AXON ENTERPRISE, INC.

Note 1 –Organization and Summary of Significant Accounting Policies

Axon Enterprise, Inc. (“Axon”, the “Company”, “we”, or “us”) is a provider of public safety technology solutions. Our mission is to protect life in service of promoting peace, justice and strong institutions.

The accompanying unaudited consolidated financial statements include the accounts of Axon Enterprise, Inc. and our subsidiaries. All intercompany accounts, transactions and profits have been eliminated.

Basis of Presentation and Use of Estimates

These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited consolidated financial statements are consistent with those followed in our consolidated financial statements for the year ended December 31, 2025, as filed on our 2025 Annual Report on Form 10-K. In the opinion of management, these unaudited consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the financial statements included in our 2025 Annual Report on Form 10-K for the year ended December 31, 2025.

Our results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of the results to be expected for the full year (or any other period). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. We believe the estimates used in the preparation of these unaudited consolidated financial statements are reasonable; however, actual results could differ materially from those estimates.

Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform to current period presentation. These reclassifications are not material and had no effect on the previously reported consolidated financial statements.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist of accounts and notes receivable, contract assets and cash. Historically, we have experienced an immaterial level of write-offs related to uncollectible accounts. We hold the majority of our cash and cash equivalents accounts atthree depository institutions. As of September 30, 2026, the aggregate balances in such accounts were $1.2 billion. Our balances with these and other institutions regularly exceed Federal Deposit Insurance Corporation insured limits for domestic deposits and various deposit insurance programs in Australia, Canada, Germany, and the United Kingdom, among others. To manage the related credit exposure, management continually monitors the creditworthiness of the financial institutions where we have deposits.

Segment Information

As described further within our 2025 Annual Report on Form 10-K, we havetwo reportable segments: Connected Devices and Software and Services. Our chief operating decision maker (“CODM”) is our Chief Executive Officer. The segment measure of profit and loss is adjusted gross margin, as the CODM allocates resources and assesses performance based on review of adjusted gross margin by segment. Assets and other expense items, such as research and development and selling, general, and administrative expenses, are not provided to the CODM by segment, as our CODM does not evaluate our operating segments using this discrete information. For additional details, refer to Note 13.

Restricted Cash

Restricted cash balances were $13.2 million and $12.2 million as of September 30, 2026 and December 31, 2025, respectively. The restricted cash balance at September 30, 2026 includes a $9.7 million payment held in escrow related to the planned construction of our headquarters building in Arizona. Restricted cash also includes funds held in international bank accounts for various operating and financing activities.

Warranty Reserves

We warrant our conducted energy devices (“CEDs”), Axon cameras and other hardware on a limited basis for a period of primarilyone year after purchase. Changes in our estimated product warranty liabilities were as follows (in thousands):

Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Diluted income per share reflects the potential dilution from outstanding stock-based awards, our 2027 Notes, warrants to acquire shares of our common stock (the “Warrants” or “2027 Warrants”), and our 2031 Notes. These items are excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive. For additional information regarding our 2027 Notes, 2027 Warrants, and 2031 Notes, refer to Note 8.

The calculation of the weighted average number of shares outstanding and earnings per share is as follows (in thousands except per share data):

(1)We redeemed all of our remaining outstanding 2027 Notes during the three months ended March 31, 2026, and we repurchased a portion of the 2027 Notes during the three months ended March 31, 2025. Accordingly, the dilutive impact to the nine months ended September 30, 2026 and September 30, 2025 related to the 2027 Notes is weighted for (a) the number of days between the beginning of the period and the respective closing dates of each transaction, which includes the total amount of shares issuable upon a conversion of all of the 2027 Notes outstanding as of the beginning of the respective periods, and (b) subsequent to the respective closing dates, which includes the amount of shares issuable upon a conversion of the 2027 Notes that remain after each respective transaction. No 2027 Notes remained outstanding following settlement of the aforementioned redemption. Refer to Note 8 for additional details.

(2)The dilutive effect of our 2031 Notes is calculated based upon the most advantageous conversion rate from the standpoint of the holder. Refer to Note 8 for additional details related to the conversion criteria applicable for our 2031 Notes.

Potentially dilutive securi ties that are not included in the calculation of diluted net income per share because doing so would be antidilutive are as follows (in thousands):

Accounting Guidance and Disclosure Rules - Recently Adopted

In September 2025, the Financial Accounting Standards Board (“FASB”) issued ASU 2025‑06, Intangibles - Goodwill and Other - Internal‑Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal‑Use Software. ASU 2025‑06 is intended to modernize the internal‑usesoftware model primarily by removing software development stages and introducing a “probable-to-complete recognition threshold.” The provisions of ASU 2025-06 are effective for our Annual Report on Form 10-K for the year ending December 31, 2026. We elected to early adopt this ASU in the first quarter of 2026 on a fully prospective basis. The adoption of this standard did not result in any material impacts to our consolidated financial statements.

In July 2025, the FASB issued ASU 2025‑05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025‑05 is intended to provide a practical expedient for estimating expected credit losses on current trade receivables and current contract assets. The provisions of ASU 2025‑05 are effective for annual periods beginning after December 15, 2025. We adopted this standard in the first quarter of 2026. The adoption of this standard did not result in any material impacts to our consolidated financial statements.

Accounting Guidance and Disclosure Rules - Not Yet Adopted

Refer to Note 1 to the consolidated financial statements in our 2025 Annual Report on Form 10-K for a discussion of applicable standards issued and not yet adopted. Relevant new unadopted standards issued subsequent to our most recent Annual Report are included below.

