IPG Photonics Announces Record Third Quarter 2017 Financial Results

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OXFORD, Mass., Oct. 31, 2017 (GLOBE NEWSWIRE) -- IPG Photonics Corporation IPGP today reported financial results for the third quarter ended September 30, 2017.

         
  Three Months Ended September 30,   Nine Months Ended September 30,  
(In millions, except per share data) 2017 2016 % Change 2017 2016 % Change
Revenue $392.6  $266.0  48% $1,047.8  $726.1  44%
Gross margin 57.2% 54.4%   56.1% 54.7%  
Operating income $160.2  $94.1  70% $402.8  $259.1  55%
Operating margin 40.8% 35.4%   38.4% 35.7%  
Net income attributable to IPG Photonics Corporation $115.6  $69.2  67% $294.7  $185.6  59%
Earnings per diluted share $2.11  $1.29  64% $5.40  $3.45  57%
                       

Management Comments 

"IPG delivered another record quarter, driven by the secular shift to high-power products and accelerating adoption of our technology across our largest applications and geographies. We believe IPG Photonics' strong performance this quarter and through the first nine months of 2017 is a direct result of the superior performance, flexibility, productivity, and return on investment of our solutions. In addition, our vertically-integrated business model enables us to more rapidly scale production, reduce costs and deliver innovation than the competition," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer.

Third quarter revenue of $392.6 million increased 48% year over year, and earnings per diluted share ("EPS") of $2.11 increased 64% year over year. Materials processing sales increased 52% year-over-year in the third quarter and accounted for approximately 95% of total sales driven by strength in cutting, welding, and 3D printing applications. Sales to other markets decreased 9% year-over-year. High-power laser sales increased 60% year over year from rapid growth in cutting and welding applications while sales of QCW lasers increased 104% year over year driven by growth in consumer electronics production. By region, sales increased more than 70% in China and 50% in Europe, partially offset by a 10% decline in Japan.

During the third quarter, IPG generated $163.7 million in cash from operations and used $55.6 million to finance capital expenditures. IPG ended the quarter with $1.05 billion in cash and cash equivalents and short-term investments, representing an increase of $215.3 million from December 31, 2016.

Business Outlook and Financial Guidance

"Based on our third quarter outperformance and current backlog, we are now targeting approximately 37% to 39% revenue growth for the full year, up from 32% to 34% previously. This would represent our strongest annual revenue growth in six years, and is a testament to our leadership in providing cost-effective high-power laser solutions to our customers. For the fourth quarter, we expect revenue growth in the range of 18% to 27% year over year or $330 million to $355 million. Our revenue outlook reflects the expected slowdown in spending related to the consumer electronics investment cycle and typical seasonality in China," said Dr. Gapontsev.

For the fourth quarter of 2017, IPG Photonics anticipates earnings per diluted share in the range of $1.55 to $1.80 based on 54,698,000 diluted common shares, which includes 53,440,000 basic common shares outstanding and 1,258,000 potentially dilutive options at September 30, 2017. 

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 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 0.85, Russian Ruble 58, Japanese Yen 113 and Chinese Yuan 6.64, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Third Quarter 2017 Financial Data Workbook available on the investor relations section of the Company's website at investor.ipgphotonics.com.

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Conference Call Reminder

The Company will hold a conference call today, October 31, 2017 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 world leader in high-power fiber lasers and amplifiers. Founded in 1990, IPG pioneered the development and commercialization of optical fiber-based lasers for use in diverse applications, primarily materials processing. Fiber lasers have revolutionized the industry by delivering superior performance, reliability and usability at a lower total cost of ownership compared with conventional lasers, allowing end users to increase productivity and decrease operating costs. IPG has its headquarters in Oxford, Massachusetts, and has additional plants and offices throughout the world. For more information, please 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, targeted growth for the full year, revenue and earnings guidance for the fourth quarter, the consumer electronics investment cycle and seasonality in China. 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; 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, 2017) 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 September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (in thousands, except per share data)
NET SALES $392,615  $266,017  $1,047,834  $726,052 
COST OF SALES 168,060  121,226  459,716  329,147 
GROSS PROFIT 224,555  144,791  588,118  396,905 
OPERATING EXPENSES:        
Sales and marketing 13,384  10,460  36,347  28,183 
Research and development 25,541  20,543  74,281  56,444 
General and administrative 21,491  16,797  59,092  46,849 
Loss on foreign exchange 3,917  2,905  15,553  6,316 
   Total operating expenses 64,333  50,705  185,273  137,792 
OPERATING INCOME 160,222  94,086  402,845  259,113 
OTHER INCOME (EXPENSE), Net:        
Interest (expense) income, net (125) 373  651  835 
Other income (expense), net 459  194  (47) 342 
   Total other income (expense) 334  567  604  1,177 
INCOME BEFORE PROVISION FOR INCOME TAXES 160,556  94,653  403,449  260,290 
PROVISION FOR INCOME TAXES (44,959) (25,426) (108,817) (74,703)
NET INCOME 115,597  69,227  294,632  185,587 
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (8) (26) (33)
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $115,597  $69,235  $294,658  $185,620 
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:        
Basic $2.16  $1.30  $5.51  $3.50 
Diluted $2.11  $1.29  $5.40  $3.45 
WEIGHTED AVERAGE SHARES OUTSTANDING:        
Basic 53,440  53,071  53,453  53,039 
Diluted 54,698  53,761  54,570  53,752 


