Abiomed Inc. (NASDAQ:ABMD)

The financial data reveals several key trends in operating performance, capital investment, cost of capital, and economic profit over the six-year period.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed a strong upward trajectory from 2017 through 2021, increasing from approximately $79.9 million to nearly $260 million. However, in the final year, there was a marked decline to about $141 million, which represents a reduction of roughly 46% compared to the previous year. This suggests a weakening in operational profitability in the latest period.

Cost of Capital

The cost of capital remained remarkably stable throughout the period, fluctuating within a very narrow range around 18.5%. This consistency indicates that the company's weighted average cost of capital did not contribute to volatility in economic profit or investment decisions.

Invested Capital

Invested capital steadily increased from $226.7 million in 2017 to a peak of about $738 million in 2021, indicating significant growth in the asset base or capital employed by the company. However, in 2022, there was a slight contraction to approximately $693.4 million, which may reflect some divestments or reduced capital expenditures.

Economic Profit

Economic profit rose sharply from $38 million in 2017 to $161 million in 2019, followed by a decline to $123 million by 2021. The most pronounced drop occurred in 2022, when economic profit plummeted to around $12.2 million, almost a 90% decrease from the prior year. The decline in economic profit, despite relatively stable cost of capital, suggests that increased capital investment in the later years did not translate into proportional returns, significantly diminishing value creation.

In summary, while the company exhibited strong growth in operating profit and invested capital through 2021, both profitability and value generation declined notably in the most recent year. The stable cost of capital implies that the deterioration in economic profit largely stems from operational or investment efficiency challenges rather than changes in financing costs. Monitoring and addressing the drivers behind the recent downturn in operating performance and economic profit will be critical for future financial health.

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.

Economic Profit Trends

The economic profit demonstrated a significant increase from 37,958 thousand US dollars in 2017 to a peak of 161,373 thousand US dollars in 2019. Following this peak, there was a decline to 129,450 thousand in 2020 and a further gradual decrease in 2021 to 123,092 thousand. By 2022, economic profit had sharply dropped to 12,227 thousand, indicating a substantial reduction in generating economic returns in the most recent period.

Invested Capital Evolution

Invested capital consistently increased over the analyzed period, starting at 226,723 thousand US dollars in 2017 and almost tripling to 693,367 thousand by 2022. The most notable increases occurred between 2018 and 2021, peaking in 2021 at 737,876 thousand before a slight decline in 2022. This steady rise suggests ongoing investment and capital deployment by the entity.

Economic Spread Ratio Dynamics

The economic spread ratio, which reflects the return on invested capital above cost, showed a strong upward trend from 16.74% in 2017 to a high of 39.86% in 2018. It then trended downward over the subsequent years, falling to 32.43% in 2019, then more sharply to 21.76% in 2020, and continuing to decline to 16.68% in 2021. By 2022, this ratio had decreased markedly to 1.76%, indicating a considerable reduction in the spread or margin earned on invested capital during that year.

Summary of Insights

The financial data suggests a period of growth in economic profit and invested capital until around 2019-2020, followed by a decline in economic profitability despite high levels of invested capital. The sharp fall in both economic profit and economic spread ratio in 2022 indicates decreasing returns relative to the capital employed. This trend may point to challenges in maintaining efficient capital use or pressures on profitability in recent periods.

Adjusted revenue

The adjusted revenue demonstrated a consistent upward trend from March 31, 2017, to March 31, 2022. Starting at approximately $447 million in 2017, revenue increased steadily each year, reaching over $1 billion by 2022. This notable growth indicates a strong expansion in the company's sales and overall business scale throughout the period under review.

Economic profit

The economic profit showed a significant rise from 2017 to 2019, peaking at around $161 million in 2019. After this peak, economic profit experienced a decline in subsequent years, dropping sharply to approximately $12 million by 2022. This decline in economic profit despite increasing adjusted revenue suggests growing costs or declining efficiency in generating value beyond capital costs.

Economic profit margin

The economic profit margin, representing the economic profit relative to adjusted revenue, followed a similar pattern to economic profit. It increased from 8.49% in 2017 to a high of 20.93% in 2019. However, from 2020 onward, the margin declined notably, falling to 1.18% in 2022. This downward trend indicates a reduction in profitability despite rising revenues, which could reflect increased expenses, pricing pressures, or other operational challenges.

Summary and insights

Overall, the company experienced significant revenue growth over the six-year span, indicating successful top-line expansion. However, the economic profit and economic profit margin trends reveal that this revenue growth did not translate proportionally into economic value creation in more recent years. The sharp decline in economic profit and margin post-2019 points to potential issues in cost management, competitive pressures, or investment inefficiencies that merit further investigation. Maintaining or improving profitability will require addressing these challenges to align economic profit with revenue growth.