DexCom Inc. (NASDAQ:DXCM)

The financial performance, as measured by economic value added (EVA) metrics, demonstrates a significant shift over the five-year period. Initially, the organization experienced substantial economic losses, followed by a period of profitability, and then a return to negative economic profit before concluding with positive economic profit in the most recent year.

Net Operating Profit After Taxes (NOPAT)

NOPAT began at a loss of US$115.44 million in 2018, then increased substantially to a profit of US$150.33 million in 2019. This positive trend continued with further growth to US$294.09 million in 2020, before decreasing to US$233.04 million in 2021. NOPAT experienced a further increase in 2022, reaching US$352.45 million. This indicates improving operational efficiency and profitability over the period, despite the fluctuation in 2021.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 17.88% and 18.22%. A slight increase was observed from 2018 to 2020, followed by a slight decrease in 2021 and 2022. The consistency suggests a stable risk profile and financing structure for the organization.

Invested Capital

Invested capital decreased significantly from US$1.45 billion in 2018 to US$836.30 million in 2019. It then increased to US$1.37 billion in 2020 and further to US$1.90 billion in 2021. A decrease was observed in 2022, with invested capital falling to US$1.65 billion. These fluctuations may reflect changes in capital expenditure, asset sales, or financing activities.

Economic Profit

Economic profit began at a loss of US$374.499 million in 2018, indicating that returns were insufficient to cover the cost of capital. The loss narrowed considerably to US$0.587 million in 2019, and turned positive in 2020, reaching US$45.026 million. However, economic profit became negative again in 2021, resulting in a loss of US$107.770 million. Finally, economic profit recovered to US$57.390 million in 2022. The pattern suggests periods of value creation interspersed with periods where returns did not exceed the cost of capital.

The organization’s ability to generate economic profit appears sensitive to changes in NOPAT and invested capital. While NOPAT generally increased over the period, fluctuations in invested capital and the relatively stable cost of capital contributed to the volatility in economic profit. The positive economic profit in 2020 and 2022 suggests successful periods of value creation, but the negative economic profit in 2018 and 2021 indicate areas for potential improvement in capital allocation or operational performance.

The financial data over the five-year period reveals several notable trends in profitability metrics.

Net Income (Loss)

The net income (loss) shows a significant transition from a negative figure in 2018 to positive values in subsequent years. In 2018, the company reported a net loss of approximately US$127.1 million. In 2019, net income turned positive, reaching US$101.1 million, indicating a substantial improvement.

The growth trend continued strongly with net income rising to US$493.6 million in 2020, representing the highest value within the observed period. However, in 2021, net income decreased to US$154.7 million, indicating a contraction compared to the previous year. In 2022, net income rebounded materially to US$341.2 million, suggesting recovery and sustained profitability despite some volatility.

Net Operating Profit After Taxes (NOPAT)

The NOPAT data parallels the net income trend but displays some differences in magnitude and yearly variation. In 2018, NOPAT was negative at approximately US$115.4 million, consistent with the net loss reported that year.

From 2019 onward, NOPAT remained positive, increasing from US$150.3 million in 2019 to US$294.1 million in 2020. Unlike net income, NOPAT decreased less sharply in 2021, recording US$233 million, reflecting a smaller decline compared to net income's sharper fall in the same period.

In 2022, NOPAT increased further to US$352.5 million, reaching its highest value during the period and indicating enhanced operational efficiency and profitability after taxes.

Overall, the data suggests the company experienced a turnaround starting in 2019, moving from losses to profits. The peak in profitability occurred in 2020, followed by a decline in 2021, then a recovery in 2022. The NOPAT figures indicate that operational profitability after taxes has generally improved, and although fluctuations exist, the trend is positive, with 2022 reflecting stronger operational results than previous years. These patterns may indicate strategic or operational improvements that influenced earnings performance and operational efficiency over the period.

Provision for (benefit from) income taxes

The provision for income taxes demonstrates considerable volatility over the five-year period. Initially, it was a modest positive figure of 600 thousand US dollars at the end of 2018, increasing significantly to 3,100 thousand US dollars by the end of 2019. In 2020, the provision shifted dramatically to a large tax benefit of -268,600 thousand US dollars, marking a substantial reversal. Following this, the provision reverted to positive values, reporting 19,200 thousand US dollars in 2021 and further rising to 49,600 thousand US dollars in 2022. The notable negative provision in 2020 suggests an exceptional tax event or adjustment during that year.

Cash operating taxes

Cash operating taxes have exhibited a consistent upward trajectory throughout the five years. Starting at 8,239 thousand US dollars in 2018, the cash outflow more than doubled by 2019 to 16,466 thousand US dollars. This trend of increasing cash tax payments continued steadily, reaching 27,729 thousand US dollars in 2020, 46,414 thousand US dollars in 2021, and finally 76,556 thousand US dollars in 2022. The persistent growth in cash operating taxes indicates increasing taxable income or changes in tax policy resulting in higher cash tax obligations.

The financial data over the five-year period reveals several notable trends in the company’s debt, equity, and invested capital.

