AXON ENTERPRISE, INC.

Note 8 –Debt

Notes payable, net, consisted of the following at March 31, 2026 and December 31, 2025 (in thousands):

(1)During the three months ended March 31, 2026, we redeemed and settled conversions in respect of all of our remaining outstanding 2027 Notes.

2030 and 2033 Notes

In March 2025, we issued$1.0 billion aggregate principal amount of 6.125%Senior Notes due 2030 (the “2030 Notes”) and$750.0 million aggregate principal amount of 6.250%Senior Notes due 2033 (the “2033 Notes” and, together with the 2030 Notes, the “Senior Notes”) in a private offering. Interest expense related to the Senior Notes was as follows (in thousands):

The estimated fair value of our outstanding Senior Notes at March 31, 2026 and December 31, 2025 is as follows (in thousands):

2027 Notes

In December 2022, we issued $690.0 million aggregate principal amount of our 0.50% Convertible Senior Notes due 2027 (the “2027 Notes”) in a private offering. During the year ended December 31, 2025, we entered into and closed separate, privately negotiated exchange agreements with certain holders of the 2027 Notes to exchange $604.3 million aggregate principal amount of the 2027 Notes for consideration consisting of cash and shares of our common stock. We had $81.1 million aggregate principal amount of 2027 Notes outstanding as of December 31, 2025. As of December 31, 2025, the total estimated fair value of the 2027 Notes was $204.0 million.

In December 2025, we delivered a notice of redemption to redeem all of our outstanding 2027 Notes in February 2026 at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest. Holders of the 2027 Notes were able to convert their notes prior to the redemption date for cash up to the principal amount of any notes being converted and shares of our common stock for any conversion obligation in excess of the principal amount. We redeemed $0.8 million aggregate principal amount of the 2027 Notes on February 10, 2026, and we settled conversions in respect of $80.3 million aggregate principal amount of the 2027 Notes on February 11, 2026, with $80.3 million in cash and 211,870 shares of our common stock. We also received 41,139 shares from option counterparties in connection with partial termination of the Note Hedge and Warrants in February 2026, as discussed further below. As a result, we haveno 2027 Notes outstanding following settlement of the aforementioned redemption as of March 31, 2026. Interest expense related to the 2027 Notes was as follows (in thousands):

Convertible Note Hedge

To reduce the impact of potential economic dilution upon conversion of the 2027 Notes, in December 2022, we entered into a convertible note hedge transaction (the “Note Hedge” or “2027 Note Hedge”) with certain investment banks, with respect to our common stock, concurrently with the issuance of the 2027 Notes.

The Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial conversion price of the respective 2027 Notes, subject to adjustment. As of March 31, 2026,2,642,030 shares remain covered by the Note Hedge, which is subject to automatic exercise at expiration on December 15, 2027, unless earlier terminated.

Convertible Note Warrants

In December 2022, we entered into warrant transactions with certain investment banks, whereby we sold Warrants to acquire, subject to adjustment, the number of shares of our common stock shown in the table above. If the average market value per share of our common stock exceeds the strike price of the Warrants, such Warrants can have a dilutive effect on our earnings per share to the extent we report net income. According to the terms of the Warrants, the Warrants will be automatically exercised over a 60-trading day period beginning on the first expiration date as set forth above, unless earlier terminated. As of March 31, 2026,2,662,063 shares remain subject to the Warrants.

Line of Credit

Our credit agreement provides for a senior unsecured multi-currency revolving credit facility (the “Credit Agreement”) which includes total aggregate principal amount of $300.0 million (with an accordion feature which allows for an increase in the total line of credit up to $400.0 million), as well as availability for the issuance of letters of credit of $50.0 million.

As of March 31, 2026, 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, 2026, we had letters of credit outstanding of approximately $8.9 million under the facility and available borrowing of $291.1 million, excluding amounts available under the accordion feature. As of March 31, 2026, we are in compliance with the associated covenants under the Credit Agreement.

