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 decline in the most recent year. Net operating profit after taxes (NOPAT) and invested capital both increased significantly over the first four years, contributing to the initial rise 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 substantially from $30.458 million in 2017 to $144.869 million in 2019, representing significant value creation. Growth slowed in 2020, with economic profit at $109.721 million, and continued to decrease to $98.598 million in 2021. A notable shift occurred in 2022, with economic profit turning negative at -$10.780 million, indicating value destruction.

NOPAT Performance

Net operating profit after taxes exhibited strong growth between 2017 and 2019, increasing from $79.888 million to $253.605 million. A slight decrease was observed in 2020 to $239.725 million, followed by a rebound to $259.982 million in 2021. The most significant change occurred in 2022, with NOPAT falling to $140.811 million.

Invested Capital Evolution

Invested capital consistently increased from $226.723 million in 2017 to $737.876 million in 2021. This substantial growth suggests ongoing investment in the business. However, in 2022, invested capital decreased to $693.367 million, potentially reflecting divestitures or reduced investment activity.

Cost of Capital Stability

The cost of capital remained remarkably stable throughout the period, fluctuating within a narrow range of 21.80% to 21.87%. This consistency suggests a stable risk profile and financing structure for the business. The minimal variation in cost of capital indicates that changes in economic profit are primarily driven by fluctuations in NOPAT and invested capital.

The transition to negative economic profit in 2022 warrants further investigation. While the decrease in NOPAT contributed to this outcome, the continued high level of invested capital suggests that the business is not generating sufficient returns to cover its cost of capital. The interplay between NOPAT and invested capital will be critical to monitor in future periods.

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 13.43% in 2017 to 36.54% 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 29.12% in 2019. A subsequent decline is observed, with the ratio decreasing to 18.44% in 2020 and further to 13.36% in 2021. Notably, the ratio turned negative in 2022, registering at -1.55%, signifying that the company’s return on invested capital fell below its cost of capital.

Economic Profit and Invested Capital Relationship

Economic profit increased from US$30,458 thousand in 2017 to US$144,869 thousand in 2019, mirroring the initial rise in the economic spread ratio. While economic profit decreased to US$98,598 thousand in 2021, it remained positive. However, in 2022, economic profit became negative at -US$10,780 thousand. Invested capital consistently increased throughout the period, rising from US$226,723 thousand in 2017 to US$737,876 thousand in 2021 before decreasing slightly to US$693,367 thousand in 2022. The decline in the economic spread ratio in later years appears to be driven by a combination of decreasing economic profit and continued growth in invested capital, particularly evident in the final year.

The observed trends suggest a period of strong value creation followed by diminishing returns. The negative economic spread ratio in 2022 warrants further investigation to understand the factors contributing to the underperformance relative to the cost of capital.

The economic profit margin exhibited a generally positive trend from 2017 through 2021, followed by a significant decline in 2022. Economic profit itself demonstrated substantial growth initially, peaking in 2019, before experiencing a decline and ultimately becoming negative in the most recent period. Adjusted revenue consistently increased throughout the observed timeframe, although the rate of growth varied.

Economic Profit Margin

The economic profit margin increased from 6.81% in 2017 to a high of 18.79% in 2019, indicating improving profitability relative to adjusted revenue. This growth slowed in 2020 to 13.01% and continued to decrease to 11.56% in 2021. A substantial decrease was observed in 2022, with the margin falling to -1.04%, signifying that economic losses exceeded economic profit during that year.

Economic Profit

Economic profit increased significantly from US$30,458 thousand in 2017 to US$144,869 thousand in 2019, demonstrating a strong improvement in value creation. A decrease to US$109,721 thousand occurred in 2020, followed by a further decline to US$98,598 thousand in 2021. The most notable change occurred in 2022, where economic profit became negative, reaching US$-10,780 thousand. This indicates the company’s cost of capital exceeded the returns generated from its investments in that period.

Adjusted Revenue

Adjusted revenue consistently increased over the period, rising from US$447,021 thousand in 2017 to US$1,033,793 thousand in 2022. The growth rate was highest between 2017 and 2018 (33.86%) and between 2021 and 2022 (21.23%). While revenue increased consistently, the decline in economic profit margin in 2022 suggests that revenue growth alone did not translate into increased economic profitability.

The divergence between increasing adjusted revenue and declining economic profit margin in 2022 warrants further investigation. Factors contributing to this shift could include increased operating costs, a higher cost of capital, or changes in the company’s capital structure. The negative economic profit in 2022 signals a potential need to reassess investment strategies and operational efficiency.