Abiomed Inc. (NASDAQ:ABMD)

The annual financial data reveals several trends in the company's operational efficiency and working capital management over the six-year period ending March 31, 2022.

Inventory Turnover and Average Inventory Processing Period

The inventory turnover ratio decreased from 2.02 in 2017 to a low of 1.6 in 2019, indicating slower inventory movement during that period. It then improved modestly to 2.0 by 2021 and remained stable into 2022. Correspondingly, the average inventory processing period lengthened from 181 days in 2017 to a peak of 228 days in 2019, reflecting slower inventory turnover, before declining again to around 182 days by 2022. This suggests a recovery in inventory management efficiency after 2019.

Receivables Turnover and Average Receivable Collection Period

The receivables turnover ratio showed a generally positive trend, increasing from 8.24 in 2017 to 11.39 in 2022. This is indicative of improved collection efficiency. The average receivable collection period corroborates this, shortening from 44 days in 2017 to 32 days in 2022, with a noticeable dip to 37 days in 2020 and a slight increase to 42 days in 2021 before improvement resumed. Overall, the company enhanced its ability to collect receivables more quickly.

Payables Turnover and Average Payables Payment Period

The payables turnover ratio rose consistently from 3.43 in 2017 to 5.32 in 2022, suggesting that the company paid its suppliers more frequently over time. This is supported by the average payables payment period decreasing from 107 days to 69 days between 2017 and 2022. The steady reduction in payment days indicates improved supplier payment policies occurring over the period, potentially strengthening supplier relationships or reflecting improved cash flow management.

Working Capital Turnover

The working capital turnover ratio declined from 1.73 in 2017 to 1.23 in 2022, with fluctuations in between. This signals a decrease in the efficiency with which working capital is used to generate revenue. The decline may be associated with increased working capital requirements or slower asset turnover despite improved receivables and payables management.

Operating Cycle and Cash Conversion Cycle

The operating cycle, defined as the sum of inventory processing and receivable collection periods, increased from 225 days in 2017 to a peak of 271 days in 2019 before gradually declining to 214 days in 2022. This pattern mirrors the inventory and receivable trends, reflecting an initially longer cycle that has been improving recently. The cash conversion cycle, which accounts for the payment period for payables, lengthened from 118 days in 2017 to 180 days in 2019 and then shortened to 145 days by 2022. Although still higher than in 2017, the recent improvement suggests progress in managing the timing of cash flows.

In summary, the financial data indicates that the company experienced challenges in inventory turnover and extended operating and cash conversion cycles up to 2019. Subsequent years show improvements in receivables collection, inventory management, and payables payment periods, contributing to a shorter operating and cash conversion cycle by 2022. Despite these gains, the decline in working capital turnover raises concerns regarding overall asset utilization efficiency. Further analysis could explore underlying causes and assess impacts on liquidity and profitability.

Cost of revenue

There is a clear upward trend in the cost of revenue over the six-year period. Starting from approximately 70.6 million US dollars in 2017, the cost consistently increases each year, reaching about 188.2 million US dollars by 2022. This steady growth indicates expanding operational activity or increasing costs associated with the production or procurement of goods sold.

Inventories, net

The net inventory values show notable fluctuations during the period. Initially, inventories rise from around 34.9 million US dollars in 2017 to a peak of roughly 90.1 million US dollars in 2020. Following this peak, inventories decline slightly in 2021 to approximately 81.1 million US dollars but then increase again to nearly 94.0 million US dollars in 2022. This pattern may suggest efforts to optimize inventory levels in response to demand or supply chain considerations.

Inventory turnover ratio

The inventory turnover ratio exhibits some variability but remains relatively stable overall. The ratio decreases from 2.02 in 2017 to a low of 1.6 in 2019, indicating slower inventory movement during that period. It then improves to 1.68 in 2020 and further increases to 2.0 in both 2021 and 2022, suggesting enhanced efficiency in inventory management or stronger sales performance in recent years.

Over the six-year period ending in March 31, 2022, revenue demonstrated a consistent upward trend, increasing from approximately $445.3 million to over $1.03 billion. This represents a substantial growth in top-line sales, with particularly strong increases noted between 2017 and 2019, and again from 2021 to 2022.

Accounts receivable, net, generally increased alongside revenue, moving from about $54.1 million in 2017 to $90.6 million in 2022. The growth in receivables was not perfectly proportional to revenue growth, as some fluctuations occurred, including a slight decline from 2021 to 2022, despite continued revenue gains.

