern policing but also cater to federal agencies, corrections, justice and enterprise-level security needs. Axon’s suite includes cloud-hosted digital evidence management solutions, productivity and real-time operations software, body cameras, in-car cameras, TASER energy devices, drone and robotic security, and training solutions.
Previous wording
Our revenues for the nine months ended September 30, 2024 were $1.5 billion, an increase of $377.1 million, or 33.4%, from the comparable period in the prior year. We had income from operations of $74.3 million, compared to $114.1 million for the same period in the prior year. Gross margin dollars increased $204.1 million but decreased as a percentage of revenue to 59.4% from 61.2% compared to the nine months ended September 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 63.2% for the nine months ended September 30, 2024, compared to 61.8% 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 $243.9 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 nine months ended September 30, 2024, we recorded net income of $241.9 million, which included realized and unrealized gains of $192.2 million related to our acquisition of Fusus, strategic equity investment and marketable securities. Net income of $118.7 million for the comparable period in the prior year reflected a noncash unrealized gain of $29.6 million on our investment in marketable securities and a noncash unrealized impairment loss of $71.9 million, net, related to a strategic investment and related warrants.
Current wording
Our revenues for the three months ended March 31, 2025 were $603.6 million, an increase of $143.8 million, or 31.3%, from the comparable period in the prior year. We had loss from operations of $8.8 million, compared to income from operations of $16.5 million for the same period in the prior year. Gross margin dollars increased $107.1 million and increased as a percentage of revenue to 60.6% from 56.2% compared to the three months ended March 31, 2024. The increase was primarily driven by higher stock-based compensation expense in the comparable period. Excluding the impacts of stock-based compensation expense and intangibles amortization in cost of goods sold, adjusted gross margin increased to 63.6% for three months ended March 31, 2025 compared to 63.2% for the same period in the prior year, primarily due to higher software revenue mix. Operating expenses increased by $132.4 million, reflecting increased headcount and an increase in stock-based compensation expense. Net income of $88.0 million included net realized and unrealized gains of $167.3 million related to our strategic investments, offset by a noncash unrealized loss of $23.4 million related to our marketable securities and inducement expense of $28.7 million associated with the early repurchase of a portion of our 2027 Notes, as discussed further within Note 10. Net income of $133.4 million for the comparable period in the prior year 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 a noncash unrealized gain of $21.8 million on our investment in marketable securities.
Previous wording
Certain prior period amounts previously reported on our consolidated financial statements have been revised to correct for immaterial errors, as described in Note 1 and Note 19 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Current wording
Certain prior period amounts previously reported on our consolidated financial statements have been restated to correct for immaterial errors, as described in Note 1 and Note 18 to our consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Previous wording
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 wording
The following table presents data from our consolidated statements of operations as well as the percentage relationship to total net sales of items included in our consolidated statements of operations (dollars in thousands):
Previous wording
Stock-based compensation expense increased $42.4 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. As of September 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 wording
Stock-based compensation expense increased $48.2 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 March 31, 2025, 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.
Previous wording
Stock-based compensation expense increased $20.9 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 wording
Stock-based compensation expense increased $33.6 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. As of March 31, 2025, we consider the vesting of 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.
Previous wording
We recorded net income of $67.0 million for the three months ended September 30, 2024 compared to net income of $61.3 million for the same period in 2023. Net income per basic share was $0.89 for the three months ended September 30, 2024 compared to $0.82 net income per basic share for the same period in 2023. Net income per diluted share was $0.86 for the three months ended September 30, 2024 compared to$0.81 net income per diluted share for the comparable period in 2023.
Current wording
We recorded net income of $88.0 million for the three months ended March 31, 2025 compared to net income of $133.4 million for the same period in 2024. Net income per basic share was $1.14 for the three months ended March 31, 2025 compared to $1.77 net income per basic share for the same period in 2024. Net income per diluted share was $1.08 for the three months ended March 31, 2025 compared to $1.73 net income per diluted share for the comparable period in 2024.
Previous wording
We utilize certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted gross margin as defined below to enhance understanding of our financial results and related measures. Beginning with our first fiscal quarter of 2024, we have added adjusted gross margin to our non-GAAP financial measures. We have adjusted for expenses that we believe are not indicative of our core operating results, including stock-based compensation expense and amortization of acquired intangible assets. To improve comparability, prior periods have been conformed to the current period presentation. Our management uses these non-GAAP financial measures in evaluating our operating performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.
