Axon Enterprise Inc. (NASDAQ:AXON)

The financial analysis reveals significant fluctuations in key performance indicators over the five-year period ending in 2022. The Net Operating Profit After Taxes (NOPAT) exhibits notable volatility, initially recorded at a high in 2018, followed by a sharp decline in 2019. This was succeeded by a gradual recovery through 2020 and 2021, culminating in a substantial increase in 2022 reaching its highest point in the observed timeframe.

Cost of capital remained relatively stable throughout the period, fluctuating marginally around 12.8%, with a slight decrease to approximately 12.34% in 2022. This stability suggests consistent capital expenses relative to the invested amount, with a minor improvement in the final year.

Invested capital showed an overall upward trend, starting from a moderate base in 2018, experiencing a dip in 2019, then a marked increase in 2020, continuing sharply upwards in both 2021 and 2022. The growth in invested capital indicates considerable expansion or increased asset utilization over the period.

Economic profit, derived from the relationship between NOPAT and the cost of capital applied to invested capital, displayed persistent negative values from 2018 through 2021, indicating that the returns were insufficient to cover the cost of the capital employed during these years. The magnitude of the negative economic profit widened until 2021, reflecting increasing losses in economic value added terms. However, 2022 marked a significant turnaround, where economic profit shifted positively, suggesting that the company generated returns exceeding the cost of capital, thereby creating value in that year.

Summary of Trends

The data indicate a period of operational and financial challenge from 2019 to 2021, as demonstrated by reduced NOPAT and sustained negative economic profit despite increasing invested capital. The cost of capital remained stable, implying consistent financing conditions.

The sharp increase in NOPAT and the consequent positive economic profit in 2022 reflect a potential improvement in operational efficiency, profitability, or a favorable change in market conditions or business strategy, resulting in value creation after years of value destruction.

The steady growth in invested capital throughout the latter years suggests ongoing investment activities or asset accumulation, which, coupled with improved profit metrics in 2022, could indicate successful scaling or enhanced asset productivity.

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

The economic profit figures indicate fluctuating performance over the analyzed period. There was a negative economic profit of -3,154 thousand USD at the end of 2018, which drastically worsened to -46,600 thousand USD by the end of 2019. This negative trend persisted through 2020 and 2021, with values of -41,353 thousand USD and -124,100 thousand USD respectively, showing increasing economic losses. However, in 2022, there was a significant reversal, where economic profit turned positive, reaching 127,788 thousand USD.

Invested Capital

Invested capital experienced a steady increase throughout the period. Starting at 631,660 thousand USD in 2018, the invested capital slightly decreased in 2019 to 500,291 thousand USD but then rose notably to 722,746 thousand USD in 2020. This upward trend accelerated in subsequent years, reaching 1,262,920 thousand USD in 2021 and further increasing to 1,607,800 thousand USD in 2022, reflecting substantial growth in capital investment.

Economic Spread Ratio

The economic spread ratio reflects the firm's return relative to its cost of capital and exhibits a pattern similar to economic profit. It was slightly negative at -0.5% in 2018 and became more adverse in 2019 at -9.31%. Although improving somewhat in 2020 to -5.72%, it deteriorated again to -9.83% in 2021. In 2022, the economic spread ratio turned positive to 7.95%, indicating a significant improvement in value creation and efficient capital utilization.

Overall Insights

The financial trends demonstrate an initial period of economic underperformance with losses accompanied by negative economic spread ratios, despite increasing invested capital after 2019. The substantial positive economic profit and economic spread ratio recorded in 2022 suggest the realization of efficiencies or enhanced profitability that overcame prior declines. This turnaround points to improved capital management and potentially stronger earnings generation relative to the cost of capital in the most recent year.

The analysis of the annual financial data reveals significant developments in economic profit, adjusted net sales, and economic profit margin over the observed five-year period.

Adjusted Net Sales

There is a consistent and substantial upward trend in adjusted net sales, rising from $476.2 million in 2018 to approximately $1.35 billion in 2022. This growth trajectory indicates strong top-line performance and increasing revenue generation capabilities year over year.

Economic Profit

The economic profit figures show a marked fluctuation. From an initial loss of approximately $3.15 million in 2018, the economic profit deteriorates sharply to a loss of $46.6 million in 2019. Although there is a slight improvement to a $41.4 million loss in 2020, the loss expands again in 2021 reaching $124.1 million. However, 2022 marks a significant turnaround with a positive economic profit of $127.8 million, indicating a shift toward generating value beyond the cost of capital during the most recent year.

Economic Profit Margin

The economic profit margin mirrors the pattern observed in economic profit, being negative throughout 2018 to 2021, with its worst performance in 2021 at -11.94%. The margin turns positive to 9.49% in 2022, further reinforcing the notable improvement in profitability and operational efficiency relative to the company's revenues.

Overall, while the company experienced several years of negative economic profit and margins despite growing revenues, 2022 represents a significant inflection point with both economic profit and economic profit margin becoming positive. This indicates enhanced effectiveness in generating profit from sales and managing costs, which may reflect successful strategic initiatives, improved market conditions, or operational optimizations implemented leading up to and during 2022.