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IPG Photonics Announces Second Quarter 2017 Financial Results

Released : 08 01 2017

OXFORD, Mass., Aug. 01, 2017 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ:IPGP) today reported financial results for the second quarter ended June 30, 2017.

  Three Months Ended June 30,   Six Months Ended June 30,  
(In millions, except per share data) 2017 2016 % Change 2017 2016 % Change
Revenue $369.4  $252.8  46% $655.2  $460.0  42%
Gross margin 55.9% 54.5%   55.5% 54.8%  
Operating income $141.1  $95.0  49% $242.6  $165.0  47%
Operating margin 38.2% 37.6%   37.0% 35.9%  
Net income attributable to IPG Photonics Corporation $104.1  $67.1  55% $179.1  $116.4  54%
Earnings per diluted share $1.91  $1.25  53% $3.29  $2.17  52%

Management Comments

“IPG delivered record quarterly results, driven by rapid growth in our core products, applications, and geographies,” said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. “As the market leader in fiber lasers, we are benefiting from accelerating adoption of fiber lasers over conventional lasers and non-laser cutting and welding equipment. Second quarter revenue and net income were both at record levels, highlighting the strength of our business model.”

Second quarter revenue of $369.4 million increased 46% year over year, and earnings per diluted share ("EPS") of $1.91 increased 53% year over year. Materials processing sales increased 48% year-over-year in the second quarter and accounted for approximately 96% of total sales driven by strength in cutting and welding applications. Sales to other markets were up 19% year-over-year driven by strong sales in telecom. High-power laser sales increased 57% year over year from rapid growth in cutting and welding applications while sales of QCW lasers increased 82% year over year driven by growth in consumer electronics production and percussion hole drilling. While all main geographies other than Japan experienced increases, sales growth in China was particularly strong, almost doubling, and represented half of total revenue in the second quarter.

During the second quarter, IPG generated $82.3 million in cash from operations and used $21.8 million to finance capital expenditures. IPG ended the quarter with $930.4 million in cash and cash equivalents and short-term investments, representing an increase of $99.8 million from December 31, 2016.

Business Outlook and Financial Guidance

“Demand for our core products, particularly high-power, kilowatt-scale fiber lasers, has never been stronger. Our leadership position within this fast-growing market drove record order activity in the quarter, resulting in a book-to-bill ratio above one. Based on these trends and the strength of our current backlog, we believe we are in excellent position to deliver another strong quarter in three months,” said Dr. Gapontsev.

IPG Photonics expects revenue in the range of $350 million to $375 million for the third quarter of 2017. The Company anticipates earnings per diluted share in the range of $1.70 to $1.90 based on 54,471,000 diluted common shares, which includes 53,380,000 basic common shares outstanding and 1,091,000 potentially dilutive options at June 30, 2017.

Dr. Gapontsev added, “Year-to-date bookings have exceeded our expectations, pointing to strong revenue growth in 2017. Based on first half outperformance and current backlog, we are now targeting approximately 32% to 34% revenue growth for the full year. Our fourth quarter performance will be driven by order activity through the end of the third quarter and during the fourth quarter, for which our visibility is low. Given the magnitude of outperformance during the first half of the year, we believe it is prudent to assume a lower growth rate in the fourth quarter due to more challenging comparisons and an expected slowdown in spending related to typical seasonality in China and the consumer electronics investment cycle. Should this anticipated spending slowdown fail to materialize at a level consistent with historic trends, this could result in upside to our full year guidance range.”

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 0.88, Russian Ruble 59, Japanese Yen 112 and Chinese Yuan 6.77, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Second Quarter 2017 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 1, 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, delivering a strong set of results again in the third quarter, guidance for the third quarter of 2017, full-year revenue growth outlook, growth rates in fourth quarter and spending slowdown 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 June 30, Six Months Ended June 30,
  2017 2016 2017 2016
  (in thousands, except per share data)
NET SALES $369,373  $252,787  $655,219  $460,035 
COST OF SALES 163,077  115,084  291,656  207,921 
GROSS PROFIT 206,296  137,703  363,563  252,114 
OPERATING EXPENSES:        
Sales and marketing 12,136  9,689  22,963  17,723 
Research and development 25,960  18,412  48,740  35,901 
General and administrative 19,875  16,151  37,601  30,052 
Loss (gain) on foreign exchange 7,183  (1,556) 11,636  3,411 
Total operating expenses 65,154  42,696  120,940  87,087 
OPERATING INCOME 141,142  95,007  242,623  165,027 
OTHER INCOME (EXPENSE), Net:        
Interest income, net 468  270  776  462 
Other income (expense), net 23  141  (506) 148 
Total other income (expense) 491  411  270  610 
INCOME BEFORE PROVISION FOR INCOME TAXES 141,633  95,418  242,893  165,637 
PROVISION FOR INCOME TAXES (37,530) (28,387) (63,858) (49,277)
NET INCOME 104,103  67,031  179,035  116,360 
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (13) (27) (26) (25)
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $104,116  $67,058  $179,061  $116,385 
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:        
Basic $1.95  $1.26  $3.35  $2.20 
Diluted $1.91  $1.25  $3.29  $2.17 
WEIGHTED AVERAGE SHARES OUTSTANDING:        
Basic 53,380  53,065  53,403  52,981 
Diluted 54,471  53,788  54,450  53,705 



