Axon Enterprise Inc. (NASDAQ:AXON)

The analysis of the quarterly financial metrics reveals notable trends and shifts in the company's operational efficiency and liquidity management over the examined periods.

Inventory Turnover

The ratio exhibited an initial increase reaching 5.76 in December 2019, indicating efficient inventory management. However, from 2020 onwards, there was a marked decline to around 2.27 by March 2023, suggesting slower inventory movement and potentially increasing holding costs.

Receivables Turnover

The turnover ratio fluctuated moderately, peaking at 3.99 in June 2021, followed by a decline to lower levels near 2.56-2.61 during 2022, and recovering somewhat to approximately 3.36 by March 2023. This pattern indicates variances in effectiveness of receivables collection over time.

Payables Turnover

This ratio was highly volatile, with very high values such as 39.29 in June 2021, contrasting with lows near 6.02 in June 2020 and around 7.5 in early 2023. These fluctuations imply changes in vendor payment policies or cash position, impacting how quickly payables are settled.

Working Capital Turnover

The ratio generally hovered close to 1.0, peaking at 1.38 in September 2022 but dropping to 0.89 by March 2023. This suggests relative stability in utilizing working capital to generate revenue, though the recent decline may indicate less efficient use.

Average Inventory Processing Period

The average days to process inventory increased significantly from 63 days at the end of 2019 to 161 days by March 2023, reflecting slower inventory turnover corroborating with the declining turnover ratio and pointing to potential inventory management challenges.

Average Receivable Collection Period

The days declined from 125 in March 2019 to a low near 91 in mid-2021, signaling improved collection efficiency during that time. However, the period lengthened to about 143 days in late 2022 before improving again to around 109 days by early 2023, indicating fluctuating credit collection effectiveness.

Operating Cycle

The operating cycle demonstrated considerable variability, dropping from 205 days in early 2019 to 164 days in late 2019, then extending to a peak of approximately 296 days in September 2022 before improving to 270 days by March 2023. This reflects the combined effect of inventory and receivables management on the overall cash-to-cash cycle.

Average Payables Payment Period

The payables payment period increased substantially from 21 days in March 2019 to as high as 61 days in June 2020, followed by fluctuations between 26 and 58 days through subsequent quarters. This trend indicates varying payment terms or cash flow management strategies affecting supplier payments.

Cash Conversion Cycle

The cash conversion cycle generally declined from 184 days in early 2019 to 122 days by the end of 2019, reflecting improved liquidity management. However, it increased again, reaching peaks above 250 days in late 2022, before slightly improving to 222 days by March 2023. These changes highlight the interplay of inventory, receivables, and payables periods in impacting overall cash availability.

Overall, the data suggest a period of operational efficiency improvements up to late 2019, followed by increasing challenges in inventory and receivables management through 2022, with some stabilization in early 2023. The payables turnover and payment period exhibit high volatility, implying dynamic supplier payment conditions, potentially influenced by the company's cash management strategies or external factors impacting trade credit terms.

The quarterly financial data reveals distinct trends in cost of sales, inventory levels, and inventory turnover ratios over the examined periods. These trends suggest evolving operational and sales dynamics.

Cost of Sales

The cost of sales demonstrates an overall upward trajectory from the first quarter of 2019 through the first quarter of 2023. Beginning at approximately $46.9 million in March 2019, the cost experiences fluctuations but generally increases to reach about $139 million by March 2023. Notably, there is a marked spike toward the end of 2019, followed by a temporary dip in mid-2020, and then a consistent rise thereafter. This indicates both growing sales volume or increased production costs over the period.

Inventory

Inventory levels show a rising trend throughout the timeline, displaying significant growth particularly from early 2020 onward. Starting near $37.6 million in March 2019, inventory approximately doubled by mid-2020 and continued to grow substantially, reaching over $220 million by March 2023. This pronounced increase in inventory could reflect accumulation due to increased production, potential supply chain stockpiling, or anticipation of future sales demand.

