Axon Enterprise Inc. (NASDAQ:AXON)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes experienced a sharp decline from 78,057 thousand US dollars in 2018 to 17,857 thousand in 2019. Subsequently, there was an increase to 51,762 thousand in 2020, followed by a decrease to 38,523 thousand in 2021. In 2022, the NOPAT showed a significant surge to 326,174 thousand, indicating a substantial improvement in operating profitability.

Cost of Capital

The cost of capital remained relatively stable over the period, fluctuating slightly around 12.89% to 12.92% from 2018 to 2021. In 2022, the cost of capital decreased marginally to 12.37%, which could contribute positively to value creation.

Invested Capital

The invested capital showed considerable variation, decreasing from 631,660 thousand US dollars in 2018 to 500,291 thousand in 2019. Thereafter, it rose significantly to 722,746 thousand in 2020, then nearly doubled to 1,262,920 thousand in 2021, and increased further to 1,607,800 thousand in 2022. This indicates a strategy of substantial capital investment in recent years.

Economic Profit

The economic profit was negative throughout most of the period, starting at -3,353 thousand in 2018 and worsening progressively to -46,758 thousand in 2019, -41,581 thousand in 2020, and -124,497 thousand in 2021. A notable turnaround occurred in 2022, when economic profit shifted to a positive 127,305 thousand, reflecting the combined effects of increased operating profit and relatively stable cost of capital amid rising invested capital.

Net Income (Loss)

The company experienced significant fluctuations in net income over the analyzed period. Starting with a substantial net income of $29,205 thousand in 2018, there was a sharp decline to $882 thousand in 2019, followed by a transition into losses in 2020 and 2021, with amounts of -$1,724 thousand and -$60,018 thousand, respectively. In 2022, the company reversed this trend dramatically, recording a significant net income of $147,139 thousand. This volatility indicates periods of financial difficulty followed by a substantial recovery and profitability improvement in the most recent year.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a somewhat different pattern, though it also showed variability. The value started at $78,057 thousand in 2018 and then decreased considerably to $17,857 thousand in 2019. In 2020, NOPAT increased to $51,762 thousand, suggesting operational profitability improvement despite the net loss reported that year. A decline occurred again in 2021 to $38,523 thousand; however, a substantial increase to $326,174 thousand was evident in 2022. This increase in 2022 indicates enhanced operational efficiency and profitability on an after-tax basis.

Overall Trends and Insights

The data reveal a period of instability between 2018 and 2021, characterized by fluctuating and often negative net income, contrasted with positive but volatile NOPAT values. The divergence between net income and NOPAT especially during 2020 and 2021 suggests that non-operating factors or extraordinary charges may have negatively impacted net income. The strong recovery in 2022 across both net income and NOPAT points to improved financial health, possibly driven by operational improvements or a favorable change in the cost or revenue structure. The considerable growth in 2022 in both metrics reflects a pivotal turnaround likely resulting from strategic adjustments or market conditions.

Provision for income taxes (income tax benefit)

Over the five-year period, the provision for income taxes exhibited significant volatility and fluctuation. Initially, there was a negative provision in 2018, indicating an income tax benefit of 1,101 thousand US dollars. This turned positive in 2019, reaching 1,188 thousand US dollars, followed by another shift back to a negative provision in 2020 at -4,567 thousand US dollars. The most pronounced change occurred in 2021 with a substantial negative provision amounting to -81,357 thousand US dollars, suggesting a major income tax benefit that year. However, in 2022, the provision reversed to a positive figure of 49,379 thousand US dollars.

Cash operating taxes

Cash operating taxes demonstrated a generally increasing trend over the analyzed period, with a pronounced exception in 2021. Starting at 7,666 thousand US dollars in 2018, the amount increased steadily to 9,266 thousand US dollars in 2019 and further to 12,034 thousand US dollars in 2020. In 2021, there was a sharp decline, with cash operating taxes reported as negative 851 thousand US dollars, indicating a cash inflow or refund situation. Subsequently, in 2022, the cash operating taxes surged significantly to 27,888 thousand US dollars, more than doubling the previous peak.

The financial data reveals several notable trends in the company's capital structure and financial positioning over the five-year period ending in 2022.