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) 2017 2016 2017 2016
Cost of sales $1,462  $1,545  $2,853  $2,964 
Sales and marketing 516  497  968  912 
Research and development 1,232  1,220  2,437  2,313 
General and administrative 2,498  2,215  4,801  4,247 
Total stock-based compensation 5,708  5,477  11,059  10,436 
Tax benefit recognized (1,853) (1,765) (3,573) (3,349)
Net stock-based compensation $3,855  $3,712  $7,486  $7,087 


(In thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30,
  2017 2016 2017 2016
Excess tax benefit on exercise of stock options included in net income $3,394  $  $7,524  $ 
Increase in weighted-average diluted shares outstanding 238,917    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) 2017 2016  2017  2016
Step-up of inventory (1)        
Cost of sales $10  $374  $10  $374 
Amortization of intangible assets        
Cost of sales $592  $579  $1,337 $924
Sales and marketing 416  162   576   200 
Research and development 160  160   320   320 
Impairment charge related to long-lived asset        
General and administrative      162    
Total acquisition related costs and other charges $1,178  $1,275  $2,405  $1,818 

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

IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS

 
  June 30, December 31,
  2017 2016
  (In thousands, except share and per
share data)
ASSETS
CURRENT ASSETS:    
Cash and cash equivalents $808,111  $623,855 
Short-term investments 122,304  206,779 
Accounts receivable, net 237,332  155,901 
Inventories 260,661  239,010 
Prepaid income taxes 37,912  34,128 
Prepaid expenses and other current assets 44,454  41,289 
Total current assets 1,510,774  1,300,962 
DEFERRED INCOME TAXES, NET 47,843  42,442 
GOODWILL 28,728  19,828 
INTANGIBLE ASSETS, NET 32,294  28,789 
PROPERTY, PLANT AND EQUIPMENT, NET 389,853  379,375 
OTHER ASSETS 21,050  18,603 
TOTAL $2,030,542  $1,789,999 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:    
Current portion of long-term debt $1,188  $3,188 
Accounts payable 28,996  28,048 
Accrued expenses and other liabilities 116,499  102,485 
Income taxes payable 10,102  24,554 
Total current liabilities 156,785  158,275 
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 48,025  36,365 
LONG-TERM DEBT, NET OF CURRENT PORTION 21,375  37,635 
Total liabilities 226,185  232,275 
COMMITMENTS AND CONTINGENCIES    
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:    
Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,793,622 and 53,492,316 shares issued and outstanding, respectively, at June 30, 2017; 53,354,579 and 53,251,805 shares issued and outstanding, respectively, at December 31, 2016 5  5 
Treasury stock, at cost (301,306 and 102,774 shares held) (33,058) (8,946)
Additional paid-in capital 681,263  650,974 
Retained earnings 1,275,314  1,094,108 
Accumulated other comprehensive loss (119,167) (178,583)
Total IPG Photonics Corporation stockholders' equity 1,804,357  1,557,558 
NONCONTROLLING INTERESTS   166 
Total equity $1,804,357  $1,557,724 
TOTAL $2,030,542  $1,789,999 



IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
  Six Months Ended June 30,
  2017 2016
  (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $179,035  $116,360 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 29,714  23,653 
Provisions for inventory, warranty & bad debt 22,754  20,459 
Other 21,818  3,702 
Changes in assets and liabilities that used cash:    
Accounts receivable/payable (71,720) (5,556)
Inventories (25,820) (34,668)
Other (22,679) (15,646)
Net cash provided by operating activities 133,102  108,304 
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property, plant and equipment (43,632) (70,863)
Proceeds from sales of property, plant and equipment 15,284  184 
Purchases of short-term investments (71,244) (62,211)
Proceeds from short-term investments 156,171  41,720 
Acquisition of businesses, net of cash acquired (11,307) (46,527)
Other (568) 72 
Net cash provided by (used in) investing activities 44,704  (137,625)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Purchase of noncontrolling interests (197) (950)
Proceeds on long-term borrowings   23,750 
Principal payments on long-term borrowings (18,260) (1,000)
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 17,152  8,579 
Purchase of Treasury Stock, at cost (24,112)  
Net cash (used in) provided by financing activities (25,417) 30,379 
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 31,867  3,696 
NET INCREASE IN CASH AND CASH EQUIVALENTS 184,256  4,754 
CASH AND CASH EQUIVALENTS — Beginning of period 623,855  582,532 
CASH AND CASH EQUIVALENTS — End of period $808,111  $587,286 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest $975  $349 
Cash paid for income taxes $80,956  $66,478 


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Source: IPG Photonics Corporation