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IPG Photonics Announces Second Quarter 2020 Financial Results

IPG Photonics Corporation
·13 min read

Earnings Per Diluted Share of $0.71 Reduced by $0.20 from Foreign Exchange Loss and Charge for Restructuring and Asset Impairment

OXFORD, Mass., Aug. 04, 2020 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the second quarter ended June 30, 2020.

Three Months Ended June 30,

Six Months Ended June 30,

(In millions, except per share data and percentages)

2020

2019

Change

2020

2019

Change

Revenue

$

296.4

$

363.8

(19)

%

$

545.7

$

678.8

(20)

%

Gross margin

46.0

%

49.5

%

43.9

%

48.5

%

Operating income

$

47.2

$

91.1

(48)

%

$

92.0

$

159.4

(42)

%

Operating margin

15.9

%

25.0

%

16.9

%

23.5

%

Net income attributable to IPG Photonics Corporation

$

38.2

$

72.3

(47)

%

$

74.6

$

127.4

(41)

%

Earnings per diluted share

$

0.71

$

1.34

(47)

%

$

1.39

$

2.36

(41)

%

Management Comments

"Despite the continued challenges to our business from the COVID-19 pandemic, we delivered second quarter results above our guidance range on better-than-expected performance in China and strength in new products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Although our visibility is constrained in the current demand environment, we are demonstrating good progress in leading-edge solutions thanks to our technology differentiation and low cost production capabilities. We continue to believe that our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruptions and emerge from the pandemic in a stronger competitive position."

Financial Highlights

Second quarter revenue of $296 million decreased 19% year over year. Currency depreciation relative to the exchange rates assumed in our second quarter guidance reduced revenue by approximately $2 million. Materials processing sales decreased 21% year over year due to lower sales in cutting, welding and marking applications, while sales into other applications increased 36% year over year on strength in advanced applications and devices used in medical procedures. Materials processing sales accounted for 92% of total revenue.

Sales of high power continuous wave ("CW") lasers, representing 53% of total revenue, decreased 26% year over year due to the effects of COVID-19 on the global demand environment and lower average selling prices. Sales of fiber lasers at 6 kilowatts of power or greater were more than 50% of all high power CW laser sales. By region, sales decreased 11% in China, 24% in Europe, 16% in Japan and 16% in North America on a year over year basis.

Earnings per diluted share ("EPS") of $0.71 decreased 47% year over year. Foreign exchange losses and a $1 million charge related to impairment of long-lived assets and other restructuring charges reduced EPS by $0.20. The effective tax rate in the quarter was 23%, which benefited from certain discrete tax items. During the second quarter, IPG generated $73 million in cash from operations. Capital expenditures were $20 million and stock repurchases totaled $16 million.

Business Outlook and Financial Guidance

"Second quarter book to bill was greater than 1.0, with strong bookings growth in China, offset by weaker order trends in other regions. As expected, the pace of order growth in China moderated as the second quarter progressed while we have seen modest improvement in order trends in other regions. However, visibility into a recovery in global demand remains uncertain at this time. We continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing and systems and devices for the medical industry. We believe the strides we are making in higher power products within our core materials processing business and new solutions will enable us emerge from the pandemic in a stronger competitive position," said Dr. Gapontsev.

For the third quarter of 2020, IPG expects revenue of $280 million to $310 million. The Company expects the third quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.70 to $1.00, with 53.0 million basic common shares outstanding and 53.5 million diluted common shares outstanding. Financial guidance provided this quarter is subject to greater risk and uncertainty given the COVID-19 pandemic and its associated impacts to the global business environment, public health requirements and government mandates.

As discussed in more detail in the "Safe Harbor" passage of this news release, actual results may differ from this guidance due to various factors including, but not limited to, government and company measures implemented to address the COVID-19 pandemic, product demand, order cancellations and delays, competition, tariffs, trade policy changes and general economic conditions. This guidance is based upon current market conditions and expectations, and is subject to the risks outlined in the Company's reports with the SEC, and assumes exchange rates relative to the U.S. Dollar of Euro 0.89, Russian Ruble 70, Japanese Yen 108 and Chinese Yuan 7.08, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Second Quarter 2020 Financial Data Workbook available on the investor relations section of the Company's website at investor.ipgphotonics.com.

Conference Call Reminder

The Company will hold a conference call today, August 4, 2020 at 10:00 am ET. To access the call, please dial 877-407-6184 in the US or 201-389-0877 internationally. A live webcast of the call will also be available and archived on the investor relations section of the Company's website at investor.ipgphotonics.com.