The receivables turnover ratio, which measures the efficiency in collecting receivables, showed variability but generally improved over the period. Starting at 8.24 in 2017, it peaked at 11.39 in 2022. The ratio exhibited some decline during 2019 and 2021 but overall reflects enhanced collection efficiency in recent years.

Revenue Growth

Consistent annual growth with an acceleration in later years, resulting in more than doubling revenue over six years.

Accounts Receivable

Increasing trend in line with revenue, but with some fluctuations, indicating potential changes in credit policy or customer payment behavior.

Receivables Turnover Ratio

Improved efficiency in receivables collection, especially notable in the last recorded year, suggesting better cash flow management or tighter credit controls.

Cost of Revenue

The cost of revenue has shown a consistent upward trend over the analyzed period. Beginning at $70,627 thousand in 2017, it increased each consecutive year, reaching $188,158 thousand by 2022. This represents a substantial rise, more than doubling over six years, indicating expanding operational expenses associated with generating revenue.

Accounts Payable

Accounts payable also increased over the timeframe, albeit at a more moderate pace compared to the cost of revenue. Starting from $20,620 thousand in 2017, it rose steadily to $35,346 thousand in 2022. The growth in accounts payable was less pronounced relative to the cost of revenue, suggesting an increase in short-term obligations but at a slower rate.

Payables Turnover Ratio

The payables turnover ratio exhibited an overall improvement during the period. Beginning at 3.43 in 2017, it increased to 5.32 by 2022, reflecting a higher frequency of paying off accounts payable within the year. This trend indicates enhanced efficiency in managing payables, with the company settling its obligations more rapidly over time.

The financial data demonstrates several notable trends over the analyzed periods.

Working Capital

Working capital showed a consistent upward trajectory from 2017 through 2022. It increased from approximately 257,341 thousand US dollars in 2017 to 838,016 thousand US dollars in 2022. The growth was steady, with only a slight decline observed in 2020 compared to 2019, followed by continued increases in the subsequent years, indicating improving liquidity and the company's stronger ability to cover its short-term liabilities over time.

Revenue

Revenue also exhibited a positive trend, rising from 445,304 thousand US dollars in 2017 to a peak of 1,031,753 thousand US dollars in 2022. Although the revenue growth slowed between 2020 and 2021, with barely any increase, a strong recovery and acceleration in revenue growth was evident in 2022. This suggests a resilient revenue-generating capability with an overall strong performance over the period.

Working Capital Turnover

The working capital turnover ratio, which measures the efficiency of using working capital to generate revenue, showed a declining trend from 1.73 in 2017 to 1.23 in 2022. There were fluctuations in this ratio, with a dip in 2018 and 2019, a rise in 2020, followed by decreases in 2021 and 2022. This decline despite increasing revenue and working capital suggests that the growth in working capital outpaced the growth in revenue, potentially indicating less efficient utilization of working capital in generating sales over time.

Overall, the data points to strong growth in both working capital and revenue, with working capital increasing at a faster rate than revenue. While revenue growth is healthy and accelerating in the most recent period, the decreasing working capital turnover ratio highlights a potentially growing investment in working capital that is not being converted into revenue as efficiently as in previous years. This dynamic warrants further investigation to understand the underlying causes and address capital utilization efficiency.

Inventory Turnover

The inventory turnover ratio exhibited a general declining trend from 2.02 in 2017 to 1.6 in 2019, indicating a slower rate at which inventory was sold and replaced during this period. In 2020, there was a slight improvement to 1.68, followed by a more noticeable increase to 2.0 in both 2021 and 2022. This recovery suggests an enhancement in inventory management or increased sales efficiency in the latter years, returning the turnover ratio to the same level as 2017.

Average Inventory Processing Period

The average inventory processing period, measured in days, reflects the inverse of the inventory turnover ratio trends. It increased from 181 days in 2017 to a peak of 228 days in 2019, indicating that inventory was held for progressively longer periods. The processing period shortened to 217 days in 2020, then experienced a more substantial reduction to 183 days in 2021 and slightly further to 182 days in 2022. This decrease aligns with the improved inventory turnover ratios seen in the later years, suggesting improved operational efficiency in managing stock levels and accelerating inventory movement.

Receivables Turnover

The receivables turnover ratio exhibits a generally positive trend over the observed period. Starting at 8.24 in 2017, it remains relatively stable through 2018 and 2019, at 8.48 and 8.47 respectively. A noticeable increase occurs in 2020, rising to 9.93, followed by a slight decline to 8.72 in 2021. The ratio then significantly improves in 2022, reaching 11.39. This indicates an enhancement in the company's efficiency in collecting receivables, particularly marked in the latest year.

