IPG Photonics' CEO Discusses Q4 2011 Results - Earnings Call Transcript

IPG Photonics Corporation (IPGP)

Q4 2011 Earnings Call

February 10, 2012 10:00 a.m. ET


Valentin Gapontsev - Chief Executive Officer and Chairman of the Board

Timothy Mammen - Chief Financial Officer and Vice President

Angelo Lopresti - General Counsel, Secretary and Vice President


Zach Larkin - Stephens, Inc.

Krish Sankar - Bank of America Merrill Lynch

Joe Maxa - Dougherty & Company

Avinash Kant - D.A. Davidson

James Ricchiuti - Needham & Company

Mark Douglass - Longbow Research

Olga Levinzon - Barclays Capital

Mark Miller - Noble Financial

Jiwon Lee - Sidoti & Company

Ajit Pai - Stifel Nicolaus



Good morning, and welcome to IPG Photonics’ Fourth Quarter and Year-End 2011 Financial Results Conference Call. Today’s call is being recorded and webcast. There will be an opportunity for questions at the end of the call. (Operator Instructions) At this time, I would like to turn the call over to Mr. Angelo Lopresti, IPG’s Vice President, General Counsel and Secretary, for introductions. Please go ahead, sir.

Angelo Lopresti

Thank you, and good morning, everyone. With us today is IPG Photonics’ Chairman and Chief Executive Officer, Dr. Valentin Gapontsev, and Vice President and Chief Financial Officer, Tim Mammen.

Statements made during the course of this conference call that discuss management’s or the company’s intentions, expectations or predictions of the future, are forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company’s actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include those detailed in IPG Photonics’ Form 10-K for the year ended December 31, 2010, and other reports on file with the Securities and Exchange Commission.

Copies of these filings may be obtained by visiting the Investors section of IPG’s website at investor.ipgphotonics.com/sec.cfm, or by contacting the company directly. You may also find copies on the company’s website at www.sec.gov. Any forward-looking statements made on this call are the company’s expectations or predictions only as of today, February 10, 2012. The company assumes no obligation to publicly release any updates or revisions to any such statements.

We will post these prepared remarks on our website following the completion of the call. Please go to www.ipgphotonics.com and select Investors to review these remarks. I’ll now turn the call over to Dr. Valentin Gapontsev.

Valentin Gapontsev

Good morning, everyone. The fourth quarter culminated a very successful 2011 for IPG. For the year, we grew revenues by 59%, gross margins increased to 54% and net income more than doubled. For the fourth quarter, revenues increased 22% compared to Q4 a year ago. Our growth continues to be driven by high-power laser sales for materials processing applications. Gross margins were 54% and earnings were $0.64 per diluted share in the most recent quarter.

We made significant progress in 2011 and you could say that last year marked a real turning point in fiber laser adoption. According to a recent leading industry expert publication, last year, fiber lasers were estimated to account for 25% of worldwide industrial laser sales and up to 20% of total laser sales except communications and other milliwatt scale diodes.

It is great achievement. However, fiber lasers are still at early stage of penetrating the large parts of the laser market and we believe that IPG is still relatively early in the adoption cycle. The leading analysts estimate that industrial fiber lasers can grow to $1.2 billion in 2015 and $1.5 billion if you include non-materials processing. So, there remain large opportunities for fiber lasers for the future and IPG intends to lead the way. I want to remark now on some of the progress we made in 2011 then I will comment on how we plan to move our technology forward for the future.

We are seeing that fiber lasers have become the laser of choice in the auto industry. It is an exciting time there for laser applications. They are making significant new investments in models and manufacturing lines. They are using new, exotic materials in car designs and they must lower their production costs. The trend toward lowering weight and improving the fuel economy results in increased use of lightweight, high strength steel and aluminum as well as welding together materials of different thicknesses and composition.

All of these developments favor laser cutting and welding over older technologies like tool dies, spot welding and others. We at IPG plan to take full advantage of this situation by offering innovative laser sources, specialized welding laser systems like steppers for remote scanning welders, and developing new applications with our lasers for automakers.

Last year, we also expanded the application for our fiber lasers. There are many examples, but I will give a few. In the oil and gas industry, our robust and efficient lasers allow for new applications. We have sold one customer three high power lasers to ate for oil and gas exploration. They believe our lasers can significantly reduce the cost of drilling oil and gas wells.

Also, our high power lasers in 2011 were used for fighting oil and gas well fires and for hardening steel in natural resource exploration. For example, the special laser cannon helped recently to remotely cut foundation in gas well station constructions in Siberia, saving a lot of time and money. This application uses very high power fiber lasers that only IPG can deliver, and the potential for this application is very significant.

Going forward, we plan to leverage our technology depth and culture of innovation, expanding the range of laser powers and wavelengths to address more applications and displace more existing laser and non-laser technologies. In particular, we believe the welding market represents a significant opportunity for fiber lasers to replace non-laser technologies like currently used spot welding, arc welding, wire based welding technologies. Fiber lasers are now used primarily on metals, but we are working hard to expand our product line so that we can process various non-metals.

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