Shockwave Medical Inc. (NASDAQ:SWAV)

The financial performance, as measured by economic profit, demonstrates a significant shift over the observed period. Initially, the company experienced substantial economic losses, which gradually diminished before transitioning to positive economic profit. This evolution is closely tied to changes in net operating profit after taxes, cost of capital, and invested capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a marked improvement throughout the period. Beginning with substantial losses in 2019 and 2020, NOPAT moved towards profitability, becoming positive in 2021 and increasing significantly in both 2022 and 2023. The increase from a loss of US$64,111 thousand in 2020 to a profit of US$170,498 thousand in 2023 indicates a substantial operational turnaround.

Cost of Capital

The cost of capital remained relatively stable between 2019 and 2022, fluctuating around 15.5%. A decrease to 14.61% was observed in 2023. This slight reduction in the cost of capital likely contributed to the improved economic profit in that year, although the primary driver was the increase in NOPAT.

Invested Capital

Invested capital demonstrated a fluctuating pattern. It decreased significantly from 2019 to 2020, then increased in 2021 and experienced substantial growth in 2022 and 2023. The considerable increase in invested capital in 2023, reaching US$672,462 thousand, suggests significant investment in the business, potentially fueling future growth. The growth in invested capital occurred alongside the growth in NOPAT, which is a positive indicator.

Economic Profit

Economic profit mirrored the trend in NOPAT. Large negative values were recorded in 2019 and 2020, followed by a reduction in losses in 2021. Positive economic profit was achieved in 2022 and remained positive in 2023, stabilizing around US$72,000 thousand. This indicates that the company is now generating returns exceeding its cost of capital.

In summary, the company transitioned from generating economic losses to generating economic profit. This improvement is attributable to a substantial increase in NOPAT, coupled with a relatively stable cost of capital and significant growth in invested capital. The trend suggests improving financial performance and value creation.

The financial data reveals significant fluctuations in both net income and net operating profit after taxes (NOPAT) for the observed periods.

Net income (loss)

There is a pronounced negative trend in net income from 2019 through 2021, starting with a substantial loss of approximately $51.1 million in 2019, increasing to a loss of $65.7 million in 2020, and then markedly reducing to a loss of $9.1 million in 2021. In 2022, the company achieved a dramatic turnaround with a substantial net income of $216.0 million, which though declining somewhat, remained strong at $147.3 million in 2023.

Net operating profit after taxes (NOPAT)

The NOPAT follows a similar trajectory but shows somewhat less volatility. It starts with a negative value near $49.8 million in 2019 and further decreases to about $64.1 million in 2020. The loss diminishes substantially in 2021 to approximately $7.1 million. From 2022 onward, NOPAT becomes positive, reaching $122.1 million in 2022 and increasing further to $170.5 million in 2023.

Overall, the data indicates an initial period of losses followed by a sharp and significant improvement in profitability starting in 2022. This suggests effective operational and financial adjustments that positively impacted both bottom-line net income and operating profitability after taxes. The considerable net income realized in 2022 diminished somewhat in 2023, but NOPAT increased, indicating improving operational efficiency with respect to tax impacts or non-operating items.

The financial data reveals significant variability in the provision for income taxes over the examined five-year period. Starting with a relatively modest provision of 62 thousand US dollars in 2019, there was a gradual increase to 80 thousand in 2020 followed by a more substantial rise to 301 thousand in 2021. However, in 2022, there was a dramatic shift to a large tax benefit, reflected in a negative provision of -95,168 thousand US dollars, indicating a considerable tax benefit or reversal during that year. This situation appears to have reversed again in 2023, with the provision rising sharply to 27,003 thousand US dollars.

The cash paid for operating taxes also exhibited a rising trend throughout the period, increasing steadily each year. From 390 thousand US dollars in 2019, the amount grew moderately to 453 thousand in 2020 and 847 thousand in 2021. The upward trend accelerated in the last two years, with cash operating taxes reaching 2,898 thousand in 2022 and further increasing to 14,167 thousand in 2023. This suggests rising cash outflows related to tax obligations despite the large tax benefit recorded in the accrual-based provision for income taxes in 2022.

Overall, the pattern highlights a divergence between the accounting treatment of tax provisions and actual cash tax payments in 2022 and 2023. The substantial tax benefit recorded in 2022 was not reflected in reduced cash tax payments, which instead continued to increase. The subsequent rebound in the provision in 2023 to a positive figure exceeding prior years, alongside further increased cash operating taxes, points to potentially complex tax circumstances or adjustments affecting the company's tax position during these years.

The analysis of the financial data reveals significant changes in the company's capital structure and financing activities over the five-year period.