Inventory Turnover Ratio

The inventory turnover ratio exhibits a declining trend over the analyzed period. Initially around 4.57 in March 2019, it remains above 4 through the end of 2019 before dropping sharply to below 3 in 2020 and stabilizing generally between 2.2 and 3 thereafter. The declining ratio indicates that inventory is turning over less frequently relative to previous years, which might suggest slower sales velocity or increased inventory holding periods. This aligns with the observed growth in inventory levels outpacing cost of sales increases.

Overall, the data suggests that while sales and production costs have grown, the company has accumulated inventory at a faster pace than it has been able to sell these goods. The decreasing inventory turnover ratio points to potential challenges in inventory management or shifts in market demand. Continuous monitoring is advised to assess whether inventory growth is strategic in anticipation of demand or indicative of slowing sales.

The quarterly financial data reveals several notable trends in the company’s net sales, accounts and notes receivable, and receivables turnover ratio over the observed periods.

Net Sales

Net sales showed a general upward trajectory across the quarters. Beginning at approximately $115.8 million in March 2019, sales fluctuated moderately through 2019 and early 2020 but experienced significant growth in the latter half of 2020, reaching $226.1 million by December 2020. The upward trend continued through 2021 and 2022, peaking at $343.0 million by the first quarter of 2023. This consistent increase reflects robust revenue growth and potentially expanding market demand or improved sales strategies in recent periods.

Accounts and Notes Receivable, Net of Allowance

The accounts and notes receivable balance generally increased over time, starting at $149.1 million in March 2019 and rising steadily with some fluctuations, reaching a peak of $418.3 million in September 2022 before slightly decreasing in the subsequent quarters. The increase in receivables corresponds with rising sales, indicating that the company has extended more credit to customers or experienced longer collection periods. The slight decrease observed towards early 2023 may suggest improved collections or tighter credit policies.

Receivables Turnover Ratio

The receivables turnover ratio fluctuated noticeably during the analyzed timeframe. Initially around 2.9-3.3 times in 2019, it improved to a peak of nearly 3.8-3.9 in mid-2020 and mid-2021, signifying faster collections or higher efficiency in managing receivables during these periods. However, the ratio then declined sharply to a low of approximately 2.56 in September 2022, coinciding with the highest receivables balance, and climbed again to 3.36 by March 2023. These movements indicate varying collection efficiency; a lower turnover ratio in late 2022 suggests slower payments from customers, while the recovery in early 2023 implies a return to more effective receivables management.

Cost of Sales

The cost of sales shows a generally increasing trend over the analyzed periods. Starting at approximately $46.9 million in the first quarter of 2019, it exhibits fluctuations with a noticeable peak reaching over $84.8 million by the end of 2020. Subsequently, there is steady growth across 2021 and 2022, culminating in nearly $139 million by the first quarter of 2023. This indicates an expansion in operational scale or increased input costs over time.

Accounts Payable

Accounts payable displays substantial variability across the periods. Early values oscillate around the $9.9 million to $25.9 million range in 2019, with a significant rise starting in the first quarter of 2020, reaching peaks above $40 million mid-2020. Afterwards, the metric fluctuates but remains elevated compared to 2019 levels, with values ranging approximately from $19.8 million to $65.9 million by early 2023. The overall pattern suggests increasing purchasing activities or extended vendor credit terms over time.

Payables Turnover Ratio

The payables turnover ratio generally declines from a high of 20.12 in the second quarter of 2019 to much lower levels around 6.0 to 8.0 during 2022 and into early 2023. Notably, there is a sharp spike to 39.29 in the second quarter of 2021, which appears as an outlier relative to surrounding periods. This decline in ratio over time typically indicates slower payment cycles or longer credit periods taken by the company, although the volatility and outlier figure suggest some irregularities or specific events impacting payment behavior.