Note 9 –Income Taxes

Effective Tax Rate

The overall effective tax rate for the three months ended March 31, 2026 was 15.4%. This rate differs from the federal statutory rate due to the favorable impact of R&D tax credits, a gain on a related investment transaction not recognized for tax and windfall benefit on stock-based compensation, partially offset by executive compensation limitation under Internal Revenue Code (“IRC”) Section 162(m) on projected pre-tax income for the year, increases in uncertain tax positions and state taxes net of federal benefit. The effective tax rate was favorably impacted by a $8.8 million net tax benefit related to stock-based compensation for stock awards that vested during the three months ended March 31, 2026.

By comparison, our overall effective tax rate for the three months ended March 31, 2025 was 18.8%. This rate differed from the federal statutory rate due to the favorable impact of R&D tax credits and windfall benefit on stock-based compensation partially offset by executive compensation limitation under IRC Section 162(m), increases in uncertain tax positions and state taxes net of federal benefit. The effective tax rate was favorably impacted by a net $12.1 million discrete tax benefit associated with net windfall related to stock-based compensation for stock awards that vested during the three months ended March 31, 2025.

Note 10 –Stockholders’ Equity

Our stock-based compensation program includes grants of service-based restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and performance-based stock options (“stock options”) under the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan (the “Amended 2022 Plan”) and grants of eXponential stock units (“XSUs”) under the Axon Enterprise, Inc. Employee eXponential Stock Plan (the “Employee XSP”) and the CEO Performance Award. With the exception of the Employee XSP as discussed further below, there were no significant changes to our RSUs, PSUs and stock options during the three months ended March 31, 2026.

Employee XSP and CEO Performance Award

The Employee XSP includes an approved pool of approximately 4.5 million shares of common stock reserved for grants of XSUs to employees. Approximately 0.7 million XSUs remain available to grant to employees under this program as of March 31, 2026. A total of approximately 0.5 million XSUs were granted during the three months ended March 31, 2026. Shareholders previously approved a grant of 679,102 XSUs for the CEO Performance Award on May 10, 2024.

On January 23, 2026, the Compensation Committee of the Board of Directors approved the addition oftwo incremental tranches to the Employee XSP. Consistent with prior tranches, Tranches 8 and 9 are performance-based and contingent upon achievement of stock price goals, operational goals, and minimum service requirements. These three independent vesting conditions are described in the following table:

(1)Operational goals are measured, as of any date, for the previous four consecutive fiscal quarters, beginning with the Company's first full fiscal quarter ending after the fiscal quarter in which the grant date occurred.

(2)Tranches 1 and 2 vested in June 2025 and December 2025 respectively. As of March 31, 2026, for certain grantees, the shares acquired upon vesting of Tranche 2 remain subject to a holding period requirement under the plan, which will expire on the earlier of (i) December 31, 2030 and (ii) the date on which the subsequent tranche vests.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three months ended March 31, 2026 and 2025 (in thousands):

(1)For the three months ended March 31, 2026, stock-based compensation expense included $1.0 million in non-recurring severance costs. Total non-recurring severance costs for the three months ended March 31, 2026 of $2.0 million also include $1.0 million of severance payments and employee benefits. The majority of these costs were recorded in selling, general and administrative expenses.

Stock Incentive Plan

In May 2024, our shareholders approved the Amended 2022 Plan authorizing an additional 2.2 million shares, plus remaining available shares under prior plans, for issuance under the Amended 2022 Plan. Combined with the shares of our common stock available under our legacy stock incentive plans, there are 2.6 million shares of our common stock available for grant under the Amended 2022 Plan as of March 31, 2026.

Note 11 –Commitments and Contingencies

Product Litigation

As a manufacturer of weapons and other law enforcement tools used in high-risk field environments, we are often the subject of product liability litigation concerning the use of our products. We are currently named as a defendant intwo such lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CED was used by law enforcement officers in connection with arrests or training. While the facts vary from case to case, these product liability claims typically allege defective product design, manufacturing, and/or failure to warn. They seek compensatory and sometimes punitive damages, often in unspecified amounts.

