IPG Photonics Announces Record Third Quarter 2017 Financial Results

OXFORD, Mass., Oct. 31, 2017 (GLOBE NEWSWIRE) -- IPG Photonics Corporation  (NASDAQ:IPGP) today reported financial results for the third quarter ended September 30, 2017.
                 
    Three Months Ended September 30,       Nine Months Ended September 30,    
(In millions, except per share data)   2017   2016   % Change   2017   2016   % Change
Revenue   $ 392.6     $ 266.0     48 %   $ 1,047.8     $ 726.1     44 %
Gross margin   57.2 %   54.4 %       56.1 %   54.7 %    
Operating income   $ 160.2     $ 94.1     70 %   $ 402.8     $ 259.1     55 %
Operating margin   40.8 %   35.4 %       38.4 %   35.7 %    
Net income attributable to IPG Photonics Corporation   $ 115.6     $ 69.2     67 %   $ 294.7     $ 185.6     59 %
Earnings per diluted share   $ 2.11     $ 1.29     64 %   $ 5.40     $ 3.45     57 %
                                             

Management Comments 

"IPG delivered another record quarter, driven by the secular shift to high-power products and accelerating adoption of our technology across our largest applications and geographies. We believe IPG Photonics' strong performance this quarter and through the first nine months of 2017 is a direct result of the superior performance, flexibility, productivity, and return on investment of our solutions. In addition, our vertically-integrated business model enables us to more rapidly scale production, reduce costs and deliver innovation than the competition," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer.

Third quarter revenue of $392.6 million increased 48% year over year, and earnings per diluted share ("EPS") of $2.11 increased 64% year over year. Materials processing sales increased 52% year-over-year in the third quarter and accounted for approximately 95% of total sales driven by strength in cutting, welding, and 3D printing applications. Sales to other markets decreased 9% year-over-year. High-power laser sales increased 60% year over year from rapid growth in cutting and welding applications while sales of QCW lasers increased 104% year over year driven by growth in consumer electronics production. By region, sales increased more than 70% in China and 50% in Europe, partially offset by a 10% decline in Japan.

During the third quarter, IPG generated $163.7 million in cash from operations and used $55.6 million to finance capital expenditures. IPG ended the quarter with $1.05 billion in cash and cash equivalents and short-term investments, representing an increase of $215.3 million from December 31, 2016.

Business Outlook and Financial Guidance

"Based on our third quarter outperformance and current backlog, we are now targeting approximately 37% to 39% revenue growth for the full year, up from 32% to 34% previously. This would represent our strongest annual revenue growth in six years, and is a testament to our leadership in providing cost-effective high-power laser solutions to our customers. For the fourth quarter, we expect revenue growth in the range of 18% to 27% year over year or $330 million to $355 million. Our revenue outlook reflects the expected slowdown in spending related to the consumer electronics investment cycle and typical seasonality in China," said Dr. Gapontsev.

For the fourth quarter of 2017, IPG Photonics anticipates earnings per diluted share in the range of $1.55 to $1.80 based on 54,698,000 diluted common shares, which includes 53,440,000 basic common shares outstanding and 1,258,000 potentially dilutive options at September 30, 2017. 

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 0.85, Russian Ruble 58, Japanese Yen 113 and Chinese Yuan 6.64, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Third 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, October 31, 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 HillierVice President of Investor RelationsIPG Photonics Corporation508-373-1467 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, targeted growth for the full year, revenue and earnings guidance for the fourth quarter, the consumer electronics investment cycle and seasonality 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 September 30,   Nine Months Ended September 30,
    2017   2016   2017   2016
    (in thousands, except per share data)
NET SALES   $ 392,615     $ 266,017     $ 1,047,834     $ 726,052  
COST OF SALES   168,060     121,226     459,716     329,147  
GROSS PROFIT   224,555     144,791     588,118     396,905  
OPERATING EXPENSES:                
Sales and marketing   13,384     10,460     36,347     28,183  
Research and development   25,541     20,543     74,281     56,444  
General and administrative   21,491     16,797     59,092     46,849  
Loss on foreign exchange   3,917     2,905     15,553     6,316  
   Total operating expenses   64,333     50,705     185,273     137,792  
OPERATING INCOME   160,222     94,086     402,845     259,113  
OTHER INCOME (EXPENSE), Net:                
Interest (expense) income, net   (125 )   373     651     835  
Other income (expense), net   459     194     (47 )   342  
   Total other income (expense)   334     567     604     1,177  
INCOME BEFORE PROVISION FOR INCOME TAXES   160,556     94,653     403,449     260,290  
PROVISION FOR INCOME TAXES   (44,959 )   (25,426 )   (108,817 )   (74,703 )
NET INCOME   115,597     69,227     294,632     185,587  
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS       (8 )   (26 )   (33 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION   $ 115,597     $ 69,235     $ 294,658     $ 185,620  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:                
Basic   $ 2.16     $ 1.30     $ 5.51     $ 3.50  
Diluted   $ 2.11     $ 1.29     $ 5.40     $ 3.45  
WEIGHTED AVERAGE SHARES OUTSTANDING:                
Basic   53,440     53,071     53,453     53,039  
Diluted   54,698     53,761     54,570     53,752  

