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IPG Photonics Announces Record Second Quarter 2018 Financial Results

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OXFORD, Mass., July 31, 2018 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ:IPGP) today reported financial results for the second quarter ended June 30, 2018.

               
  Three Months Ended June 30,         Six Months Ended June 30,    
(In millions, except per share data)                        2018   2017   % Change   2018   2017     % Change
Revenue $ 413.6     $ 369.4     12 %   $ 773.5     $ 655.2     18 %
Gross margin 56.8 %   55.9 %       56.7 %   55.5 %    
Operating income $ 162.4     $ 141.1     15 %   $ 303.5     $ 242.6     25 %
Operating margin 39.3 %   38.2 %       39.2 %   37.0 %    
Net income attributable to IPG Photonics Corporation $ 121.6     $ 104.1     17 %   $ 228.0     $ 179.1     27 %
Earnings per diluted share $ 2.21     $ 1.91     16 %   $ 4.14     $ 3.29     26 %
                                           

Management Comments

"We delivered record quarterly revenue and net income driven by the rapid adoption of IPG's high power products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. Second quarter revenue of $413.6 million increased 12% year over year. Depreciation of the Euro and Renminbi relative to the exchange rates assumed in our second quarter guidance reduced revenue by $8.4 million. Materials processing sales increased 11% year over year and accounted for approximately 95% of total sales driven by strength in cutting and 3D printing applications. Sales to other markets increased 33% year over year. High power CW laser sales increased 20% year over year, representing 64% of total revenue, with even stronger growth in sales of ultra-high power CW lasers with power levels of six kilowatts and above. By region, sales increased 10% in China, 18% in Europe, 23% in North America, and declined 2% in Japan on a year over year basis.

Earnings per diluted share ("EPS") of $2.21 increased 16% year over year. Foreign exchange losses reduced EPS by $0.03. The effective tax rate in the quarter was 26%, which benefited from the lower effective tax rate for income earned in the United States due to enactment of the Tax Cuts and Jobs Act and an increase in excess tax benefits related to equity compensation, which were partially offset by provisions for uncertain tax positions and other matters.

During the second quarter, IPG generated $109 million in cash from operations and capital expenditures totaled $57 million. IPG ended the quarter with $1.13 billion in cash and cash equivalents and short-term investments, representing an increase of $9.6 million from December 31, 2017.

Stock Repurchase Program

Today IPG also announced that its Board of Directors has authorized a new $125 million anti-dilutive stock repurchase program following the completion of its previous $100 million repurchase program. Under the new anti-dilutive program, IPG management is authorized to repurchase shares of common stock in an amount not to exceed the greater of (a) the number of shares issued to employees and directors under the Company's various employee and director equity compensation and employee stock purchase plans from January 1, 2018 through March 31, 2019 and (b) $125 million, exclusive of any fees, commissions or other expenses. Share repurchases will be made periodically in open-market transactions using the Company's working capital, and are subject to market conditions, legal requirements and other factors. The share repurchase program authorization does not obligate the Company to repurchase any dollar amount or number of its shares, and repurchases may be commenced or suspended from time to time without prior notice.

Business Outlook and Financial Guidance

"Book-to-bill was at 1.0 for the quarter. While orders grew slightly on a year over year basis, order flow was below our target as demand softened in Europe and China at the end of the quarter. This more modest year over year growth in orders has persisted through July, and we believe is primarily driven by macroeconomic and geopolitical factors rather than competitive dynamics. We are seeing strong order activity in North America and some smaller regions. Furthermore, we are beginning to benefit from rapid growth from new products, including ultraviolet, green, and ultrafast pulsed lasers, systems and beam delivery components. While we are encouraged by the strength in new products and select regions, this growth will only partially offset the more modest outlook in China and Europe." said Dr. Gapontsev.

For the third quarter of 2018, IPG expects revenue of $360 million to $390 million. The Company expects the third quarter tax rate to be approximately 26%, excluding effects relating to equity grants. IPG anticipates delivering earnings per diluted share in the range of $1.80 to $2.05, with 53.7 million basic common shares outstanding and 55.0 million diluted common shares outstanding.

"As compared to just a few months ago, the current global macroeconomic trade and geopolitical environment is more uncertain and could remain so. In addition, we expect foreign exchange to be more of a headwind, particularly with the depreciation of the Chinese Renminbi over the last month. As such, we believe full year revenue growth for 2018 will be in the range of 7% to 9%." 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 0.86, Russian Ruble 63, Japanese Yen 111 and Chinese Yuan 6.62, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Second Quarter 2018 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 31, 2018 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, strong order activity in North America and smaller regions, rapid growth from new products, revenue and earnings guidance for the second quarter and revenue guidance for the full year. 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 28, 2018) 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,
  2018   2017   2018   2017
  (in thousands, except per share data)
NET SALES $ 413,613     $ 369,373     $ 773,477     $ 655,219  
COST OF SALES 178,638     163,077     335,140     291,656  
GROSS PROFIT 234,975     206,296     438,337     363,563  
OPERATING EXPENSES:              
Sales and marketing 14,536     12,136     28,052     22,963  
Research and development 31,813     25,960     60,359     48,740  
General and administrative 24,117     19,875     49,612     37,601  
Loss (gain) on foreign exchange 2,118     7,183     (3,176 )   11,636  
Total operating expenses 72,584     65,154     134,847     120,940  
OPERATING INCOME 162,391     141,142     303,490     242,623  
OTHER INCOME (EXPENSE), Net:              
Interest income, net 729     468     1,041     776  
Other income (expense), net 386     23     829     (506 )
Total other income 1,115     491     1,870     270  
INCOME BEFORE PROVISION FOR INCOME TAXES 163,506     141,633     305,360     242,893  
PROVISION FOR INCOME TAXES (41,889 )   (37,530 )   (77,409 )   (63,858 )
NET INCOME 121,617     104,103     227,951     179,035  
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS     (13 )       (26 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $ 121,617     $ 104,116     $ 227,951     $ 179,061  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:              
Basic $ 2.27     $ 1.95     $ 4.24     $ 3.35  
Diluted $ 2.21     $ 1.91     $ 4.14     $ 3.29  
WEIGHTED AVERAGE SHARES OUTSTANDING:              
Basic 53,662     53,380     53,703     53,403  
Diluted 54,992     54,471     55,111     54,450  
                       