Overall Insights

The data reflect a company experiencing growth in operational expenses as evidenced by increasing cost of sales, which is accompanied by rising accounts payable balances. The decreasing trend in payables turnover ratio indicates a shift toward slower payments to suppliers, potentially improving short-term liquidity but possibly affecting supplier relations. The outlier spike in payables turnover suggests that certain quarters may have experienced unusual payment patterns. Monitoring these relationships and the underlying causes is advisable to ensure sustainable financial management.

Working Capital

The working capital exhibits a generally increasing trend over the analyzed periods. Starting from approximately $403 million in early 2019, it rose steadily with some fluctuations and peaked at around $1.44 billion by the first quarter of 2023. Notably, there was a sharp increase between late 2022 and early 2023, indicating an accumulation of current assets over current liabilities during this period.

Net Sales

Net sales show a positive growth trajectory throughout the time frame. Beginning at approximately $116 million in the first quarter of 2019, net sales rose consistently, reaching over $343 million by early 2023. Despite some seasonal fluctuations, overall sales nearly tripled, reflecting substantial revenue growth. The growth was relatively steady, with no significant declines.

Working Capital Turnover Ratio

The working capital turnover ratio fluctuated over the period, reflecting variation in the efficiency of using working capital to generate sales. Initially, the ratio increased from 1.08 to a peak of around 1.33 by early 2020, indicating improved efficiency. However, it dropped significantly mid-2020 to below 1.0, reaching a low of about 0.92, signaling reduced efficiency possibly due to increased working capital or lower sales. The ratio recovered to above 1.3 by early 2022, showing improved utilization. In 2023, the turnover ratio declined again to below 1.0, reaching approximately 0.89, which suggests that despite higher sales, the growth in working capital outpaced sales, resulting in less efficient use of capital.

Summary

The data indicates robust growth in both working capital and net sales, with net sales increasing substantially over the examined period. However, the efficiency of working capital usage has fluctuated, showing periods of both improvement and decline. The recent decline in the working capital turnover ratio alongside increased working capital may warrant a review of asset management and working capital strategies to optimize capital utilization amidst growing sales.

The inventory turnover ratio for the company exhibited notable fluctuations over the period analyzed. Initially, the ratio remained relatively stable around the mid-4 range from early 2019 to the end of that year, reaching a peak at 5.76 in December 2019. However, from early 2020 onwards, the turnover ratio demonstrated a declining trend, dropping sharply in mid-2020 to below 3. This lower turnover persisted through to 2023, dipping gradually from approximately 3.10 at the start of 2021 to 2.27 by March 2023.

Conversely, the average inventory processing period, which is inversely related to the inventory turnover ratio, showed an opposite trend. During 2019, the average processing period shortened from 80 days in March to a minimum of 63 days in December. Beginning in 2020, the processing period extended significantly, increasing sharply to 138 days by September 2020 and maintaining elevated levels thereafter. The upward trend continued through subsequent years, peaking at 161 days in March 2023.

Inventory Turnover Ratio Trends

The ratio was stable around 4.5 to 5.7 in 2019, indicating efficient inventory movement.

There was a sharp decline starting in early 2020, with a sustained lower turnover ratio around 2.3 to 3.5 through 2021 and beyond.

The declining turnover ratio suggests a slowdown in inventory sales speed or increased inventory holdings.

Average Inventory Processing Period Trends

A decreasing trend was observed throughout 2019, with the period as low as 63 days at year-end, reflecting improved inventory efficiency.

Beginning in 2020, the processing period extended significantly, more than doubling to approximately 160 days by early 2023.

The increased processing period indicates slower inventory movement, potentially due to lower sales demand, operational delays, or strategic stockpiling.

Overall Insights

The inverse relationship between inventory turnover and processing period is clearly apparent, with efficiency metrics deteriorating post-2019.

The shifts may reflect external challenges or changes in operational strategy affecting inventory management.

