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IPG Photonics Announces Second Quarter 2019 Financial Results

OXFORD, Mass., July 30, 2019 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (IPGP) today reported financial results for the second quarter ended June 30, 2019.

Three Months Ended
June 30,

Six Months Ended
June 30,

(In millions, except per share data and percentages)

2019

2018

Change

2019

2018

Change

Revenue

$

363.8

$

413.6

(12)

%

$

678.8

$

773.5

(12)

%

Gross margin

49.5%

56.8%

48.5%

56.7%

Operating income

$

91.1

$

162.4

(44)

%

$

159.4

$

303.5

(47)

%

Operating margin

25.0%

39.3%

23.5%

39.2%

Net income attributable to IPG Photonics Corporation

$

72.3

$

121.6

(41)

%

$

127.4

$

228.0

(44)

%

Earnings per diluted share

$

1.34

$

2.21

(39)

%

$

2.36

$

4.14

(43)

%

Management Comments
"Although the macroeconomic and geopolitical environment remains challenging, we delivered results in the upper half of our guidance range, while demonstrating solid traction in new products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "We continue to meet competitive challenges by substantially reducing component and manufacturing costs while enhancing existing products and introducing new solutions that improve productivity and increase flexibility for our customers."

Financial Highlights
Second quarter revenue of $364 million decreased 12% year over year. Materials processing sales accounted for 95% of total revenue, decreasing 12% year over year due to lower sales in cutting and 3D printing applications. Sales into other applications decreased 16% year over year. The acquisition of Genesis Systems Group contributed $22 million during the quarter.

Sales of high power continuous wave (CW) lasers, representing 59% of total revenue, decreased 20% year over year. Sales of fiber lasers at 6 kilowatts of power or greater were nearly 50% of all high power CW laser sales, and high power CW lasers at 10 kilowatts or greater increased 16% year over year. Sales of other high power lasers declined year over year due to the weaker demand environment in China and Europe and lower average selling prices. By region, sales decreased 19% in China, 22% in Europe and 10% in Japan but increased 34% in North America on a year over year basis.

Earnings per diluted share ("EPS") of $1.34 decreased 39% year over year. Foreign exchange losses reduced EPS by $0.08. The effective tax rate in the quarter was 24%, which benefited from certain discrete tax items. During the second quarter, IPG generated $58 million in cash from operations. Capital expenditures were $54 million.

Business Outlook and Financial Guidance
"Data points relating to the health of manufacturing economies in our largest regions have weakened over the last three months. Our second quarter book-to-bill ratio was above one, but below normal seasonality as order volumes weakened in June. Furthermore, the competitive environment remains challenging, due in part to the recent slowdown in industry demand levels. As a result, we expect pricing headwinds related to the competitive environment to continue. We expect growth in our innovative new products, accessories and complete systems to partially offset softness in our core business as these solutions gain further acceptance in the market," said Dr. Gapontsev.

For the third quarter of 2019, IPG expects revenue of $325 million to $355 million. The Company expects the third quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $1.05 to $1.35, with 53.0 million basic common shares outstanding and 53.8 million diluted common shares outstanding.

"Escalation of the US-China trade conflict and further macro softness have reversed the market recovery that we had expected to strengthen in the second half of 2019. Our largest machine tool OEM customers have not provided us with expectations beyond the next few months given the weaker macroeconomic and geopolitical climate. As a result, we do not have the necessary conviction to provide an outlook beyond the current quarter. However, we believe strength in new products and ongoing enhancements to our core laser portfolio will enable us to better capitalize on the eventual rebound in end market demand," added Dr. Gapontsev.

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, 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 0.88, Russian Ruble 63, Japanese Yen 108 and Chinese Yuan 6.87, respectively.

Supplemental Financial Information
Additional supplemental financial information is provided in the Second Quarter 2019 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, July 30, 2019 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, pricing headwinds related to the competitive environment, growth and market acceptance of innovative new products, accessories and complete systems to partially offset softness in our core business, strength in new products and ongoing enhancements to our core laser portfolio enabling us to better capitalize on the eventual rebound in end market demand, expectations of our largest machine tool OEM customers, and revenue, tax rate and earnings guidance for Q3 2019. 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 27, 2019) and its periodic 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
CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(In thousands, except per share data)

Net sales

$

363,769

$

413,613

$

678,816

$

773,477

Cost of sales

183,532

178,638

349,668

335,140

Gross profit

180,237

234,975

329,148

438,337

Operating expenses:

Sales and marketing

20,663

14,536

39,938

28,052

Research and development

34,872

31,813

67,368

60,359

General and administrative

28,538

24,117

55,750

49,612

Loss (gain) on foreign exchange

5,074

2,118

6,687

(3,176

)

Total operating expenses

89,147

72,584

169,743

134,847

Operating income

91,090

162,391

159,405

303,490

Other income (expense), net:

Interest income, net

4,051

729

8,003

1,041

Other income (expense), net

658

386

649

829

Total other income

4,709

1,115

8,652

1,870

Income before provision of income taxes

95,799

163,506

168,057

305,360

Provision for income taxes

(23,278

)

(41,889

)

(40,620

)

(77,409

)

