Throughout the year, as evidenced by our strong results and strengthening outlook, we have continued to execute on our stated objectives to:

1. Grow our core through innovation in our key products,
2. Scale new products by developing solutions to real-world challenges,
3. Unlock new areas for growth by extending our reach to new markets, and
4. Drive operating efficiencies across our manufacturing, hiring and support systems.

The third quarter was no exception. Our teams delivered strong performance across the board, driving revenue growth of 39% to $232 million, and GAAP net income of $49 million, which supported Adjusted EBITDA of $51 million, representing a 22% margin. Net income was favorably impacted by a $51 million tax benefit. Our SaaS performance was equally strong, with annual recurring revenue growing 42% to $289 million, supported by deployments in the federal market and international regions. Record Q3 bookings of $488 million were up 54%, driven by strength in software and sensors, bringing year-to-date bookings to nearly $1.2 billion, above full year 2020 levels.

Axon’s expanding growth story

As we look ahead to our long-range plans, we are providing an update on our growth story, raising our estimated total addressable market, or TAM, from $27 billion to $52 billion, and sharing our analysis on penetration by region and product category.

TAM growing through investments in products, markets and regions:

Our investments for scale are expanding our total addressable market along three axes — introducing new products, selling into new customer market segments, and adding sales channels to new geographic regions. Our updated estimate points to a $52 billion total addressable market⁽¹⁾.

Two of our newest drivers of TAM growth include our investments in consumer safety and justice software.

Consumer: We see opportunity to create more effective and reliable personal protection for private individuals, and, thus, our consumer business is a growing area of investment. When we say TASER is less than 25% penetrated in the US and even lower globally, that statistic refers to professional users and does not include individual consumers. Our current market penetration in consumer is virtually nil. Historically, our law enforcement and consumer devices have relied upon separate platforms. To drive greater efficiency and reliability, our next generation consumer and law enforcement devices will leverage much of the same core technology. We also plan to offer personal safety solutions, including a consumer-focused smartphone app, and expect to share more details over the coming quarters.

Justice: Axon’s expansion into justice software is a natural evolution of our market-leading cloud-hosted digital evidence management software category. Specifically, we are developing software to help prosecutors and defense attorneys streamline the discovery process. Not only is our goal to save attorneys time, but also to shorten the time people are jailed awaiting trial. We are enthusiastic about the opportunities in this category and will be sharing more in the coming months around product launch and customers.

TAM penetration analysis showcases runway for growth:

We see ourselves as less than 2% penetrated across our addressable markets, based on an analysis of potential user penetration in devices and potential dollar penetration in software.

The user penetration for our cloud-connected devices and dollar penetration in software showcases our opportunity for growth across products and regions. Importantly, our TAM penetration analysis⁽²⁾ excludes select market segments from certain geographies where we are not selling today, highlighting the opportunity to continue to expand our TAM and add incremental growth drivers.

Select Q3 highlights

• Driving customer engagement and excitement:
  • Accelerate user conference returns to in-person: Axon hosted nearly 1,500 attendees at its sixth annual user conference in Phoenix during the first week of November, drawing many of the best and brightest public safety leaders from around the globe. One of the world’s largest public safety technology conferences, Axon Accelerate provides a forum to inform and empower our customers, and this year we discussed both the opportunities and challenges presented by today’s rapidly changing world. We were pleased to be joined by representatives and exhibitors from our rapidly growing ecosystem of technology partners, including Cellebrite, Skydio and Cradlepoint. Whether it’s AI, VR or 5G, when it comes to transformative technologies, we’re always discovering and investing in ways to help our customers work smarter
  • Voyager Roadshow success: Axon is hosting a customer-focused roadshow from June through December, which started with the Los Angeles Police Department. Three custom Axon Voyager trailers will visit the 48 contiguous United States to provide demonstrations of our latest technology. Each Axon Voyager trailer comes with a Cradlepoint and Verizon-powered control room for software demos, two VR training bays that allow officers to try Axon’s latest community engagement training modules, and a TASER 7 firing range, where officers can receive hands-on practice with Axon’s latest generation of TASER device, guided by a TASER Master Instructor.
• New software products accelerating traction: New product bookings more than doubled through the end of the third quarter, led by software services, including Axon Records, Axon Respond, AI-enabled transcription, and AI-enabled automated license plate reading (ALPR).
• Demand for Virtual Reality training exceeds expectations: Our Virtual Reality training offers a transformational alternative to tactical training, delivering compelling immersive content and pairing that with our robust training platform, including Axon Academy curriculum. VR training powered by AI will fundamentally transform our ability to level up skills in the field — and we can also use it beyond training to build physical capabilities. VR is the fastest growing new product we’ve ever launched⁽³⁾.
• International strength across product lines:
  • Standalone software: Both the Province of British Columbia, through PRIMECorp, as well as the Scottish Government selected Axon’s SaaS-based digital evidence management solution, Axon Evidence, to fulfill groundbreaking modernization initiatives. Both projects are cornerstones in connecting justice sector partners and stakeholders, including the police, courts, prosecutors and defense agents, and are notable for being standalone digital evidence management deals. Axon was selected through an open and competitive procurement process in both scenarios. The partnership with PRIMECorp represents Axon’s largest standalone software deal ever.
    