Continued monitoring is recommended to assess if the trend stabilizes or worsens, impacting working capital and liquidity.

Receivables Turnover Ratio

The receivables turnover ratio exhibited fluctuations across the analyzed quarters. Initially, it increased from 2.92 to a peak of 3.83 in mid-2020, indicating improved efficiency in collecting receivables. After that peak, the ratio showed a declining trend through the end of 2021, reaching a low of 2.56. This suggests a slowdown in collection efficiency during that period. However, starting in early 2022, the ratio began to recover, rising to 3.36 by March 2023, demonstrating a renewed enhancement in receivables management.

Average Receivable Collection Period

The average receivable collection period generally moved inversely to the receivables turnover ratio. At the beginning of the timeframe, the collection period decreased from 125 to 95 days by mid-2020, consistent with the improvement in turnover. Afterwards, the collection period increased notably, reaching a maximum of 143 days in late 2022, which aligns with the observed dip in turnover ratio, indicating slower payments from customers. By the most recent quarter, this period decreased again to 109 days, suggesting an acceleration in collection efficiency.

Overall Trends and Insights

There is a clear inverse relationship between the receivables turnover and average collection period, as expected. The data reflects periods of strengthened receivables management efficiency particularly around mid-2020 and early 2023. Conversely, there was a notable weakening in efficiency throughout 2021 extending into 2022. The recent recovery suggests that the company has potentially improved its credit control or collection processes after a phase of slower collections. Monitoring these metrics going forward is advisable to ensure continued improvements and to identify any early signs of inefficiencies.

The analysis of the quarterly financial data reveals notable trends and fluctuations in the company's working capital management over the observed period.

Average Inventory Processing Period

This metric exhibited a fluctuating yet generally increasing trend. It began at 80 days in the first quarter of 2019 and decreased to a low of 63 days by the end of that year, indicating improved inventory turnover. However, starting in 2020, the period increased significantly, reaching peaks above 150 days in late 2022 and early 2023. This upward movement suggests a longer time to process inventory, potentially reflecting challenges in inventory management or shifts in demand and supply chain dynamics during this period.

Average Receivable Collection Period

The average time to collect receivables initially decreased somewhat from 125 days in early 2019 to about 91 days by mid-2021, indicating improved efficiency in receivables collection. Despite this improvement, from late 2021 to late 2022, a marked increase occurred, with the period extending to around 143 days, which may point to looser credit policies or difficulties in collecting payments during that timeframe. Notably, in the first quarter of 2023, there was a rapid reduction back to about 109 days, suggesting a recovery in collection efficiency.

Operating Cycle

The operating cycle, which combines inventory processing and receivables collection periods, showed substantial variability. It dropped from 205 days in early 2019 to a low of 164 days by the end of that year, reflecting enhanced working capital turnover. Subsequently, the cycle lengthened sharply, peaking at over 290 days in the first three quarters of 2022, indicating slower conversion of investments into cash. By early 2023, a slight improvement was noted, stabilizing around 270 days, though still elevated relative to earlier years. This suggests that overall operational liquidity efficiency deteriorated in 2020 and 2021, with some signs of stabilization but not full recovery as of the latest quarter.

In summary, the company exhibited improvements in operational efficiency during 2019, but faced considerable delays in both inventory processing and receivables collection starting in 2020. These delays contributed to a significantly extended operating cycle, which may impact cash flow and liquidity. Recent quarters indicate attempts at recovery, particularly in receivables collection, but inventory turnovers remain prolonged, necessitating attention to inventory and credit management strategies.

Payables Turnover Ratio

The payables turnover ratio exhibits notable fluctuations over the time periods analyzed. Initially, the ratio was relatively high at 17.4 in early 2019, reaching a peak of 20.12 in June 2019, before declining sharply to a low point of 6.02 in mid-2020. Subsequently, the ratio rose again to intermediate levels around 10 to 14 for several quarters.