In May 2026, the FASB issued ASU 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818). ASU 2026-02 establishes recognition, measurement, presentation, and disclosure requirements for environmental credits and environmental credit obligations. The provisions of ASU 2026-02 are effective for our Quarterly Report on Form 10-Q for the quarter ending March 31, 2028 and subsequent interim and annual periods thereafter, with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

Note 2 –Revenues

Nature of Products and Services

The following table presents our revenues by primary product and service offering and reportable segment (in thousands):

Revenue Recognized from Contract Liabilities

During the nine months ended September 30, 2026 and 2025, we recognized revenue of $676.5 million and $590.3 million, respectively, from our beginning contract liabilities balance as of December 31, 2025 and 2024, respectively. Refer to our consolidated balance sheets for additional details regarding our receivables, contract assets and contract liabilities from contracts with customers.

Remaining Performance Obligations

As of September 30, 2026, we had approximately $10.2 billion of remaining performance obligations, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under ASC 606 as of September 30, 2026. We currently expect to recognize approximately 20% -25% of this balance over the next 12 months, and expect the remainder to be substantially recognized over the followingten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Note 3 –Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, marketable securities and available-for-sale debt investments at September 30, 2026 and December 31, 2025 (in thousands):

During the nine months ended September 30, 2026, proceeds from the sale of available-for-sale securities were $70.5 million. As of September 30, 2026, we held $150.4 million of available-for-sale debt investments with unrealized losses, of which none have been in a continuous unrealized loss position for 12 months or longer.

During the nine months ended September 30, 2026, net proceeds from the sales of marketable securities were $3.7 million, representing net realized gains of $1.7 million from the time of purchase. During the three and nine months ended September 30, 2026, we recorded an unrealized loss of $4.4 million and $8.9 million on marketable securities still held as of the reporting date, respectively. We recorded an unrealized gain of $9.3 million and an unrealized loss of $12.9 million on marketable securities, respectively, for the same periods in the prior year.

As of December 31, 2025, we had $9.7 millionof available-for-sale investments with unrealized losses, of which none have been in a continuous unrealized loss position for 12 months or longer. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.

Note 4 –Inventory

Inventory consisted of the following at September 30, 2026 and December 31, 2025 (in thousands):

Note 5 –Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for thenine months ended September 30, 2026 were as follows (in thousands):

Intangible assets (other than goodwill) consisted of the following at September 30, 2026 and December 31, 2025 (in thousands):

(1)During the nine months ended September 30, 2026, no in-process research and development costs were placed into service. During the nine months ended September 30, 2025, approximately $15.3 million had been placed into service.

Amortization expense of intangible assets for the three and nine months ended September 30, 2026 was $13.4 million and $38.4 million, respectively. Amortization expense of intangible assets for the three and nine months ended September 30, 2025 was $6.9 million and $20.2 million, respectively. Estimated amortization for intangible assets with definite lives for the remaining three months of 2026, the next five years ended December 31, and thereafter, is as follows (in thousands):

Note 6 –Strategic Investments

During the nine months ended September 30, 2026, we closed a series of transactions to acquire additional equity interests in an existing strategic investee for an aggregate amount of $191.8 million. We also recognized an unrealized gain on investments still held as of September 30, 2026 of $229.7 million related to observable price changes for existing investments in the same strategic investee. During the nine months ended September 30, 2026, we also acquired equity interests in a separate strategic investee for an aggregate amount of $49.9 million.

During the nine months ended September 30, 2025, we closed a series of transactions to acquire additional equity interests in an existing strategic investee for an aggregate amount of $215.1 million. We also recognized a gain of $167.4 million related to an observable price change of a separate existing strategic investee. Furthermore, we entered into a series of transactions to sell certain interests for cash consideration of $340.7 million in the same strategic investee, which was received during the nine months ended September 30, 2025. Previously unrealized gains of $320.8 million were realized from the collective sales, net of $1.3 million of transaction costs. Additionally, during the nine months ended September 30, 2025, a strategic investee completed a change-of-control transaction resulting in liquidation of the entity and distribution of consideration to its shareholders. In connection with the transaction, we received consideration of $36.9 million. We recognized a gain of $14.6 million from the sale, net of $0.1 million of transaction costs. Previously unrealized gains of $2.6 million were realized as a result of this sale.

The following table presents the carrying value of our strategic investments at September 30, 2026 and December 31, 2025 (in thousands):

(1)As of September 30, 2026 and December 31, 2025, the carrying value of our strategic investments held under the equity method of accounting was $29.3 million and $1.6 million, respectively.

The life to date cumulative upward and downward adjustments to the carrying value of our strategic equity investments accounted for under the ASC 321 measurement alternative and still held as of September 30, 2026 were $247.0 million and $15.4 million, respectively.

As of September 30, 2026 and December 31, 2025, the carrying value of our variable interest assets in unconsolidated non-public variable interest entities was $135.9 million and $9.4 million, respectively. These balances reflect the maximum exposure to loss, which is limited to the carrying value of the interest.

The following table summarizes the gains andlosses associated with our strategic investments during the three and nine months ended September 30, 2026 and 2025 (in thousands):

(1)Includes immaterial income (losses) from strategic investments held under the equity method of accounting, as well as immaterial unrealized gains (losses) for debt security strategic investments.

Note 7 –Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2026 and December 31, 2025 (in thousands):