Abiomed Inc. (NASDAQ:ABMD)

The period under review demonstrates a fluctuating pattern in economic profit. Initially, a strong upward trend is evident, followed by a significant decline in the most recent year. Net operating profit after taxes (NOPAT) and invested capital both increased substantially over the first four years, contributing to the initial growth in economic profit. However, while NOPAT experienced a decrease in the final year, invested capital also saw a reduction, though less pronounced.

Economic Profit Trend

Economic profit increased significantly from $30.434 million in 2017 to $144.816 million in 2019, representing substantial value creation. Growth slowed in 2020 to $109.657 million, and further decreased to $98.519 million in 2021. A notable shift occurred in 2022, with economic profit turning negative at -$10.854 million, indicating that the company’s returns did not exceed its cost of capital in that year.

NOPAT Performance

Net operating profit after taxes exhibited a strong increase from 2017 to 2019, more than doubling in that timeframe. A slight decrease was observed in 2020, followed by a recovery in 2021. However, 2022 saw a substantial decline in NOPAT to $140.811 million, contributing significantly to the negative economic profit.

Invested Capital Evolution

Invested capital consistently increased from 2017 to 2021, indicating ongoing investment in the business. The rate of increase accelerated between 2018 and 2020. A modest decrease in invested capital was recorded in 2022, potentially reflecting divestitures or reduced investment activity.

Cost of Capital Stability

The cost of capital remained remarkably stable throughout the observed period, fluctuating within a narrow range between 21.81% and 21.88%. This suggests consistent financial risk and capital market conditions over the years.

The decline in economic profit in 2022 warrants further investigation. While the decrease in NOPAT is a primary driver, the continued high level of invested capital suggests that capital allocation efficiency may be a contributing factor. The consistent cost of capital indicates that external factors did not significantly impact the company’s profitability during this period.

Net Income

The net income demonstrates an overall increasing trend from 2017 to 2021, starting at 52,116 thousand US dollars in 2017 and more than quadrupling to 225,525 thousand US dollars by 2021. However, in the latest period reported (2022), net income declined significantly to 136,505 thousand US dollars, representing a reduction of approximately 39.5% compared to 2021. This sharp decrease after several years of growth may indicate emerging operational challenges or external factors impacting profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a similar upward pattern from 2017 to 2021, increasing from 79,888 thousand US dollars to a peak of 259,982 thousand US dollars in 2021. This progressive increase suggests improving operating efficiency and strong core profitability over this period. However, like net income, NOPAT experienced a noteworthy contraction in 2022, falling to 140,811 thousand US dollars, which constitutes a decrease of approximately 45.8% relative to 2021. The decrease in NOPAT correlates with the drop in net income, reinforcing the indication of decreased operational performance in the latest year.

Comparative Insights

Both profitability measures show consistent and substantial growth over the first five years reviewed, reflecting positive business momentum. The alignment in trends between net income and NOPAT suggests that the company’s profitability changes are primarily driven by operating activities rather than non-operating factors. The pronounced decline in 2022 in both metrics represents a notable deviation from prior periods, which warrants further investigation into causes such as market conditions, cost structure changes, or other external influences.

Income Tax Provision

The income tax provision fluctuates considerably over the period analyzed. It initially increased from 39,227 thousand US dollars in March 2017 to a peak of 48,267 thousand US dollars in March 2018. Subsequently, it sharply declined to 4,344 thousand US dollars in March 2019, indicating a significant reduction in tax liabilities or adjustments for that year. However, it rebounded markedly to 53,816 thousand US dollars in March 2020 and continued to rise to 62,695 thousand US dollars in March 2021 before decreasing again to 54,055 thousand US dollars in March 2022. This pattern suggests considerable variability likely influenced by changes in taxable income, tax planning strategies, or tax legislation.

Cash Operating Taxes

Cash operating taxes show an inconsistent but generally upward trend over the years. Starting at 13,626 thousand US dollars in March 2017, there is a notable decline to 5,738 thousand US dollars in March 2018. This is followed by a recovery to 12,089 thousand US dollars in March 2019. From March 2020 onwards, cash operating taxes consistently increase, reaching 20,943 thousand US dollars, 33,340 thousand US dollars in March 2021, and peaking at 51,674 thousand US dollars by March 2022. The sharp increase in recent years could reflect higher taxable operational earnings or timing differences between accounting income and tax payments.

Comparative Insights

The contrasting patterns between income tax provision and cash operating taxes are of note. While income tax provision shows extreme variability, cash operating taxes trend more steadily upwards after an initial decline. This discrepancy might indicate differences between accrued tax expenses and actual cash tax payments, possibly due to deferred tax assets or liabilities, tax credits, or changes in accounting estimates. The rise in cash taxes despite fluctuations in tax provision could imply a strengthening of the company's cash tax outflows in recent years.

