Expand Energy Corp. (NASDAQ:EXE)

The financial performance, as measured by economic profit, demonstrates a declining trend over the observed period. Initially positive and substantial, economic profit transitions to a significant loss by the final year. This shift is driven by changes in both net operating profit after taxes and invested capital, alongside a relatively stable cost of capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a considerable decrease from US$6,263 million in 2021 to US$3,737 million in 2022, followed by a further reduction to US$2,933 million in 2023. A substantial decline culminated in a loss of US$-723 million in 2024, indicating a significant deterioration in core operational profitability.

Cost of Capital

The cost of capital exhibited a slight increasing trend from 9.84% in 2021 to 10.24% in 2023, before decreasing slightly to 9.91% in 2024. While fluctuating, the cost of capital remained relatively stable throughout the period, suggesting that changes in profitability and invested capital were the primary drivers of economic profit fluctuations.

Invested Capital

Invested capital increased steadily from US$7,990 million in 2021 to US$11,924 million in 2023. A substantial increase occurred in 2024, reaching US$22,822 million. This significant expansion in invested capital, coupled with declining NOPAT, contributed substantially to the negative economic profit observed in the final year.

Economic Profit

Economic profit mirrored the trends in NOPAT, decreasing from US$5,476 million in 2021 to US$1,711 million in 2023. The most pronounced change occurred in 2024, with economic profit becoming negative at US$-2,985 million. This indicates that the company’s returns on invested capital were no longer exceeding the cost of capital, resulting in value destruction.

The progression suggests a potential issue with capital allocation or operational efficiency. While invested capital grew, the ability to generate corresponding profits diminished, ultimately leading to a substantial economic loss. Further investigation into the reasons behind the NOPAT decline and the increased investment is warranted.

The financial data reveals a downward trend in the profitability indicators over the four-year period.

Net Income (Loss)

The net income shows a consistent decline from US$ 6,328 million at the end of 2021 to US$ -714 million by the end of 2024. This represents a significant deterioration in profitability, moving from a strong positive net income to a negative result, indicating losses in the latest period.

Net Operating Profit After Taxes (NOPAT)

Similarly, NOPAT also declines steadily from US$ 6,263 million in 2021 to US$ -723 million in 2024. The trend mirrors net income, demonstrating a substantial decrease in operational profitability after accounting for taxes. The transition into negative territory further highlights operational difficulties by the end of the period.

Overall, both key profit metrics exhibit a marked deterioration, signaling challenges in maintaining profitability and operational effectiveness over the time span analyzed. The consistent yearly declines suggest possible adverse factors influencing earnings and operations, culminating in losses by the fourth year.

Income Tax Expense (Benefit)

The income tax expense shows significant volatility over the analyzed periods. Initially, there is a benefit recorded in 2021 with a negative value of -106 million USD, which sharply increases in magnitude to -1285 million USD in 2022, indicating a substantial tax benefit or credit during that year. However, this trend reverses in 2023, where the figure shifts to a positive tax expense of 698 million USD, suggesting a considerable tax liability incurred that year. In 2024, the amount again reverses to a tax benefit of -127 million USD, though less pronounced than in 2022. This pattern reflects substantial fluctuations in taxable income, tax adjustments, or changes in tax policy affecting the company’s tax position annually.

Cash Operating Taxes

The cash operating taxes demonstrate a generally rising trend from 2021 to 2023, starting at 18 million USD in 2021 and increasing to 82 million USD in 2022, then reaching a peak at 293 million USD in 2023. This steady increase may indicate growing profitability or changes in tax payments related to operating activities. However, in 2024, there is a sharp decline to 24 million USD, which could reflect a reduction in taxable income, tax credits applied, or operational changes affecting tax payments. Overall, the cash tax payments show a pattern of growth followed by a significant drop.

The financial data for the four-year period reveals notable fluctuations and significant growth in the company's capital structure components.

Total Reported Debt & Leases

This item shows considerable variability. Initially, debt increased substantially from 2,316 million USD at the end of 2021 to 3,212 million USD in 2022. Subsequently, it decreased to 2,127 million USD in 2023 before surging dramatically to 5,825 million USD by the end of 2024. The sharp rise in 2024 represents a notable increase, more than doubling the 2023 figure, which may indicate aggressive financing or capital expenditure efforts during that year.

