Axon Enterprise Inc. (NASDAQ:AXON)

The company's financial performance exhibits significant fluctuations over the analyzed period. The net operating profit after taxes (NOPAT) demonstrated an initial decline from 2018 to 2019, dropping sharply from 78,057 thousand US dollars to 17,857 thousand US dollars. This was followed by a partial recovery in 2020 and 2021, with NOPAT reaching 51,762 thousand and 38,523 thousand US dollars, respectively. However, there was a substantial increase in 2022, with NOPAT surging to 326,174 thousand US dollars, indicating a strong operational improvement in the most recent year.

The cost of capital remained relatively stable throughout the period, fluctuating slightly between 12.86% and 12.88% from 2018 to 2021, before decreasing modestly to 12.34% in 2022. This slight reduction in cost of capital in 2022 could reflect a change in the company’s financial strategy or market conditions that lowered the required return rate.

Invested capital showed a general upward trend, with some volatility. It decreased from 631,660 thousand US dollars in 2018 to 500,291 thousand US dollars in 2019, then increased significantly in the following years, reaching 1,607,800 thousand US dollars by the end of 2022. This expansion indicates increased asset base or capital deployment over the years, potentially to support growth or operational enhancements.

Regarding economic profit, the company experienced negative values consistently from 2018 through 2021, with the deficit deepening over time. Specifically, economic profit was -3,155 thousand US dollars in 2018 and worsened to -124,102 thousand US dollars by 2021. This trend reflects that the company was not generating returns above its cost of capital for several years. However, in 2022, there was a notable reversal, with economic profit becoming positive at 127,786 thousand US dollars, highlighting a significant value creation during that year.

In summary, the company faced operational and profitability challenges between 2019 and 2021, as evidenced by declining NOPAT and persistent negative economic profit. The invested capital increased markedly during the same period, which might have exerted pressure on returns. In contrast, 2022 presented a strong turnaround with marked improvements in profitability and economic profit, supported by a slight reduction in the cost of capital and a larger asset base. This suggests an enhanced efficiency in capital utilization and increased value generation in the most recent year.

Net Operating Profit After Taxes (NOPAT)

Substantial decline in 2019, partial recovery in 2020-2021, significant surge in 2022.

Cost of Capital

Stable around 12.8% until 2021; decreased moderately to 12.34% in 2022.

Invested Capital

Decreased in 2019, followed by consistent and substantial growth through 2022.

Economic Profit

Negative from 2018 to 2021 with increasing losses; positive and strong in 2022.

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 Trends

The economic profit exhibited considerable volatility over the observed period. Initially, there was a negative economic profit of -3,155 thousand US dollars at the end of 2018, which deepened to -46,601 thousand in 2019. Although 2020 saw a slight improvement to -41,354 thousand, the loss increased again in 2021 to -124,102 thousand. Notably, in 2022, economic profit turned positive to 127,786 thousand, indicating a significant turnaround in the company's profitability.

Invested Capital Progression

Invested capital demonstrated a generally upward trajectory throughout the five-year period. Starting at 631,660 thousand US dollars in 2018, it decreased in 2019 to 500,291 thousand, suggesting a reduction in capital investment or asset base. From 2019 onward, there was consistent growth, with invested capital rising to 722,746 thousand in 2020, then sharply increasing to 1,262,920 thousand in 2021, and further to 1,607,800 thousand in 2022. This reflects a substantial expansion of the company's asset base or reinvestment of earnings.

Economic Spread Ratio Analysis

The economic spread ratio, which measures the return relative to the cost of capital, mirrored the fluctuations seen in economic profit. It was slightly negative at -0.5% in 2018, then significantly deteriorated to -9.31% in 2019. Although there was partial recovery in 2020 to -5.72%, the ratio worsened again to -9.83% in 2021. In 2022, the ratio improved markedly to a positive 7.95%, indicating that the returns on invested capital finally exceeded the associated costs, aligning with the switch to positive economic profit.

Summary and Insights

Over the examined period, the company experienced initial financial challenges characterized by negative economic profit and spread ratios, despite growing invested capital after the dip in 2019. The expanding invested capital base may have contributed to the worsening economic profit as capital was deployed but returns initially lagged. However, the turnaround in 2022, with positive economic profit and economic spread ratio, suggests successful initiatives or operational improvements leading to more efficient capital utilization and enhanced profitability. This shift indicates strengthening financial health and value creation for stakeholders by the end of the period.

The financial data reveals several notable trends over the five-year period ending December 31, 2022.

Adjusted Net Sales

There is a consistent and substantial growth in adjusted net sales, increasing from approximately $476.2 million in 2018 to about $1.347 billion in 2022. This represents nearly a threefold increase in sales revenue over the period, highlighting strong top-line expansion.

Economic Profit

Economic profit figures show significant volatility. From a slight negative economic profit of approximately −$3.2 million in 2018, the company experienced steeply increasing economic losses in subsequent years, reaching a peak loss of about −$124.1 million in 2021. However, in 2022 there was a marked turnaround, with economic profit turning positive to approximately $127.8 million.

Economic Profit Margin

The economic profit margin follows a similar trajectory to the absolute economic profit values. Starting slightly negative at −0.66% in 2018, it deteriorated over time, hitting a low of −11.94% in 2021. The margin then sharply improved in 2022 to a positive 9.49%, indicating a stronger conversion of sales into economic profit during the most recent year.

Overall, despite robust growth in sales over the five years, the company struggled with negative economic profits and margins until 2022. The turnaround in economic profit and margin in 2022 after several years of losses suggests a significant improvement in operational efficiency, cost control, or value creation, resulting in enhanced profitability. This change represents a key positive development and may signal a sustainable shift in the company’s financial performance trajectory.