 
IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE
 
    Three Months Ended September 30,   Nine Months Ended September 30,
(In thousands)   2017   2016   2017   2016
Cost of sales   $ 1,467     $ 1,615     $ 4,320     $ 4,579  
Sales and marketing   536     385     1,504     1,297  
Research and development   1,278     1,268     3,715     3,581  
General and administrative   2,649     2,395     7,450     6,642  
Total stock-based compensation   5,930     5,663     16,989     16,099  
Tax benefit recognized   (1,900 )   (1,817 )   (5,473 )   (5,166 )
Net stock-based compensation   $ 4,030     $ 3,846     $ 11,516     $ 10,933  

(In thousands, except share and per share data)   Three Months Ended September 30,   Nine Months Ended September 30,
    2017   2016   2017   2016
Excess tax benefit on exercise of stock options included in net income   $ 3,361     N/A   $ 10,885     N/A
Increase in weighted-average diluted shares outstanding   317,835     N/A   256,938     N/A

 
IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES
 
    Three Months Ended September 30,   Nine Months Ended September 30,
(In thousands)   2017   2016     2017     2016
Step-up of inventory (1)                
Cost of sales   $ 1,571     $ 1,012     $ 1,581     $ 1,385  
Amortization of intangible assets                
Cost of sales   $ 1,002     $ 931     $ 2,339     $ 1,978  
Sales and marketing   563     161       1,139       238  
Research and development   160     160       480       480  
Impairment charge related to long-lived asset                
General and administrative             162        
Total acquisition related costs and other charges   $ 3,296     $ 2,264     $ 5,701     $ 4,081  

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

 
IPG PHOTONICS CORPORATION CONSOLIDATED BALANCE SHEETS
 
    September 30,   December 31,
    2017   2016
    (In thousands, except share and per share data)
ASSETS
CURRENT ASSETS:        
Cash and cash equivalents   $ 880,267     $ 623,855  
Short-term investments   165,655     206,779  
Accounts receivable, net   226,756     155,901  
Inventories   282,495     239,010  
Prepaid income taxes   40,639     34,128  
Prepaid expenses and other current assets   46,727     41,289  
  Total current assets   1,642,539     1,300,962  
DEFERRED INCOME TAXES, NET   40,547     42,442  
GOODWILL   51,143     19,828  
INTANGIBLE ASSETS, NET   49,669     28,789  
PROPERTY, PLANT AND EQUIPMENT, NET   441,494     379,375  
OTHER ASSETS   20,673     18,603  
TOTAL   $ 2,246,065     $ 1,789,999  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:        
Current portion of long-term debt   $ 3,576     $ 3,188  
Accounts payable   34,271     28,048  
Accrued expenses and other liabilities   134,284     102,485  
Income taxes payable   10,060     24,554  
  Total current liabilities   182,191     158,275  
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES   58,479     36,365  
LONG-TERM DEBT, NET OF CURRENT PORTION   46,296     37,635  
  Total liabilities   286,966     232,275  
COMMITMENTS AND CONTINGENCIES        
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:        
Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,918,008 and 53,599,374 shares issued and outstanding, respectively, at September 30, 2017; 53,354,579 and 53,251,805 shares issued and outstanding, respectively, at December 31, 2016   5     5  
Treasury stock, at cost (318,634 and 102,774 shares held)   (35,857 )   (8,946 )
Additional paid-in capital   693,337     650,974  
Retained earnings   1,390,911     1,094,108  
Accumulated other comprehensive loss   (89,297 )   (178,583 )
  Total IPG Photonics Corporation stockholders' equity   1,959,099     1,557,558  
NONCONTROLLING INTERESTS       166  
  Total equity   $ 1,959,099     $ 1,557,724  
TOTAL   $ 2,246,065     $ 1,789,999  

 
IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
     
    Nine Months Ended September 30,
    2017   2016
    (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 294,632     $ 185,587  
Adjustments to reconcile net income to net cash provided by operating activities:        
  Depreciation and amortization   46,416     37,646  
  Provisions for inventory, warranty & bad debt   34,690     33,506  
  Other   40,419     10,282  
  Changes in assets and liabilities that used cash:        
    Accounts receivable/payable   (52,993 )   (20,669 )
    Inventories   (39,697 )   (42,814 )
    Other   (26,617 )   (7,693 )
      Net cash provided by operating activities   296,850     195,845  
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property, plant and equipment   (99,221 )   (100,047 )
Proceeds from sales of property, plant and equipment   15,437     220  
Purchases of short-term investments   (146,585 )   (179,374 )
Proceeds from sales of short-term investments   188,143     158,808  
Acquisitions of businesses, net of cash acquired   (50,594 )   (46,527 )
Other   (496 )   16  
      Net cash provided used in investing activities   (93,316 )   (166,904 )
CASH FLOWS FROM FINANCING ACTIVITIES:        
Purchase of noncontrolling interests   (197 )   (950 )
Proceeds on long-term borrowings   28,000     23,750  
Principal payments on long-term borrowings   (18,951 )   (1,797 )
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   23,296     9,186  
Purchase of Treasury Stock, at cost   (26,911 )   (3,483 )
      Net cash provided by financing activities   5,237     26,706  
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   47,641     7,379  
NET INCREASE IN CASH AND CASH EQUIVALENTS   256,412     63,026  
CASH AND CASH EQUIVALENTS — Beginning of period   623,855     582,532  
CASH AND CASH EQUIVALENTS — End of period   $ 880,267     $ 645,558  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
Cash paid for interest   $ 1,965     $ 623  
Cash paid for income taxes   $ 118,660     $ 95,539  

 

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