A particularly high spike occurred in June 2021, where the ratio surged to 39.29, which is an outlier compared to other values. Following this spike, the ratio returned to figures closer to historical mid-range values between 6 and 12 for the remaining periods. Towards the end of the series in early 2023, the turnover ratio stabilized at a relatively low level near 7.5.

Average Payables Payment Period

The average payables payment period displays an inverse pattern relative to the payables turnover ratio, as expected. The payment period started at 21 days in early 2019, decreased to 18 days by mid-2019, then sharply increased to 61 days by mid-2020, indicating slower payments to suppliers during that period.

After mid-2020, the payment period shortened somewhat, dropping to a minimum of 9 days in June 2021, coinciding with the spike in payables turnover, before rising again to values between 31 and 58 days through 2022 and into early 2023. The payment period ended near 48 days in the latest quarter, suggesting a more extended payment cycle compared to earlier years.

Overall Trends and Insights

The data reflects considerable variability in the company's payables management over the examined quarters. The payables turnover ratio and average payment period demonstrate an inverse relationship, consistent with normal financial behavior.

The significant peak in turnover and concurrent dip in payment days during mid-2021 may indicate an unusual event or strategic adjustment in accounts payable processes, resulting in accelerated payments.

More generally, the trend from 2019 through mid-2020 suggests a gradual lengthening of payment periods and reduction in turnover rates, which may imply efforts to optimize cash flow by extending payables. The subsequent fluctuations indicate a phase of adjustment or response to changing operational or market conditions.

By early 2023, the payment period remains longer than in 2019, possibly suggesting a sustained strategy to balance cash outflows with operational needs. The absence of a clear trend towards shortening payment terms may warrant attention if supplier relationships or credit terms become impacted.

The financial data reveals critical trends in the company's working capital management over several quarters. The key indicators analyzed are the average inventory processing period, average receivable collection period, average payables payment period, and the cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period showed some volatility and a noticeable upward trend over the timeframe. Starting from 80 days in early 2019, it dipped slightly by the end of that year but then increased significantly to reach 161 days by the first quarter of 2023. This lengthening period suggests that the company is taking more time to turn over inventory, which may indicate slower sales or increased stock levels.

Average Receivable Collection Period

The average receivable collection period initially declined from 125 days in the first quarter of 2019 to a low of 91 days in mid-2021, implying improved efficiency in collecting receivables. However, it then extended again, reaching a peak of 143 days in the third quarter of 2022 before decreasing slightly towards the latest quarter to 109 days. This pattern indicates some fluctuations in how quickly the company converts credit sales into cash, with recent improvements after a period of slower collections.

Average Payables Payment Period

The payment period for accounts payable experienced variability, starting low at 21 days in early 2019, rising to a peak of 61 days by mid-2020, then falling sharply by mid-2021 to 9 days, which implies a quicker payment cycle during that period. Later, the payment period increased again, stabilizing around the mid-to-high 40s days by early 2023. The fluctuations suggest shifts in the company’s payment policies or cash management strategies, potentially balancing supplier relationships with cash flow considerations.

Cash Conversion Cycle

The cash conversion cycle (CCC) portrays the net effect of the above components and indicates how long cash is tied up in the operating cycle. The CCC decreased from 184 days in Q1 2019 to a low of 120 days by Q2 2020, demonstrating improved overall working capital efficiency. However, it then rose sharply to peak at 252 days in Q3 2022 before receding slightly to 222 days by Q1 2023. This extended cash conversion cycle towards the end of the period suggests increased capital tied up in inventory and receivables, offset only partly by payment terms with suppliers.

Overall, the analysis highlights a trend of increasing inventory holding periods combined with fluctuating but extended receivables collection, resulting in a prolonged cash conversion cycle in recent quarters. This pattern may indicate challenges in inventory turnover and cash inflows from customers, potentially pressuring liquidity. The company’s adjustments in payment periods suggest efforts to manage cash outflows in response to these working capital dynamics.