We continue to aggressively defend all product litigation. As a general rule, it is our policy not to settle suspect injury or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to us. Due to the confidential nature of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, we do not identify or comment on specific settlements by case or amount. Based on current information, we do not believe that the outcome of any such legal proceeding will have a material effect on our financial position, results of operations or cash flows. We are self-insured for the first $5.0 million of any product claim made after 2014. No judgment or settlement has ever exceeded this amount in any products liability case. We continue to maintain product liability insurance coverage, including an insurance policy fronting arrangement, above our self-insured retention with various limits depending on the policy period.

Other Matters

Despite the Federal Trade Commission’s (“FTC”) dismissal of its administrative enforcement complaint against us without consent decree or other condition in October 2023, other parties continue to allege that our May 2018 acquisition of an insolvent body camera competitor, Vievu LLC, was anticompetitive. Pending in the District of New Jersey (Case No. 3:23-cv-7182) is a purported antitrust class action brought bythree municipalities based largely on the FTC’s unproven allegations. We deny all allegations of anticompetitive or other misconduct and are vigorously defending the case.

Pending in the Eastern District of Virginia (Case No. 1:24-CV-01625) is a patent infringement suit filed by Airspace Systems, Inc. (“Airspace”) against Dedrone and us involving certain drone technology. Airspace seeks injunctive relief and treble damages in an unspecified amount. Infringement is denied and the litigation is stayed pending our validity challenges to allthree asserted patents in the United States Patent and Trademark Office, which instituted review last fall. A decision is expected in October 2026. Separately, pending in the Western District of Texas (Case No. 1:24-cv-1497) is a patent infringement suit filed by CentralSquare Technologies LLC (“CST”) against Carbyne, Inc. and Carbyne, LTD (jointly “Carbyne”) relating to 911 technology. CST seeks injunctive relief and damages in an unspecified amount. Carbyne, which we acquired on February 18, 2026, denies infringement and has countersued CST for infringement of its own patent. Trial is set for May 2027.

General

From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.

Based on our assessment of outstanding litigation and claims as of March 31, 2026, we have determined that it is not reasonably possible that these losses, if any, from lawsuits will individually, or in the aggregate, materially affect our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Off-Balance Sheet Arrangements

Under certain circumstances, we use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the installation and integration of Axon cameras and related technologies. Certain of our letters of credit and surety bonds have stated expiration dates with others being released as the contractual performance terms are completed. At March 31, 2026, we had outstanding letters of credit issued under our credit facility of $8.9 million that are expected to expire through 2027. We also had outstanding letters of credit of $0.6 million that do not draw against our credit facility. Additionally, we had $8.1 million of outstanding surety bonds as of March 31, 2026, with expiration dates ranging through 2029.

Note 12 –Accumulated Other Comprehensive Income (Loss)

The following tables reflect the changes in accumulated other comprehensive income (loss), net of tax (in thousands):

(1)Amounts are net of immaterial tax impacts.

(1)Amounts are net of immaterial tax impacts.

Note 13 –Segment Data

Information relative to our reportable segments was as follows (inthousands):

(1)Other segment items includes the adjustment for noncash stock-based compensation expense, amortization of acquired intangible assets, inventory step-up amortization related to acquisitions, and non-recurring severance costs to arrive at the profit measure used by the CODM.

The following table presents supplemental information included within the measure of profit or loss, adjusted gross margin, reviewed by our CODM (in thousands). There are no other material items presented to our CODM by segment or included within adjusted gross margin for supplemental disclosure.

Note 14 –Business Combinations

The consolidated financial statements include the operating results from each acquisition from the date of acquisition noted below. Supplemental pro forma information has not been presented as the effects of the business combinations during the three months ended March 31, 2026 were not material to our consolidated financial statements.