Total reported debt & leases

The total reported debt and leases increased steadily from 22,718 thousand US dollars in 2019 to 60,404 thousand US dollars in 2022, showing a moderate growth trend. However, there is a pronounced spike in 2023, where the value surged to 770,607 thousand US dollars. This sharp increase suggests a substantial rise in leverage or the use of debt financing during the last reported year.

Stockholders’ equity

Stockholders’ equity displayed a consistent upward trend throughout the period. It increased from 192,653 thousand US dollars in 2019 to 668,677 thousand US dollars in 2023. A noteworthy acceleration is evident from 2021 onward, with a particularly large increase between 2021 and 2022. This pattern indicates enhanced retained earnings, capital injections, or overall improved financial strength.

Invested capital

Invested capital fluctuated somewhat in the early years, decreasing notably from 158,673 thousand US dollars in 2019 to 91,274 thousand US dollars in 2020. Subsequently, it rebounded and grew substantially to 672,462 thousand US dollars by 2023. This indicates a significant expansion in the company’s asset base or long-term investments, especially evident from 2021 onwards, aligning with the growth in both equity and reported debt.

The economic spread ratio demonstrates a significant improvement over the observed period. Initially negative and substantial, the ratio transitions to positive values, indicating increasing value creation. This shift is coupled with considerable changes in both economic profit and invested capital.

Economic Spread Ratio

In 2019 and 2020, the economic spread ratio is markedly negative, registering at -46.76% and -85.83% respectively. This suggests that the company’s returns on invested capital were substantially below its cost of capital during these years. A considerable improvement is evident in 2021, with the ratio moving to -19.65%, indicating a narrowing gap between returns and cost of capital. The ratio becomes positive in 2022, reaching 22.81%, and remains positive in 2023 at 10.75%, though with a slight decrease. This indicates the company generated returns exceeding its cost of capital in both years.

The economic spread ratio’s trajectory correlates with changes in economic profit. While economic profit remains negative in 2019 and 2020, its absolute value decreases through 2021 before becoming positive in 2022 and remaining positive in 2023. This suggests that improvements in operational efficiency and/or revenue generation are contributing to the observed increase in the economic spread ratio.

Invested Capital

Invested capital decreased significantly from 2019 to 2020, falling from US$158,673 thousand to US$91,274 thousand. It then increased substantially in 2021 and 2022, reaching US$174,255 thousand and US$318,057 thousand respectively. The most significant increase occurs between 2022 and 2023, with invested capital rising to US$672,462 thousand. This substantial growth in invested capital, particularly in the later years, should be considered alongside the economic spread ratio to understand the overall efficiency of capital allocation.

The combination of a rising economic spread ratio and increasing invested capital suggests the company is becoming more effective at deploying capital to generate returns exceeding its cost. However, the slight decrease in the economic spread ratio in 2023, despite the significant increase in invested capital, warrants further investigation to determine if the rate of return on new investments is consistent with prior periods.

The economic profit margin demonstrates a significant improvement over the observed period. Initially negative and substantial, the margin transitions to positive values, indicating increasing value creation for stakeholders. This shift is accompanied by considerable growth in revenue.

Economic Profit Margin Trend

In 2019, the economic profit margin is reported as -172.84%. This represents a substantial economic loss relative to revenue. A considerable, though incomplete, recovery is seen in 2020, with the margin improving to -115.56%. The trend continues in 2021, with the margin reaching -14.44%, indicating a narrowing of the economic loss. A pivotal change occurs in 2022, as the economic profit margin turns positive, reaching 14.82%. This positive trend is sustained in 2023, with a margin of 9.90%, although slightly lower than the previous year.

Relationship with Revenue

Revenue exhibits a consistent upward trajectory throughout the period. From US$42,927 thousand in 2019, revenue increases to US$67,789 thousand in 2020. A substantial increase is observed in 2021, reaching US$237,146 thousand, followed by further growth to US$489,733 thousand in 2022, and finally US$730,230 thousand in 2023. The positive shift in the economic profit margin in 2022 and 2023 coincides with the most significant revenue increases, suggesting a correlation between revenue growth and value creation.

Economic Profit Progression

Economic profit itself moves from negative values in 2019 (-US$74,195 thousand) and 2020 (-US$78,338 thousand) to a significantly reduced loss in 2021 (-US$34,242 thousand). This is followed by positive economic profit in both 2022 (US$72,563 thousand) and 2023 (US$72,259 thousand). The stabilization of economic profit in the latter two years, despite continued revenue growth, suggests potential changes in the cost of capital or operational efficiency.

The observed trend indicates a successful transition from economic losses to economic profit, driven by substantial revenue growth. While the economic profit margin experienced a slight decrease between 2022 and 2023, it remains positive, signifying continued value creation.