The financial data over the six-year period reveals notable trends in the capital structure and equity position. There is a pronounced fluctuation in total reported debt and leases, with an initial sharp decline from 23,800 thousand USD in 2017 to 10,089 thousand USD in 2018. This is followed by moderate increases and decreases over the subsequent years, culminating in a value of 9,507 thousand USD in 2022, which remains below the initial figure in 2017. This suggests efforts to reduce or manage debt levels with some variability year-over-year.

The stockholders’ equity demonstrates consistent and substantial growth throughout the period. Starting at 452,071 thousand USD in 2017, it more than triples by 2022, reaching 1,503,326 thousand USD. This steady increase signals strengthening equity financing and accumulation of retained earnings or capital contributions, indicating a robust equity base and potentially improved financial stability over time.

Invested capital shows an overall increasing trend from 226,723 thousand USD in 2017 to a peak of 737,876 thousand USD in 2021, before a slight decline to 693,367 thousand USD in 2022. This upward movement may reflect ongoing investments in business operations, assets, or strategic initiatives. The minor decrease in the final year could be indicative of divestments, asset disposals, or revaluation adjustments.

Total Reported Debt & Leases

Initial significant reduction followed by moderate fluctuations, ending below the initial value, suggesting active debt management.

Stockholders’ Equity

Consistent and strong growth, tripling over the period, reflecting enhanced financial strength and shareholder value.

Invested Capital

General upward trend with a peak in 2021 and slight decline in 2022, indicating increased capital investment with some recent contraction.

The economic spread ratio demonstrates a fluctuating performance over the observed period. Initially, the ratio exhibits substantial growth, followed by a period of decline culminating in a negative value. This analysis details the observed trends in economic profit, invested capital, and the resulting economic spread ratio.

Economic Spread Ratio Trend

The economic spread ratio increased significantly from 13.42% in 2017 to 36.53% in 2018, indicating a substantial improvement in the return generated relative to the cost of capital. This upward momentum continued, albeit at a slower pace, reaching 29.11% in 2019. A subsequent decline is observed, with the ratio decreasing to 18.43% in 2020 and further to 13.35% in 2021. Notably, the ratio turned negative in 2022, registering at -1.57%, signifying that the company’s returns were less than its cost of capital.

Economic Profit and Invested Capital Relationship

Economic profit increased consistently from US$30,434 thousand in 2017 to US$144,816 thousand in 2019, contributing to the initial rise in the economic spread ratio. While economic profit decreased to US$109,657 thousand in 2020 and US$98,519 thousand in 2021, it remained positive. However, in 2022, economic profit became negative at US$-10,854 thousand. Invested capital demonstrated a consistent upward trend from US$226,723 thousand in 2017 to US$737,876 thousand in 2021. A slight decrease in invested capital was observed in 2022, falling to US$693,367 thousand. The combination of declining economic profit and relatively stable invested capital in 2022 resulted in the negative economic spread ratio.

The observed trends suggest a period of strong value creation followed by a weakening performance. The negative economic spread ratio in 2022 warrants further investigation to understand the underlying factors contributing to returns falling below the cost of capital.

The economic profit margin exhibited a generally positive trend from 2017 to 2019, followed by a decline in subsequent years, culminating in a negative margin in 2022. This analysis details the observed patterns in economic profit, adjusted revenue, and the resulting economic profit margin.

Economic Profit

Economic profit increased substantially from US$30.434 million in 2017 to US$144.816 million in 2019, indicating improved profitability relative to the cost of capital. However, economic profit decreased to US$98.519 million in 2021 and experienced a significant decline in 2022, resulting in a loss of US$10.854 million. This suggests a weakening ability to generate returns exceeding the cost of capital in the most recent period.

Adjusted Revenue

Adjusted revenue demonstrated consistent growth from US$447.021 million in 2017 to US$1.033.793 million in 2022. While revenue increased throughout the period, the decline in economic profit in 2022 suggests that revenue growth alone was insufficient to maintain profitability after accounting for the cost of capital.

Economic Profit Margin

The economic profit margin increased from 6.81% in 2017 to a peak of 18.79% in 2019, reflecting the strong economic profit performance during that time. The margin then decreased steadily to 11.55% in 2021 before becoming negative at -1.05% in 2022. This indicates that the company’s profitability, relative to its cost of capital, deteriorated significantly in the latest year, despite continued revenue growth. The negative margin in 2022 signifies that the company’s returns were insufficient to cover its cost of capital.

The divergence between revenue growth and economic profit margin in 2021 and 2022 warrants further investigation. Factors contributing to this trend could include increased operating expenses, a higher cost of capital, or a shift in the revenue mix towards lower-margin products or services.