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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