2026 Business Combinations

Carbyne

On February 18, 2026, we acquired the remaining 89.3% interest in Carbyne Ltd. (“Carbyne”), a leading cloud-native emergency communications and response platform. Net of cash acquired and equity consideration attributable to pre-combination service, total cash paid in the business combination was approximately $549.7 million. Incremental consideration transferred was approximately $561.2 million, subject to customary purchase price adjustments. The acquisition aligns with our mission and positions us to accelerate next-generation public safety communications and emergency response solutions. We recorded acquisition-related transaction and integration costs of $6.0 million during the three months ended March 31, 2026. Our existing interest of approximately 10.7% had a fair value at the acquisition date of $67.2 million, which resulted in a non-taxable gain of $37.7 million.

The purchase price allocation, which may be subject to revision during the measurement period for purchase accounting adjustments to balances such as intangible assets, pre-acquisition legal contingencies, working capital, and income tax assets and liabilities, is expected to be completed by the first quarter of 2027. Based on the initial purchase price allocation, we recorded $524.7 million of goodwill, $108.2 million of identifiable intangible assets, $10.1 million of acquired cash, and assumed $12.4 million of other net liabilities, excluding deferred taxes. We also recorded net deferred tax liabilities of $2.2 million.

The identifiable intangible assets included $79.0 million of developed technology, $27.1 million of customer relationships, and $2.1 million of trademarks. The fair values of the intangible assets were calculated using the multi-period excess earnings method for the developed technology, the distributor method for customer relationships, and the relief-from-royalty method for the trademarks. The significant assumptions used to estimate the fair value of the developed technology included projected revenues, estimated economic life of 8 years, and an appropriate discount rate. The significant assumptions used to estimate the fair value of the customer relationships included projected revenues, customer attrition rates, distributor margins, and appropriate discount rates. The weighted average amortization period of the acquired intangible assets as of the acquisition date was 7.9 years.

The goodwill associated with this business combination is primarily attributable to synergies that are expected to be achieved from the integration of the business and is not deductible for tax purposes. Consistent with the assignment of goodwill, the consolidated results of Carbyne are included in our Software and Services reportable segment following the business combination.

2025 Business Combinations

Prepared

On October 1, 2025, we acquired the remaining 99.2% interest in Invictus Apps, Inc. (“Prepared”), a leading provider of AI-powered emergency communications software. Net of cash acquired and equity consideration attributable to pre-combination service, total cash paid in the business combination was approximately $624.1 million. Incremental consideration transferred was approximately $728.2 million, subject to customary purchase price adjustments. The acquisition aligns with our mission and positions us to accelerate next-generation public safety communications and emergency response solutions. Acquisition-related transaction and integration costs were immaterial for the three months ended March 31, 2026. Our existing interest of approximately 0.8% had a fair value at the acquisition date of $6.2 million, which resulted in a non-taxable gain of $2.2 million.

The purchase price allocation is subject to revision during the measurement period for normal closing activities, such as income tax filings and settlement of escrow balances, which is expected to be completed by the third quarter of 2026. During the first quarter of 2026, we recorded immaterial measurement period adjustments. Based on the current purchase price allocation, including measurement period adjustments, we have recorded $596.7 million of goodwill, $98.9 million of acquired cash, $47.5 million of identifiable intangible assets, and assumed $1.1 million of other net liabilities, excluding deferred taxes. We also recorded net deferred tax liabilities of $7.6 million.

As of the acquisition date, the identifiable intangible assets included $37.0 million of developed technology, $7.3 million of customer relationships, and $3.2 million of trademarks. The fair values of the intangible assets were calculated using the relief-from-royalty method for the developed technology, the multi-period excess earnings method for customer relationships, and the relief-from-royalty method for the trademarks. The significant assumptions used to estimate the fair value of the developed technology included projected revenues, the selected royalty rate, estimated economic life of 5 years, and an appropriate discount rate. The weighted average amortization period of the acquired intangible assets as of the acquisition date was 5 years.

The goodwill associated with this business combination is primarily attributable to synergies that are expected to be achieved from the integration of the business and is not deductible for tax purposes. Consistent with the assignment of goodwill, the consolidated results of Prepared are included in our Software and Services reportable segment following the business combination.