Net income

72,521

121,617

127,437

227,951

Less: net income attributable to non-controlling interests

249

6

Net income attributable to IPG Photonics Corporation

$

72,272

$

121,617

$

127,431

$

227,951

Net income attributable to IPG Photonics Corporation per share:

Basic

$

1.36

$

2.27

$

2.40

$

4.24

Diluted

$

1.34

$

2.21

$

2.36

$

4.14

Weighted average shares outstanding:

Basic

53,042

53,662

53,076

53,703

Diluted

53,848

54,992

53,915

55,111



IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS

June 30,

December 31,

2019

2018

(In thousands, except share and per
share data)

ASSETS

Current assets:

Cash and cash equivalents

$

530,013

$

544,358

Short-term investments

512,816

500,432

Accounts receivable, net

273,697

255,509

Inventories

425,996

403,579

Prepaid income taxes

49,885

43,782

Prepaid expenses and other current assets

70,675

57,764

Total current assets

1,863,082

1,805,424

Deferred income taxes, net

20,833

19,165

Goodwill

110,868

100,722

Intangible assets, net

89,906

87,139

Property, plant and equipment, net

600,977

543,068

Other assets

51,750

18,932

Total assets

$

2,737,416

$

2,574,450

LIABILITIES AND EQUITY

Current liabilities:

Current portion of long-term debt

$

3,705

$

3,671

Accounts payable

38,016

36,302

Accrued expenses and other liabilities

161,209

154,640

Income taxes payable

19,298

51,161

Total current liabilities

222,228

245,774

Deferred income taxes and other long-term liabilities

107,981

80,734

Long-term debt, net of current portion

39,846

41,707

Total liabilities

370,055

368,215

Commitments and contingencies

IPG Photonics Corporation equity:

Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,629,380 and 53,182,910 shares issued and outstanding, respectively, at June 30, 2019; 54,371,701 and 52,941,607 shares issued and outstanding, respectively, at December 31, 2018

5

5

Treasury stock, at cost, 1,446,470 and 1,430,094 shares held at June 30, 2019 and December 31, 2018, respectively.

(227,282

)

(224,998

)

Additional paid-in capital

761,936

744,937

Retained earnings

1,975,931

1,848,500

Accumulated other comprehensive loss

(143,943

)

(162,896

)

Total IPG Photonics Corporation equity

2,366,647

2,205,548

Non-controlling interests

714

687

Total equity

2,367,361

2,206,235

Total liabilities and equity

$

2,737,416

$

2,574,450



IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

2019

2018

(In thousands)

Cash flows from operating activities:

Net income

$

127,437

$

227,951

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

Depreciation and amortization

47,486

38,727

Provisions for inventory, warranty & bad debt

22,697

20,092

Other

24,014

18,584

Changes in assets and liabilities that used cash:

Accounts receivable and accounts payable

(21,501

)

36

Inventories

(40,789

)

(91,014

)

Other

(57,565

)

(5,825

)

Net cash provided by operating activities

101,779

208,551

Cash flows from investing activities:

Purchases of property, plant and equipment

(86,492

)

(96,516

)

Proceeds from sales of property, plant and equipment

288

641

Purchases of investments

(339,828

)

(289,830

)

Proceeds from sales of investments

334,680

161,618

Acquisitions of businesses, net of cash acquired

(15,115

)

(4,422

)

Other

209

188

Net cash used in investing activities

(106,258

)

(228,321

)

Cash flows from financing activities:

Principal payments on long-term borrowings

(1,827

)

(1,794

)

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

(32

)

10,631

Purchase of treasury stock, at cost

(2,284

)

(51,064

)

Net cash used in financing activities

(4,143

)

(42,227

)

Effect of changes in exchange rates on cash and cash equivalents

(2,759

)

(31,111

)

Net decrease in cash and cash equivalents

(11,381

)

(93,108

)

Cash and cash equivalents — Beginning of period

544,358

909,900

Cash and cash equivalents — End of period

$

532,977

$

816,792

Supplemental disclosures of cash flow information:

Cash paid for interest

$

1,164

$

1,672

Cash paid for income taxes

$

73,855

$

64,495



IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(In thousands)

(In thousands)

Step-up of inventory (1):

Cost of sales

$

$

224

$

$

448

Amortization of intangible assets:

Cost of sales

1,488

1,345

2,834

2,513

Sales and marketing

2,000

563

3,810

1,166

Research and development

160

320

160

Total acquisition related costs and other charges

$

3,648

$

2,132

$

6,964

$

4,287

(1) 2018 amount relates to ILT step-up adjustments on inventory sold during the period.



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

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(In thousands)

(In thousands)

Cost of sales

$

2,192

$

1,755

$

4,231

$

3,323

Sales and marketing

854

671

1,641

1,227

Research and development

2,063

3,186

3,920

4,602

General and administrative

3,963

1,697

7,418

4,572

Total stock-based compensation

9,072

7,309

17,210

13,724

Tax benefit recognized

(2,131

)

(1,810

)

(4,047

)

(3,241

)

Net stock-based compensation

$

6,941

$

5,499

$

13,163

$

10,483


Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(In thousands)

(In thousands)

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

$

1,319

$

3,835

$

4,229

$

12,067