Total Reported Debt & Leases

This metric shows a consistent upward trend, increasing from approximately $1.08 billion in 2018 to about $2.15 billion in 2022. The most significant jump occurs between 2019 and 2020, where the debt rose by roughly 59%, then continued growing at a steadier pace through 2022. This indicates increasing leverage and possibly expanding financing commitments or capital expenditures funded by debt.

Stockholders’ Equity

Stockholders’ equity also experienced growth from 2018 through 2021, rising sharply from approximately $663 million to $2.25 billion. However, in 2022, equity declined by around 5% to approximately $2.13 billion. The substantial increase up to 2021 suggests successful retention of earnings or capital infusion, while the slight downturn in 2022 might point to losses, dividend payments, or other equity-reducing transactions during that year.

Invested Capital

Invested capital demonstrates a more volatile pattern over the period. After starting at about $1.45 billion in 2018, it dropped substantially by 2019 to $836 million, a decrease of over 40%. This was followed by a recovery and growth to approximately $1.9 billion in 2021, before declining again to $1.65 billion in 2022. These fluctuations could reflect changes in the mix of debt and equity financing, asset acquisitions or disposals, or shifts in working capital components.

Overall, the data indicates increasing reliance on debt with growing total reported debt and leases, balanced by a rise in equity up to 2021. The fluctuations in invested capital suggest dynamic capital management strategies, potentially responding to operational needs or market conditions. The slight decline in equity and invested capital in 2022 may warrant further analysis to determine underlying causes and implications for financial stability and investment capacity.

The economic spread ratio exhibited considerable fluctuation between 2018 and 2022. Initially negative, the ratio demonstrated improvement before declining again, ultimately returning to a positive value by the end of the analyzed period. This movement correlates with changes in economic profit and invested capital.

Economic Spread Ratio Trend

In 2018, the economic spread ratio was -25.84%, indicating a substantial shortfall in returns relative to the cost of capital. A significant improvement occurred in 2019, with the ratio increasing to -0.07%, suggesting a near-breakeven performance. The ratio turned positive in 2020, reaching 3.29%, demonstrating that returns exceeded the cost of capital. However, this positive trend was reversed in 2021, with the ratio falling to -5.67%. The ratio recovered somewhat in 2022, ending at 3.48%, a level comparable to that of 2020.

The economic spread ratio’s volatility suggests sensitivity to underlying economic profit performance. The fluctuations in invested capital, while substantial, do not appear to be the primary driver of the ratio’s changes, as the economic profit experienced more dramatic swings. The company’s ability to generate economic profit appears to be a key determinant of its economic spread ratio.

Relationship to Economic Profit

The economic spread ratio’s negative values in 2018 and 2021 directly correspond with negative economic profit figures for those years. Conversely, positive economic profit in 2020 and 2022 aligns with positive economic spread ratios. This strong correlation indicates that the economic spread ratio accurately reflects the company’s success in generating returns above its cost of capital.

The invested capital figures show an initial decrease from 2018 to 2019, followed by increases in 2020 and 2021, and a subsequent decrease in 2022. Despite these changes in invested capital, the economic spread ratio’s primary driver appears to be the economic profit, as evidenced by the consistent relationship between the two metrics.

The economic profit margin exhibited considerable fluctuation between 2018 and 2022. Initially negative, the margin improved significantly before declining again, ultimately stabilizing near 2% in the most recent year examined.

Economic Profit Margin Trend

In 2018, the economic profit margin stood at -36.31%. This indicates a substantial shortfall between returns generated and the cost of capital employed. A dramatic improvement occurred in 2019, with the margin increasing to -0.04%, suggesting a near-breakeven performance. The year 2020 saw a positive margin of 2.34%, representing the first period of economic value creation. However, this positive trend was reversed in 2021, with the margin falling to -4.40%. Finally, in 2022, the economic profit margin recovered to 1.96%, indicating a return to positive, albeit modest, economic profit.

The economic profit margin’s movement closely mirrors the changes in economic profit. The substantial negative economic profit in 2018 contributed to the large negative margin. The subsequent reduction in economic profit negativity in 2019 led to a corresponding improvement in the margin. The positive economic profit in 2020 drove the margin into positive territory, while the return to negative economic profit in 2021 pulled the margin back down. The positive economic profit in 2022 resulted in a positive, though lower than 2020, margin.

Relationship to Adjusted Revenue

Adjusted revenue consistently increased throughout the period, rising from US$1,031,300 thousand in 2018 to US$2,920,700 thousand in 2022. Despite this revenue growth, the economic profit margin did not consistently benefit. The margin’s volatility suggests that factors beyond revenue, such as cost of capital and operational efficiency, significantly impacted economic value creation. The increasing revenue did not always translate into increasing economic profit, as evidenced by the decline in margin from 2020 to 2021 despite continued revenue growth.

Overall, the economic profit margin demonstrates a complex pattern. While revenue increased steadily, the ability to generate economic profit, and therefore a positive margin, was inconsistent. Further investigation into the underlying drivers of cost of capital and operational performance would be necessary to understand the fluctuations in economic profit margin.