Contact

James Hillier
Vice President of Investor Relations
IPG Photonics Corporation
508-373-1467
jhillier@ipgphotonics.com

About IPG Photonics Corporation

IPG Photonics Corporation is the leader in high-power fiber lasers and amplifiers used primarily in materials processing and other diverse applications. The Company’s mission is to make its fiber laser technology the tool of choice in mass production. IPG accomplishes this mission by delivering superior performance, reliability and usability at a lower total cost of ownership compared with other types of lasers and non-laser tools, allowing end users to increase productivity and decrease costs. A member of the S&P 500® Index, IPG is headquartered in Oxford, Massachusetts and has more than 25 facilities worldwide. For more information, visit www.ipgphotonics.com.

Safe Harbor Statement

Information and statements provided by IPG and its employees, including statements in this press release, that relate to future plans, events or performance are forward-looking statements. These statements involve risks and uncertainties. Any statements in this press release that are not statements of historical fact are forward-looking statements, including, but not limited to, our strong balance sheet and free cash flow helping us through the COVID-19 pandemic and business disruptions and emerge in a stronger competitive position, improvement in order trends in regions other than China, growth opportunities in ultra-high power cutting, electric vehicle battery processing and systems and devices for the medical industry, strides in higher power products enabling us to emerge from the pandemic in a stronger competitive position, impacts of COVID-19 on our business, the global economy and government policies, revenue, tax rate and earnings guidance for Q3 2020. Factors that could cause actual results to differ materially include risks and uncertainties, including risks associated with the strength or weakness of the business conditions in industries and geographic markets that IPG serves, particularly the effect of downturns in the markets IPG serves; uncertainties and adverse changes in the general economic conditions of markets; IPG's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; inability to manage risks associated with international customers and operations; changes in trade controls and trade policies; foreign currency fluctuations; high levels of fixed costs from IPG's vertical integration; the appropriateness of IPG's manufacturing capacity for the level of demand; competitive factors, including declining average selling prices; the effect of acquisitions and investments; inventory write-downs; asset impairment charges; intellectual property infringement claims and litigation; interruption in supply of key components; manufacturing risks; government regulations and trade sanctions; and other risks identified in IPG's SEC filings. Readers are encouraged to refer to the risk factors described in IPG's Annual Report on Form 10-K (filed with the SEC on February 24, 2020), Current Report on Form 8-K (filed with the SEC on May 5, 2020) and IPG's reports filed with the SEC, as applicable. Actual results, events and performance may differ materially. Readers are cautioned not to rely on the forward-looking statements, which speak only as of the date hereof. IPG undertakes no obligation to update the forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(In thousands, except per share data)

Net sales

$

296,411

$

363,769

$

545,653

$

678,816

Cost of sales

159,962

183,532

306,328

349,668

Gross profit

136,449

180,237

239,325

329,148

Operating expenses:

Sales and marketing

17,326

20,663

36,009

39,938

Research and development

31,584

34,872

63,422

67,368

General and administrative

26,399

28,538

53,523

55,750

Impairment of long-lived assets and other restructuring charges

1,165

1,165

Loss (gain) on foreign exchange

12,766

5,074

(6,799

)

6,687

Total operating expenses

89,240

89,147

147,320

169,743

Operating income

47,209

91,090

92,005

159,405

Other income, net:

Interest income, net

1,856

4,051

4,929

8,003

Other income, net

449

658

640

649

Total other income

2,305

4,709

5,569

8,652

Income before provision of income taxes

49,514

95,799

97,574

168,057

Provision for income taxes

11,148

23,278

22,442

40,620

Net income

38,366

72,521

75,132

127,437

Less: net income attributable to non-controlling interests

140

249

503

6

Net income attributable to IPG Photonics Corporation

$

38,226

$

72,272

$

74,629

$

127,431

Net income attributable to IPG Photonics Corporation per share:

Basic

$

0.72

$

1.36

$

1.41

$

2.40

Diluted

$

0.71

$

1.34

$

1.39

$

2.36

Weighted average shares outstanding:

Basic

53,040

53,042

53,083

53,076

Diluted

53,530

53,848

53,628

53,915


IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30,

December 31,

2020

2019

(In thousands, except share and
per share data)

ASSETS

Current assets:

Cash and cash equivalents

$

747,859

$

680,070

Short-term investments

501,040

502,546

Accounts receivable, net

203,568

238,479

Inventories

367,166

380,790

Prepaid income taxes

62,778

38,873

Prepaid expenses and other current assets

68,115

55,876

Total current assets

1,950,526

1,896,634

Deferred income taxes, net

30,544

31,395

Goodwill

81,911

82,092

Intangible assets, net

67,995

74,271

Property, plant and equipment, net

585,644

600,852

Other assets

42,116

45,192

Total assets

$

2,758,736

$

2,730,436

LIABILITIES AND EQUITY

Current liabilities:

Current portion of long-term debt

$

3,775

$

3,740

Accounts payable

42,261

27,329

Accrued expenses and other current liabilities

148,226

149,782

Income taxes payable

1,024

11,053

Total current liabilities

195,286

191,904

Deferred income taxes and other long-term liabilities

90,073

98,121

Long-term debt, net of current portion

36,071

37,968

Total liabilities

321,430

327,993

Commitments and contingencies

IPG Photonics Corporation equity:

Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,154,688 and 53,182,148 shares issued and outstanding, respectively, at June 30, 2020; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019.

6

5

Treasury stock, at cost, 1,972,540 and 1,732,352 shares held at June 30, 2020 and December 31, 2019, respectively.

(293,960

)

(265,730

)

Additional paid-in capital

811,559

785,636

Retained earnings

2,103,248

2,028,734

Accumulated other comprehensive loss

(184,501

)

(146,919

)

Total IPG Photonics Corporation equity

2,436,352

2,401,726

Non-controlling interests

954

717

Total equity

2,437,306

2,402,443

Total liabilities and equity

$

2,758,736

$

2,730,436


IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30,

2020

2019

(In thousands)

Cash flows from operating activities:

Net income

$

75,132

$

127,437

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

47,350

47,486

Impairment of long-lived assets

671

Provisions for inventory, warranty & bad debt

24,484

22,697

Other

13,142

24,014

Changes in assets and liabilities that provided (used) cash, net of acquisitions:

Accounts receivable and accounts payable

46,256

(21,501

)

Inventories

(15,160

)

(40,789

)

Other

(61,619

)

(57,565

)

Net cash provided by operating activities

130,256

101,779

Cash flows from investing activities:

Purchases of property, plant and equipment

(37,370

)

(86,492

)

Proceeds from sales of property, plant and equipment

460

288

Purchases of short-term and long-term investments

(421,321

)

(339,828

)

Proceeds from short-term investments

422,912

334,680

Acquisitions of businesses, net of cash acquired

(15,115

)

Other

115

209

Net cash used in investing activities

(35,204

)

(106,258

)

Cash flows from financing activities:

Principal payments on long-term borrowings

(1,862

)

(1,827

)

Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards

8,271

(32

)

Purchase of treasury stock, at cost

(28,230

)

(2,284

)

Payment of purchase price holdback from business combination

(1,650

)

Net cash used in financing activities

(23,471

)

(4,143

)

Effect of changes in exchange rates on cash and cash equivalents and restricted cash

(4,523

)

(2,759

)

Net increase (decrease) in cash, cash equivalents and restricted cash

67,058

(11,381

)

Cash, cash equivalents and restricted cash — Beginning of period

682,984

544,358

Cash, cash equivalents and restricted cash — End of period

$

750,042

$

532,977

Supplemental disclosures of cash flow information:

Cash paid for interest

$

1,061

$

1,164

Cash paid for income taxes

$

53,670

$

73,855


IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES (UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(In thousands)

Amortization of intangible assets:

Cost of sales

$

1,172

$

1,488

$

2,394

$

2,834

Sales and marketing

1,777

2,000

3,555

3,810

Research and development

160

133

320

Total acquisition related costs and other charges

$

2,949

$

3,648

$

6,082

$

6,964

IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD
IMPACTS TO NET INCOME AND EARNINGS PER SHARE (UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(In thousands)

Cost of sales

$

2,507

$

2,192

$

5,039

$

4,231

Sales and marketing

1,188

854

2,149

1,641

Research and development

2,475

2,063

4,547

3,920

General and administrative

3,092

3,963

5,966

7,418

Total stock-based compensation

9,262

9,072

17,701

17,210

Tax effect of stock-based compensation

(2,123

)

(2,131

)

(4,059

)

(4,047

)

Net stock-based compensation

$

7,139

$

6,941

$

13,642

$

13,163


Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(In thousands)

Excess tax benefit on exercise of stock options included in net income

$

1,776

$

1,319

$

4,694

$

4,229