Market Overview

IPG Photonics Announces Second Quarter 2020 Financial Results

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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         
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.          
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   

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