Stockholders’ Equity

Equity displays a consistent upward trajectory across the four years. Starting at 5,671 million USD in 2021, it rose to 9,124 million USD in 2022, further to 10,729 million USD in 2023, and reached 17,565 million USD in 2024. This steady increase suggests ongoing profitability, retained earnings growth, or equity financing activities contributing to a strengthening balance sheet position.

Invested Capital

Invested capital also shows an upward trend, increasing from 7,990 million USD in 2021 to 10,988 million USD in 2022, then to 11,924 million USD in 2023, and substantially rising to 22,822 million USD in 2024. The steep increase in 2024 aligns with the spike in total debt and equity, indicating expanded asset investment or acquisitions funded by a combination of debt and equity.

Overall, the company has significantly expanded its financial base over the period, with substantial increases in both equity and debt, particularly evident in 2024. The growth in invested capital aligns with these financing changes, suggesting intensified investment activity. The pattern of debt fluctuations coupled with steady equity growth implies a strategic approach to capital structure management, balancing debt leverage with equity enhancement.

The economic spread ratio demonstrates a declining trend over the four-year period. Initially positive, it transitioned to a negative value by the end of 2024. This shift correlates with changes in economic profit and invested capital.

Economic Spread Ratio

In 2021, the economic spread ratio stood at 68.54%. This indicates a substantial difference between the company’s return on invested capital and its cost of capital. A significant decrease was observed in 2022, with the ratio falling to 24.02%. This suggests a narrowing gap between returns and costs. The decline continued in 2023, reaching 14.35%, and culminated in a negative value of -13.08% in 2024. The negative ratio in 2024 signifies that the company’s return on invested capital was less than its cost of capital, indicating value destruction.

The economic spread ratio’s movement is closely tied to the performance of economic profit and the level of invested capital. While economic profit decreased from US$5,476 million in 2021 to -US$2,985 million in 2024, invested capital increased substantially from US$7,990 million in 2021 to US$22,822 million in 2024. This combination of declining profitability and increasing capital employed contributed to the deterioration of the economic spread ratio.

Economic Profit & Invested Capital Relationship

The increasing invested capital, coupled with decreasing economic profit, suggests a potential issue with capital allocation efficiency. The company is deploying more capital but generating less profit relative to that capital. This trend warrants further investigation into the effectiveness of investment decisions and operational performance.

The progression from a high positive economic spread ratio to a negative one indicates a worsening financial performance from the perspective of value creation. The company’s ability to generate returns exceeding its cost of capital has diminished, and it is now experiencing value destruction.

The financial performance, as indicated by economic profit and its margin, demonstrates a significant shift over the four-year period. Initially, the company exhibited strong economic profitability, but this trend reversed, culminating in an economic loss in the most recent year.

Economic Profit

Economic profit began at US$5,476 million in 2021, representing a substantial positive value. This figure decreased considerably to US$2,639 million in 2022 and continued to decline to US$1,711 million in 2023. By 2024, economic profit turned negative, reaching a loss of US$2,985 million. This indicates a weakening ability to generate returns exceeding the cost of capital.

Revenues

Revenues increased substantially from US$7,301 million in 2021 to US$14,123 million in 2022. However, revenues then experienced a marked decline, falling to US$6,047 million in 2023 and further decreasing to US$4,259 million in 2024. This suggests a potential loss of market share or a contraction in the company’s operating environment.

Economic Profit Margin

The economic profit margin mirrored the trend in economic profit. Starting at a high of 75.01% in 2021, the margin decreased to 18.69% in 2022 and 28.30% in 2023. In 2024, the margin became significantly negative, reaching -70.09%. This substantial decline indicates that the company’s profitability, relative to its revenue, has deteriorated considerably, and is now operating at an economic loss for each dollar of revenue generated.

The divergence between revenue and economic profit trends is noteworthy. While revenue initially increased, the corresponding decline in economic profit and margin suggests that the cost of generating those revenues, or the capital employed, increased at a faster rate, or that revenue quality diminished. The negative economic profit margin in 2024 is a critical indicator requiring further investigation.