    “Our goal was to evaluate the market for a partner that can help bring the benefits of modernizing our digital evidence management from collection, storing and sharing with our justice partners, so we can be more effective. After an extensive evaluation that spanned two-years involving a formal procurement process that included an operational pilot with multiple agencies, PRIMECorp is confident in Axon Evidence as a common platform amongst the BC Police Agencies now and into the future.” — Wayne Plamondon, PRIMECorp, Chief Operating Officer
    
    “This is an important step in improving the experience of victims and witnesses in the criminal justice process. The Digital Evidence Sharing Capability programme will make a real difference to the time taken for cases to come to court, allowing those involved in criminal cases to move on with their lives sooner. Reducing delays is just one of the benefits this programme will bring. We are also putting in place a modern, forward-looking platform that can be used to help develop future transformation in the criminal justice system.” — Scottish Justice Secretary Keith Brown

• • Cloud-connected TASER devices: The Toronto Police Service is expanding its TASER 7 program across the city to every officer in the field.
    
    “We continue to see the positive impact within our communities by outfitting officers with [TASER devices.] With this expansion project, our officers will no longer need to share devices but all officers in the field will be outfitted with the advanced capabilities of the Axon TASER 7. This will help us be more efficient in reporting and more accountable to our citizens.” —Toronto Police Service Chief James Ramer
  • Body-worn cameras and real-time awareness: The Gujarat State Police is equipping officers throughout Gujarat, India with more than 10,000 body-worn cameras. The service will also deploy a portion of the cameras with Axon’s real-time situational awareness software, Respond, which gives supervisors access to location-mapping and live streaming, providing visibility into evolving situations to inform decisions about resourcing and back-up. This growing partnership reflects Axon’s strategy to land and expand within regions. In early 2020, Gujarat State Police became the first major police agency in India to deploy TASER devices
    
    “With the introduction of body-worn cameras and a digital evidence management solution, we will significantly enhance our policing capability across the state of Gujarat.” — Mr. Narasimha Komar IPS, Additional Director General of Police (Planning & Modernization) Gujarat State Police
• Domestic bundling strength drives annual recurring revenue and net dollar retention: Our customers are increasingly adopting a broad suite of Axon’s solutions at once, which is driving increased order size and strong performance across our SaaS metrics. Recent examples include:
  • The Oklahoma City Police Department signed a five-year Officer Safety Plan 7+ Premium bundle in September to deploy TASER 7 devices, Axon Body 3 cameras with real-time situational software, Axon Respond and Axon Records. The Major Cities Chiefs Association member will also be implementing the next generation Axon Fleet 3 in-car video system with ALPR technology and Axon Air licenses.
  • The Virginia Beach Police Department, a Major Cities Chiefs Association member, signed a ten-year contract on the Officer Safety Plan 7+ Premium bundle, in July, and is adopting Axon Records.
  • The Grand Prairie Police Department in Texas signed a contract in August for 260 Officer Safety Plan 7+ Premium licenses, 210 Axon Fleet 3 in-car cameras, and is adopting Axon Records and Axon Dispatch.
  • The Metropolitan Transportation Authority Police Department in New York, in September, signed 1,000 Officer Safety Plan 7+ Premium licenses with Axon Auto-Transcribe, which drives efficiency by transcribing body camera video.
  • The Louisville Metro Police Department in Kentucky adopted 1,200 Officer Safety Plan 7+ licenses in September.
  • The Minnesota State Patrol signed 700 Officer Safety Plan 7+ Premium, Axon Respond, Axon Auto-Tagging, Axon Performance and 700 Axon Fleet 3 in-car cameras in September.
  • The Santa Fe Police Department signed 193 Officer Safety Plan 7+ Premium, 240 Fleet 3 in-car cameras, and four Axon Interview licenses in August.
  • The Salt Lake City Police Department signed 550 licenses for an Officer Safety Plan 7+ Premium upgrade in September.
  • The Pima County Sheriff’s Office in Arizona signed 700 Officer Safety Plan 7+ Premium, Axon Auto-Transcribe, Axon Records, Axon Respond and Unlimited 7 Licensing in September.
  • The Sacramento Police Department signed 700 Officer Safety Plan 7+, 245 Unlimited 7 Licensing and 50 Axon Air licenses in September.