                       

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,
(In thousands) 2018   2017   2018   2017
Cost of sales $ 1,755     $ 1,462     $ 3,323     $ 2,853  
Sales and marketing 671     516     1,227     968  
Research and development 3,186     1,232     4,602     2,437  
General and administrative 1,697     2,498     4,572     4,801  
Total stock-based compensation 7,309     5,708     13,724     11,059  
Tax benefit recognized (1,810 )   (1,853 )   (3,241 )   (3,573 )
Net stock-based compensation $ 5,499     $ 3,855     $ 10,483     $ 7,486  


       
(In thousands, except share and per share data) Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
Excess tax benefit on exercise of stock options included in net income $ 3,835   $ 3,394   $ 12,067   $ 7,524
Increase in weighted-average diluted shares outstanding 274,293   238,917   289,029   210,776
               
               

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

  Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2018   2017 2018   2017
Step-up of inventory (1)            
Cost of sales $ 224   $ 10   $ 448   $ 10  
Amortization of intangible assets            
Cost of sales 1,345   592   2,513   1,337  
Sales and marketing 563   416   1,166   576  
Research and development   160   160   320  
Impairment charge related to long-lived asset            
General and administrative       162  
Total acquisition related costs and other charges $ 2,132   $ 1,178   $ 4,287   $ 2,405  

(1) 2018 amount relates to ILT while 2017 relates to OptiGrate step-up adjustments on inventory sold during the period.
               

IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS

  June 30,   December 31,
  2018   2017
  (In thousands, except share and per
share data)
ASSETS
CURRENT ASSETS:      
Cash and cash equivalents $ 816,792     $ 909,900  
Short-term investments 308,970     206,257  
Accounts receivable, net 242,128     237,278  
Inventories 376,019     307,712  
Prepaid income taxes 40,215     44,944  
Prepaid expenses and other current assets 51,911     47,919  
Total current assets 1,836,035     1,754,010  
DEFERRED INCOME TAXES, NET 27,818     26,976  
GOODWILL 59,616     55,831  
INTANGIBLE ASSETS, NET 47,249     51,223  
PROPERTY, PLANT AND EQUIPMENT, NET 514,767     460,206  
OTHER ASSETS 44,993     19,009  
TOTAL ASSETS $ 2,530,478     $ 2,367,255  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:      
Current portion of long-term debt $ 3,637     $ 3,604  
Accounts payable 42,989     35,109  
Accrued expenses and other liabilities 134,314     144,417  
Income taxes payable 29,339     15,773  
Total current liabilities 210,279     198,903  
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 104,491     100,652  
LONG-TERM DEBT, NET OF CURRENT PORTION 43,551     45,378  
Total liabilities 358,321     344,933  
COMMITMENTS AND CONTINGENCIES      
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:      
Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,317,292 and 53,724,445 shares issued and outstanding, respectively, at June 30, 2018; 54,007,708 and 53,629,439 shares issued and outstanding, respectively, at December 31, 2017 5     5  
Treasury stock, at cost (592,847 and 378,269 shares held) (99,997 )   (48,933 )
Additional paid-in capital 729,082     704,727  
Retained earnings 1,672,424     1,443,867  
Accumulated other comprehensive loss (129,357 )   (77,344 )
Total IPG Photonics Corporation stockholders' equity 2,172,157     2,022,322  
TOTAL LIABILITIES AND EQUITY $ 2,530,478     $ 2,367,255  

IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

  Six Months Ended June 30,
  2018   2017
  (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 227,951     $ 179,035  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 38,727     29,714  
Provisions for inventory, warranty & bad debt 20,092     22,754  
Other 18,584     21,818  
Changes in assets and liabilities that used cash:      
Accounts receivable and accounts payable 36     (71,720 )
Inventories (91,014 )   (25,820 )
Other (5,825 )   (22,679 )
   Net cash provided by operating activities 208,551     133,102  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property, plant and equipment (96,516 )   (43,632 )
Proceeds from sales of property, plant and equipment 641     15,284  
Purchases of investments (289,830 )   (71,244 )
Proceeds from sales of investments 161,618     156,171  
Acquisitions of businesses, net of cash acquired (4,422 )   (11,307 )
Other 188     (568 )
   Net cash (used in) provided by investing activities (228,321 )   44,704  
CASH FLOWS FROM FINANCING ACTIVITIES:      
Purchase of noncontrolling interests     (197 )
Principal payments on long-term borrowings (1,794 )   (18,260 )
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 10,631     17,152  
Purchase of treasury stock, at cost (51,064 )   (24,112 )
   Net cash used in financing activities (42,227 )   (25,417 )
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (31,111 )   31,867  
NET INCREASE IN CASH AND CASH EQUIVALENTS (93,108 )   184,256  
CASH AND CASH EQUIVALENTS — Beginning of period 909,900     623,855  
CASH AND CASH EQUIVALENTS — End of period $ 816,792     $ 808,111  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:      
Cash paid for interest $ 1,672     $ 975  
Cash paid for income taxes $ 64,495     $ 80,956  

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