Average Receivable Collection Period

The average collection period, expressed in days, shows a declining trend, suggesting expedited collection of receivables. It starts at 44 days in 2017 and reduces marginally to 43 days in both 2018 and 2019. In 2020, a more pronounced reduction to 37 days is observed, followed by a slight increase to 42 days in 2021. By 2022, the collection period significantly decreases to 32 days. This downward movement complements the upward trend in receivable turnover, reflecting improved liquidity and potentially more efficient credit management.

Overall Analysis

Collectively, the data reflect an overall improvement in the management of receivables. The increases in receivables turnover and decreases in average collection period imply quicker conversion of receivables into cash. Notwithstanding a minor setback in 2021, the trends suggest enhanced operational efficiency and effectiveness in the company's accounts receivable processes, which could have a positive impact on cash flow management.

Average Inventory Processing Period

The average inventory processing period showed a general upward trend from 181 days in 2017, peaking at 228 days in 2019. From that point, it slightly decreased to 182 days by 2022. This indicates an initial lengthening in the time inventory remains before being processed, followed by a gradual improvement towards earlier periods.

Average Receivable Collection Period

The receivable collection period remained relatively stable around the low 40s from 2017 to 2019, then improved significantly, decreasing to 32 days by 2022. This suggests a strengthening in receivables management with faster collections over time, particularly notable from 2020 onwards.

Operating Cycle

The operating cycle lengthened from 225 days in 2017 to a high of 271 days in 2019, mirroring the inventory processing trend. However, it then shortened to 214 days in 2022. This reduction in the operating cycle in recent years reflects improvements in overall operational efficiency, likely driven by reduced inventory holding periods and faster receivables turnover.

Payables Turnover

The payables turnover ratio shows an increasing trend over the analyzed period. Starting at 3.43 in 2017, it rose to 4.18 in 2018, slightly dipped to 4.03 in 2019, then increased steadily to 4.62 in 2020 and 4.65 in 2021, reaching 5.32 in 2022. This suggests an improvement in the company's efficiency in managing and paying off its accounts payable, indicating faster payments to suppliers over time.

Average Payables Payment Period

The average payables payment period, expressed in days, shows a consistent decline from 107 days in 2017 to 69 days in 2022. The most notable decreases occurred between 2017 and 2018 (from 107 to 87 days) and from 2021 to 2022 (79 to 69 days). This pattern corroborates the payables turnover ratio trend, indicating that the company has been progressively shortening the time it takes to pay its suppliers.

Overall Insight

Both key measures of payables management demonstrate a clear trend toward improved payment practices. The increase in payables turnover alongside the reduction in payment days reflects enhanced liquidity management and potentially stronger supplier relationships. The steady acceleration in payments in the latest years may also imply either increased bargaining power or a strategic decision to take advantage of early payment benefits.

Average Inventory Processing Period

The average inventory processing period exhibited an overall increasing trend from 181 days in 2017 to a peak of 228 days in 2019. After this peak, the period decreased steadily to 182 days by 2022, almost returning to the initial 2017 level. This pattern suggests that inventory turnover slowed significantly by 2019 but improved in subsequent years.

Average Receivable Collection Period

The average receivable collection period showed a decreasing trend over the entire timeframe, dropping from 44 days in 2017 to 32 days in 2022. There was a notable dip in 2020 to 37 days followed by recovery in 2021, then a sharper decline in 2022. This indicates an improvement in the efficiency of collecting receivables, especially in the later years.

Average Payables Payment Period

The average payables payment period decreased consistently from 107 days in 2017 to 69 days in 2022, indicating that the company accelerated its payment to suppliers over this period. This shortening may impact cash outflows and could reflect changes in payment policies or supplier terms.

Cash Conversion Cycle

The cash conversion cycle increased from 118 days in 2017 to a high of 180 days in 2019, reflecting a longer time to convert inventory and receivables into cash after paying suppliers. From 2019 onwards, the cash conversion cycle declined, reaching 145 days in 2022. Despite the reduction, the cycle remained significantly longer than at the start of the period. This trend highlights initial challenges in working capital efficiency which somewhat improved in the last three years.

Overall Insights

The data indicates that the company experienced a lengthening in inventory processing and cash conversion cycles until 2019, suggesting slower working capital turnover during this period. However, improvements observed from 2020 onwards, particularly in reducing receivable collection and payables payment periods, contributed to shortening the cash conversion cycle, albeit not to the initial levels. These trends suggest a dynamic management of working capital components with an emphasis on enhancing liquidity and operational efficiency in recent years.