Environmental, Social & Governance (ESG) Updates:

• Community engagement gets a boost with My90 acquisition:
  • In August, Axon acquired⁽⁴⁾ My90 Inc., which collects anonymized community feedback to generate actionable insights that help police agencies improve trust, safety and equity. Kona Shen and Mustafa Abdul-Hamid founded My90 in 2016 to give communities a secure line of feedback to public safety agencies that could foster community trust and understanding. Since 2016, My90 expanded its services to help individual officers deliver anonymous feedback to department leadership. My90 maintains privacy and anonymity when displaying results via interactive dashboards, which will be available on the Axon Network
    
    “We created this tool as a way for members of the public to safely give feedback about their interactions with law enforcement officers. Using data and anonymous feedback, agencies can see the impact they are having within their communities, community members can provide valuable input, and agencies can set goals and track progress over time.” — Kona Shen, former CEO of My90, who joined Axon as VP and General Manager.
  • The acquisition builds upon Axon’s efforts launched in 2020 to form a Community Impact team comprised of industry experts at the intersection of civil rights, law enforcement, education, mental health and advocacy. The team’s knowledge of community perspectives, paired with Axon’s deep understanding of technology and the needs of law enforcement, is resulting in initiatives that facilitate bridge-building between police and communities.
    
    “Axon’s Community Impact team was formed to incorporate community voice into Axon products and services and assist our public safety partners with programming and strategies to enhance their relationships with the communities they serve.” — Regina Holloway, Axon’s VP of Community Impac
• Axon Aid supports Louisiana first responders following Hurricane Ida
  • Axon Aid, our philanthropic arm, deployed multiple teams to the coastal parishes in Louisiana following Hurricane Ida. Axon dispatched 10 drone pilots to run more than 50 missions to support emergency management teams. These missions included mass damage assessments and levee inspections. The Axon Aid deployment for Hurricane Ida is the tenth since its founding in 2018. The volunteer-powered emergency relief program supports communities and first responders in responding to disasters. To learn more about Axon Aid, please visit: www.axon.com/aid
• Virtual Governance & ESG Roadshow:
  • Axon’s board of directors and management team have been connecting with shareholders on corporate governance and ESG matters. We are committed to being best-in-class in everything we do, and as we continue to grow, we have sought to identify corporate governance and ESG changes that will create value for our shareholders and advance our corporate values and strategic vision. We believe shareholder engagement is critically important. Shareholders who wish to provide feedback may email ir@axon.com.
• Learn more about Axon’s ESG efforts:
  • We encourage shareholders to read our 2021 ESG/CSR report, which covers a variety of topics including TASER device safety, how our products support UN Sustainable Development goals, information security and data privacy, information about our AI Ethics Board, employee wellness and diversity, and governance.

Summary of Q3 2021 results:

• Revenue of $232 million grew 39% year over year, on top of 27% growth in Q3 2020, reflecting global demand for our growing software suite and TASER 7 devices. Domestic revenue and international revenue grew 34% and 70%, respectively, year over year.
• Gross margin of 62.3% improved 330 basis points year over year, reflecting favorable body camera mix, strong demand for our premium TASER offerings and the continued benefit of engineered lower build costs in our TASER segment.
• Operating expenses of $142 million included $34 million in stock-based compensation expense.
  • SG&A of $99 million included $26 million in stock-based compensation expense.
  • R&D of $42 million included $8 million in stock-based compensation expense.
• GAAP diluted EPS was $0.67 based on GAAP net income of $49 million. Non-GAAP EPS was $1.17.
  • Of the $35 million in total stock-based compensation expense in Q3 2021, $25 million was related to our eXponential Stock Performance Plan (XSPP) and CEO Performance Award⁽⁵⁾.
    • In Q3 2021, $16 million was tied to acceleration of expected attainment dates, which means the time over which we record expense is shortened. Since Q1 2021, all 12 operational goals have been considered probable of attainment.
    • Since the CEO Performance Award was adopted in 2018, we have expensed $220 million of total potential expense of $246 million under the plan. Since the XSPP plan was adopted in 2019, we have expensed $161 million of total potential expense of $196 million currently projected under the plan for XSPP grants issued to date. Since the CEO Performance Award was issued in 2018, total shareholder return was nearly 500% as of Friday, November 12, 2021.
    • As a result of our strong Q3 performance, we expect one tranche of the XSPP awards to vest⁽⁶⁾ in the coming weeks. Vesting of a second tranche for which the operational goal was achieved as of September 30, 2021, is contingent upon attainment of the related market capitalization goal.
  • The effective tax rate was favorably impacted by a $(44.3) million discrete tax benefit from the vesting of stock-based compensation awards during the quarter.
• Quarterly Adjusted EBITDA grew 50% year over year to $51 million, representing a 21.8% margin on revenue and highlighting our ability to demonstrate leverage while also investing for scale.
• Cash and cash equivalents and investments totaled $548 million at September 30, 2021, down $156 million sequentially. Operating cash flow was $16 million. The change in cash and cash equivalents and investments included the use of $172 million in cash for tax withholdings arising from stock awards that were net settled during the quarter and $90 million for our investment in Cellebrite, partially offset by proceeds of $106 million from our at-the-market offering.
• Axon has no debt.

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