 
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE
 
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Cost of sales $1,467  $1,615  $4,320  $4,579 
Sales and marketing 536  385  1,504  1,297 
Research and development 1,278  1,268  3,715  3,581 
General and administrative 2,649  2,395  7,450  6,642 
Total stock-based compensation 5,930  5,663  16,989  16,099 
Tax benefit recognized (1,900) (1,817) (5,473) (5,166)
Net stock-based compensation $4,030  $3,846  $11,516  $10,933 


(In thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Excess tax benefit on exercise of stock options included in net income $3,361  N/A $10,885  N/A
Increase in weighted-average diluted shares outstanding 317,835  N/A 256,938  N/A


 
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES
 
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016  2017  2016
Step-up of inventory (1)        
Cost of sales $1,571  $1,012  $1,581  $1,385 
Amortization of intangible assets        
Cost of sales $1,002  $931  $2,339  $1,978 
Sales and marketing 563  161   1,139   238 
Research and development 160  160   480   480 
Impairment charge related to long-lived asset        
General and administrative      162    
Total acquisition related costs and other charges $3,296  $2,264  $5,701  $4,081 


(1) 2016 amount relates to Menara while 2017 relates to OptiGrate and ILT step-up adjustments on inventory sold during the period.


 
IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
 
  September 30, December 31,
  2017 2016
  (In thousands, except share and per
share data)
ASSETS
CURRENT ASSETS:    
Cash and cash equivalents $880,267  $623,855 
Short-term investments 165,655  206,779 
Accounts receivable, net 226,756  155,901 
Inventories 282,495  239,010 
Prepaid income taxes 40,639  34,128 
Prepaid expenses and other current assets 46,727  41,289 
  Total current assets 1,642,539  1,300,962 
DEFERRED INCOME TAXES, NET 40,547  42,442 
GOODWILL 51,143  19,828 
INTANGIBLE ASSETS, NET 49,669  28,789 
PROPERTY, PLANT AND EQUIPMENT, NET 441,494  379,375 
OTHER ASSETS 20,673  18,603 
TOTAL $2,246,065  $1,789,999 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:    
Current portion of long-term debt $3,576  $3,188 
Accounts payable 34,271  28,048 
Accrued expenses and other liabilities 134,284  102,485 
Income taxes payable 10,060  24,554 
  Total current liabilities 182,191  158,275 
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 58,479  36,365 
LONG-TERM DEBT, NET OF CURRENT PORTION 46,296  37,635 
  Total liabilities 286,966  232,275 
COMMITMENTS AND CONTINGENCIES    
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:    
Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,918,008 and 53,599,374 shares issued and outstanding, respectively, at September 30, 2017; 53,354,579 and 53,251,805 shares issued and outstanding, respectively, at December 31, 2016 5  5 
Treasury stock, at cost (318,634 and 102,774 shares held) (35,857) (8,946)
Additional paid-in capital 693,337  650,974 
Retained earnings 1,390,911  1,094,108 
Accumulated other comprehensive loss (89,297) (178,583)
  Total IPG Photonics Corporation stockholders' equity 1,959,099  1,557,558 
NONCONTROLLING INTERESTS   166 
  Total equity $1,959,099  $1,557,724 
TOTAL $2,246,065  $1,789,999 


 
IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
   
  Nine Months Ended September 30,
  2017 2016
  (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $294,632  $185,587 
Adjustments to reconcile net income to net cash provided by operating activities:    
  Depreciation and amortization 46,416  37,646 
  Provisions for inventory, warranty & bad debt 34,690  33,506 
  Other 40,419  10,282 
  Changes in assets and liabilities that used cash:    
    Accounts receivable/payable (52,993) (20,669)
    Inventories (39,697) (42,814)
    Other (26,617) (7,693)
      Net cash provided by operating activities 296,850  195,845 
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property, plant and equipment (99,221) (100,047)
Proceeds from sales of property, plant and equipment 15,437  220 
Purchases of short-term investments (146,585) (179,374)
Proceeds from sales of short-term investments 188,143  158,808 
Acquisitions of businesses, net of cash acquired (50,594) (46,527)
Other (496) 16 
      Net cash provided used in investing activities (93,316) (166,904)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Purchase of noncontrolling interests (197) (950)
Proceeds on long-term borrowings 28,000  23,750 
Principal payments on long-term borrowings (18,951) (1,797)
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 23,296  9,186 
Purchase of Treasury Stock, at cost (26,911) (3,483)
      Net cash provided by financing activities 5,237  26,706 
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 47,641  7,379 
NET INCREASE IN CASH AND CASH EQUIVALENTS 256,412  63,026 
CASH AND CASH EQUIVALENTS — Beginning of period 623,855  582,532 
CASH AND CASH EQUIVALENTS — End of period $880,267  $645,558 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest $1,965  $623 
Cash paid for income taxes $118,660  $95,539 

 

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