Current wording
We utilize certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted gross margin as defined below to enhance understanding of our financial results and related measures. We have adjusted for expenses that we believe are not indicative of our core operating results, including stock-based compensation expense and amortization of acquired intangible assets. To improve comparability, prior periods have been conformed to the current period presentation. Our management uses these non-GAAP financial measures in evaluating our operating performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.
Previous wording
•Adjusted EBITDA (most comparable GAAP measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation, amortization, noncash stock-based compensation expense, fair value adjustments to strategic investments and marketable securities, transaction costs related to acquisitions and strategic investments, costs related to antitrust litigation and other unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance.
Current wording
•Adjusted EBITDA (most comparable GAAP measure: Net income) – Earnings before interest expense; investment interest income; income taxes; depreciation; amortization; noncash stock-based compensation expense; fair value adjustments related to strategic investments and marketable securities; debt inducement expense associated with the early repurchase of a portion of our 2027 Notes; transaction and integration costs related to strategic investments and acquisitions; inventory step-up amortization related to acquisitions; certain litigation costs and recoveries related to (1) antitrust cases we consider to be non-recurring and outside of our core operating results and (2) litigation matters for acquired companies that were unresolved at the date of the acquisition; and other unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance (listed in the tables below).
Previous wording
•Adjusted gross margin (most comparable GAAP measure: Gross margin) – Gross margin before noncash stock-based compensation expense and amortization of acquired intangible assets.
Current wording
•Adjusted gross margin (most comparable GAAP measure: Gross margin) – Gross margin before noncash stock-based compensation expense, amortization of acquired intangible assets, and inventory step-up amortization related to acquisitions.
Previous wording
Adjusted gross margin reconciles to gross margin as follows (in thousands):
Current wording
As a result of the Segment Realignment, we have recast adjusted gross margin for the three months ended March 31, 2024 to conform to the new presentation. Adjusted gross margin reconciles to gross margin as follows (in thousands):
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 Credit Agreement of $200.0 million revolving credit facility is available for additional working capital needs or investment opportunities.
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. As of March 31, 2025, we had $1.1 billion of cash and cash equivalents, an increase of $638.1 million from December 31, 2024. Refer below for further discussions related to the change in cash and cash equivalents. As of March 31, 2025, we had $1.1 billion of available-for-sale investments, an increase of $766.0 million from December 31, 2024 primarily as a result of investment activity following the issuance of the Senior Notes. Refer to Note 10 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the issuance.
Previous wording
We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements, including capital expenditures, working capital requirements, potential acquisitions or investments, income and payroll tax payments for net-settled stock awards, and other liquidity requirements through at least the next 12 months. We and our Board of Directors may consider repurchases of our common stock. Further repurchases of our common stock would take place on the open market, would be financed with available cash and are subject to authorization as well as market and business conditions.
Current wording
We believe we have access to additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements, including capital expenditures, working capital requirements, potential acquisitions or investments, income and payroll tax payments for net-settled stock awards, and other liquidity requirements through at least the next 12 months.
Previous wording
Net cash provided by operating activities was $158.1 million for the first nine months of 2024, compared to $49.2 million in the comparable period in the prior year. The $108.9 million increase is due to changes in the following (in thousands):
Current wording
Net cash provided by operating activities was $25.8 million for the first three months of 2025, compared to $(15.9) million in the comparable period in the prior year. The $41.7 million increase is due to changes in the following (in thousands):
Previous wording
Net cash provided by operating activities was $158.1 million for the first nine months ended September 30, 2024 compared to cash provided by operating activities of $49.2 million for the comparable period in the prior year. The net operating cash inflow in the current period was driven by net income of $241.9 million, noncash income statement items totaling $90.2 million, and a decrease of $174.0 million for the net change in operating assets and liabilities. Included in noncash items was $251.7 million in stock-based compensation, an increase of $155.5 million for the comparable period in the prior year. The increase was 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 $192.2 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 was largely due to increased cash collection efficiency. This was partly offset by the change in deferred revenue due to the timing of billing events. The change in inventory and accounts payable was 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 was 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 wording
Net cash provided by operating activities consisted of net income of $88.0 million, a net add-back of non-cash income statement items of $9.0 million and a $71.2 million net change in operating assets and liabilities. Primary drivers of the non-cash items include stock-based compensation expense for employee equity programs, debt inducement expense related to the induced conversion for our 2027 Notes, fair value adjustments for the net realized and unrealized gains on our strategic investments and marketable securities, and deferred income taxes. The realized and unrealized gains on our strategic investments and related warrants were primarily related to an observable price change and subsequent sale of one of our strategic investments. The change in accounts and notes receivable was largely due to increased sales. This was partly offset by the change in deferred revenue due to the timing of billing events. The change in inventory and accounts payable was 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 was primarily driven by non-taxable unrealized net investment gain and additional GAAP expense for unvested stock-based compensation.