Total Reported Debt & Leases

There is a relatively stable and moderate level of debt from 2018 through 2021, fluctuating between approximately 10.6 million and 27 million USD. However, in 2022, this figure experiences a dramatic increase to over 717 million USD. This sharp rise indicates a significant change in the company's financing strategy or capital structure, suggesting either a substantial new borrowing, lease obligation, or financial arrangement undertaken in the latest period.

Stockholders’ Equity

Stockholders' equity shows steady growth throughout all years, moving from around 467 million USD in 2018 to approximately 1.27 billion USD in 2022. The increase suggests consistent retention of earnings or capital injections, strengthening the company's net worth and reflecting profitable operations or equity financing activities.

Invested Capital

Invested capital fluctuates during the initial years, decreasing from roughly 632 million USD in 2018 to 500 million USD in 2019, then rising again to 723 million USD in 2020. From 2020 onward, invested capital increases significantly, peaking at approximately 1.61 billion USD by the end of 2022. This upward trend illustrates increased capital employed in the business, likely fuelled by the substantial growth in reported debt and equity, indicating expanded operational scale or investment in long-term assets.

Overall, the data suggests a period of gradual growth and stability up to 2021, followed by a marked increase in financial leverage and total capital employed in 2022. The spike in reported debt and leases may raise considerations regarding risk and debt service capacity, while the ongoing growth in equity and invested capital reflects a larger asset base and potentially heightened business activities.

Economic Profit Trend

The economic profit exhibited a negative trend from 2018 to 2021, starting at -3,353 thousand US dollars and deteriorating significantly to -124,497 thousand US dollars by 2021. In 2022, the company reversed this trend, reporting a positive economic profit of 127,305 thousand US dollars.

Invested Capital Growth

Invested capital showed an overall increasing pattern over the period analyzed. Beginning at 631,660 thousand US dollars in 2018, it decreased to 500,291 thousand US dollars in 2019 but then increased substantially from 2020 onward, reaching 1,607,800 thousand US dollars in 2022. This growth indicates a considerable expansion of the company's asset base.

Economic Spread Ratio Movement

The economic spread ratio was negative throughout 2018 to 2021, with values worsening from -0.53% in 2018 to -9.86% in 2021, signaling inefficiency in generating returns above the cost of capital. The ratio improved markedly in 2022, turning positive at 7.92%, which corresponds with the positive economic profit reported that year.

Overall Observations

The company demonstrated significant operational challenges from 2018 to 2021 as reflected by negative and worsening economic profit and economic spread ratios. However, the marked improvement in 2022 reveals a turnaround, with profitability and return on invested capital turning positive. The steady increase in invested capital from 2019 onward suggests investments or acquisitions that may have contributed to this financial improvement.

Adjusted net sales

The adjusted net sales exhibited a consistent upward trajectory over the period examined. Beginning at approximately $476 million at the end of 2018, the figure increased steadily each year, reaching about $1.35 billion by the end of 2022. This represents nearly a threefold growth, signaling robust revenue expansion throughout the timeframe.

Economic profit

The economic profit showed significant volatility. Initially, the company experienced negative economic profit, starting with a modest loss of about $3.35 million in 2018. This loss deepened substantially in 2019 and 2021, peaking at approximately negative $124 million in 2021. Despite these substantial deficits in several years, the company realized a positive economic profit of around $127 million by the end of 2022, marking a notable turnaround from earlier losses.

Economic profit margin

The economic profit margin mirrored the fluctuations seen in economic profit. It was negative for four out of the five years assessed, starting at -0.7% in 2018 and worsening to as much as -11.98% in 2021. However, in 2022, there was a marked improvement, with the margin turning positive to 9.45%, which aligns with the recovery reflected in the absolute economic profit figure.

Overall trends and insights

The sales growth trend suggests effective revenue generation efforts and market expansion. However, the persistent negative economic profit and margin for most of the period indicate that the company faced considerable challenges in converting sales growth into economic value, potentially due to high costs, inefficiencies, or investments that constrained profitability. The significant positive shift in economic profit and margin in 2022 suggests that either operational efficiencies improved, costs were controlled more effectively, or the company’s investments began yielding returns. This improvement points to a potential turning point where growth in sales is beginning to translate into sustainable economic profitability.