IPG Photonics CEO Discusses Q1 2012 Results - Earnings Call Transcript

Call Start: 10:00

Call End: 11:04

IPG Photonics Corporation (IPGP)

Q1 2012 Earnings Call

May 1, 2012 10:00 a.m. ET

Executives

Angelo Lopresti - VP and General Counsel

Dr. Valentin Gapontsev - CEO

Tim Mammen - VP and CFO

Analysts

Zach Larkin - Stephens

Tom Hayes - Thompson Research Group

Mark Douglass - Longbow Research

Jim Ricchiuti - Needham and Company

Krish Sankar - Bank of America Merrill Lynch

Patrick Newton - Stifel, Nicolaus

Joe Maxa - Dougherty and Company

Avinash Kant - D.A. Davidson

Jagadish Iyer - Piper Jaffray

Olga Levinzon - Barclays Capital

Mark Miller - Noble Financial

Jiwon Lee - Sidoti and Company

Arthur Weiss - Lord Abbott

Presentation

Operator

Good morning, and welcome to IPG Photonics’ First Quarter 2012 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, 2011 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 SEC'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, May 1, 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. IPG reported another quarter of strong year-over-year growth as we increased revenues by 23% to $123.2 million. Sales momentum for our high-power lasers for material processing applications continued as manufactures increasingly embraced the benefits of high-power laser technology.

In addition, we achieved a record gross margin of 55.8% and grew net income by 30%. Why IPG has enjoyed an impressive growth during the past few years we believe we are still in the early stages of the transition to fiber laser for industrial manufacturing applications. Like, there are new entrants in the fiber laser market trying to compete with IPG our customers continue to recognize the superior technology and reliability of IPG's products. (inaudible) and other benefits of our (inaudible) manufacturing operations.

Not only we are the pioneers in the fiber laser market but we're also the most cost effective, high quality products on the market and we are able to deliver orders in volumes with much shorter lead times than competitors.

Before I turn the call over to Tim for the financial review, I'd like to take a moment to comment on the public offering of 3,250,000 of common stock, which we completed in March 2012. The net proceeds of the offering provide IPG with the financial flexibility to fund capital expenditures and working capital requirements as well as to complete acquisitions of complimentary businesses and technologies. The offering boosted our cash position and we enable the company to capitalize on opportunities as they present themselves over the long term. It provides us with tremendous flexibility as the security of permanent funding.

With that, I'll turn the call over to Tim Mammen.

Tim Mammen

Thank you, Valentin, and good morning, everyone. I'll start with a review of our end markets, products and geographic regions. After that, I'll provide highlights from our income statement and balance sheet and close with our guidance.

First quarter materials processing sales increased 19% year-over-year to $103.2 million. This market accounted for 84% of total sales during the quarter. The industries we serve within the materials processing end markets include automotive, shipbuilding, electronics, consumer, general manufacturing, aerospace and heavy industry.

Materials processing also includes a broad array of applications including marking and engraving, welding, cutting, drilling, cladding, prototyping, scribing, wafer processing, surface cleaning and hardening. The opportunity for fiber laser adoption is expanding as manufacturers increasingly use our technology in a broader range of industrial materials processing applications.

The remaining 16% of sales were from telecom, advanced and medical applications. We see growth opportunities for IPG in these end markets but for (indiscernible) today and going forward we will only break out materials processing in detail since it represents the vast majority of our business.

Sales for these other applications were up 48% year-over-year to $20 million. The growth was driven by the sale of multiple high-power, high-brightness lasers for advanced applications to be used in research. Sales of high-power lasers, which account for just (inaudible) of total revenue increased 42% year-over-year to $63 million. (inaudible) in welding applications have been driving much of the growth of our high-power laser sales.

The benefits for customers using our lasers for cutting and welding include increased accuracy, speed and quality compared with traditional sources.

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