Previous wording
Net cash used in investing activities was $48.8 million for the nine months ended September 30, 2024 compared to cash used by investing activities of $40.7 million for the comparable period in the prior year. The net investing cash outflow is driven by $237.8 million for our business acquisition, $101.0 million for strategic investments, and $54.0 million for purchases of property and equipment, net of proceeds, partially offset by $858.3 million of proceeds from calls, maturities and sales of available-for-sale investments, less purchases of $514.4 million. 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 wording
Net cash used in investing activities was $702.2 million for the three months ended March 31, 2025 compared to cash used in investing activities of $174.0 million for the comparable period in the prior year. The net investing cash outflow is driven by $1.1 billion of investment purchases, including $203.4 million related to our strategic investments, and $24.9 million for purchases of property and equipment, net of proceeds. Cash outflow was partially offset by $110.9 million of proceeds from calls, maturities and sales of available-for-sale investments and $290.9 million of proceeds from the sale of strategic investments. The net cash outflow is primarily driven by greater available-for-sale and strategic investment activity in the current period, when contrasted with the prior comparable period.
Previous wording
Our management’s discussion and analysis of our financial condition and results of operation is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates.
Current wording
Our management’s discussion and analysis of our financial condition and results of operation is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates.
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 nine months ended September 30, 2024.
Current wording
Our critical accounting estimates are discussed in our amended 2024 Annual Report on Form 10-K/A for the fiscal year ended December 31, 2024. There have been no significant changes to these critical accounting estimates for the three months ended March 31, 2025. Refer to Note 1 in Part I, Item 1 of this Quarterly Report on Form 10-Q for any additional details regarding our significant accounting policies.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Interest income, net, was as follows (in thousands):
Current report — wording carried from elsewhere
Other income, net, was as follows (in thousands):
Rearranged previous paragraphs (13)
Previous report — wording carried elsewhere
Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Previous report — wording carried elsewhere
Interest income, net, was as follows (dollars in thousands):
Previous report — wording carried elsewhere
Other income, net, was as follows (dollars in thousands):
Previous report — wording carried elsewhere
Three Months Ended September 30, 2024 Compared to the Three Months Ended June 30, 2024
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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):
Previous report — wording carried elsewhere
SG&A expenses were comprised as follows (dollars in thousands):
Previous report — wording carried elsewhere
Stock-based compensation expense increased $73.8 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.
Previous report — wording carried elsewhere
R&D expenses were comprised as follows (dollars in thousands):
Previous report — wording carried elsewhere
Stock-based compensation expense increased $38.0 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.
Previous report — wording carried elsewhere
Interest income, net, was as follows (dollars in thousands):
Previous report — wording carried elsewhere
Provision for (benefit from) income taxes and effective tax rates were as follows (dollars in thousands):
Previous report — wording carried elsewhere
We recorded net income of$241.9 million for the nine months ended September 30, 2024 compared to net income of $118.7 million for the same period in 2023. Net income per basic share was $3.20 for the nine months ended September 30, 2024 compared to net income per basic share of $1.61 for the same period in 2023. Net income per diluted share was $3.12 for the nine months ended September 30, 2024 compared to net income per diluted share of $1.58 for the comparable period in 2023.
Previous report — wording carried elsewhere
We believe we have access to additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all. Refer to Note 13 for additional details related to our Credit Agreement and outstanding letters of credit.