IPG Photonics Announces 40% Revenue Growth For Full Year 2017

Fourth Quarter Revenue and Operating Income Increase 29% and 41%, Respectively

Charges Related to U.S. Tax Cuts and Jobs Act Reduce Earnings Per Diluted Share by $0.90

OXFORD, Mass., Feb. 16, 2018 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ:IPGP) today reported financial results for the fourth quarter ended December 31, 2017.
    Three Months EndedDecember 31,             Twelve Months EndedDecember 31,          
(In millions, except per share data)   2017     2016     % Change     2017     2016     % Change  
Revenue   $ 361.1     $ 280.1     29 %   $ 1,408.9     $ 1,006.2     40 %
Gross margin   57.8 %   55.5 %         56.6 %   54.9 %      
Operating income   $ 148.3     $ 105.2     41 %   $ 551.1     $ 364.3     51 %
Operating margin   41.1 %   37.6 %         39.1 %   36.2 %      
Net income attributable to IPG Photonics Corporation   $ 53.0     $ 75.1     (30 )%   $ 347.6     $ 260.8     33 %
Earnings per diluted share   $ 0.96     $ 1.39     (31 )%   $ 6.36     $ 4.85     31 %

Management Comments

"We capped off one of the strongest growth years in IPG's history with a record fourth quarter, driven by accelerating adoption of our high-power fiber lasers across our largest applications and geographies," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Our outstanding performance is a direct result of our scale advantages and unique business model combining a vertically-integrated manufacturing operation with broad-based technology and process abilities that enable us to rapidly increase production, reduce costs and deliver innovation."

Fourth quarter revenue of $361.1 million increased 29% year over year. Materials processing sales increased 32% year over year and accounted for approximately 94% of total revenue driven by strength in cutting, welding and 3D printing applications. Sales to other markets decreased 6% from the fourth quarter of 2016. High-power laser sales increased 40% year over year and pulsed laser sales increased 20% year over year. Sales of other laser products increased 24% year over year driven by growth in systems and beam delivery accessories. On a geographic basis, IPG achieved double-digit year over year sales growth in China, Europe, North America and Turkey and grew modestly in Japan.

Earnings per diluted share ("EPS") were $0.96. Charges related to the 2017 U.S. Tax Cuts and Jobs Act reduced net income by $49 million and EPS by $0.90. These estimated charges include $47 million related to the one-time transition tax on undistributed foreign earnings, $1 million for the associated state tax on foreign earnings no longer deemed to be permanently reinvested and $1 million from a reduction in the value of U.S. net deferred tax assets resulting from the recently-enacted lower U.S. Federal tax rate. The estimated tax charges are subject to change based upon additional analysis and subsequent regulations, interpretations and guidance.

During the fourth quarter, IPG generated $108 million in cash from operations and used $27 million to finance capital expenditures. IPG ended the quarter with $1.12 billion in cash and cash equivalents and short-term investments, representing an increase of $286 million from December 31, 2016.

Business Outlook and Financial Guidance

"Order flow was strong in the fourth quarter with our book-to-bill ratio at 1.0, representing solid performance in light of our record quarterly revenue. Backlog of orders with firm shipment dates increased by 44% to $326 million. Backlog of non-binding frame agreements increased by 123% to $417 million," said Dr. Gapontsev. It should be noted that frame agreements are non-binding indications of customer pricing and volume levels but are not firm customer purchase obligations. The underlying growth in frame agreements, while positive, also reflects lower backlog of year-end 2016 frame agreements. As we reported last year, a large number of frame agreements were booked in January 2017.

For the full year 2018 IPG Photonics is targeting 10% to 15% revenue growth. Our annual guidance reflects current backlog and annual order indications from our largest OEM customers. This guidance assumes continued momentum in our core materials processing markets, further progress in new application areas, and strong worldwide macroeconomic conditions offset by lower spending related to consumer electronics applications. Based on the accelerating growth within our business in 2017, we expect capital expenditures to be $170 million to $190 million, the high end of our target range of 8% to 12% of revenue. Finally, we expect the recently enacted U.S. tax legislation to lower our 2018 corporate tax rate to 26% from 30% in 2017, excluding effects relating to equity grants.

For the first quarter, we expect revenue growth in the range of 15% to 24% year over year or $330 million to $355 million and anticipate earnings per diluted share in the range of $1.62 to $1.87, which reflects earnings growth in the range of 17% to 36% year over year.

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 0.83, Russian Ruble 58, Japanese Yen 113 and Chinese Yuan 6.53, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Fourth 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, February 16, 2018 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, revenues from non-binding frame agreements, revenue and earnings guidance for the first quarter 2018, revenue guidance for full year 2018, continued momentum in our core materials processing markets, further progress in new application areas, strong worldwide macroeconomic conditions, spending related to consumer electronics applications and expected corporate tax rates. 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 EndedDecember 31,   Twelve Months Ended December 31,
    2017   2016 ¿  2017   2016
    (in thousands, except per share data)
NET SALES   $ 361,055     $ 280,121     $ 1,408,889     $ 1,006,173  
COST OF SALES   152,262     124,785     611,978     453,933  
GROSS PROFIT   208,793     155,336     796,911     552,240  
OPERATING EXPENSES:                
Sales and marketing   13,454     10,210     49,801     38,393  
Research and development   26,589     22,108     100,870     78,552  
General and administrative   21,576     19,637     80,668     66,486  
(Gain) loss on foreign exchange   (1,093 )   (1,820 )   14,460     4,496  
Total operating expenses   60,526     50,135     245,799     187,927  
OPERATING INCOME   148,267     105,201     551,112     364,313  
OTHER INCOME, Net:                
Interest income, net   86     469     737     1,304  
Other income, net   69     606     22     948  
Total other income   155     1,075     759     2,252  
INCOME BEFORE PROVISION FOR INCOME TAXES   148,422     106,276     551,871     366,565  
PROVISION FOR INCOME TAXES   (95,466 )   (31,146 )   (204,283 )   (105,849 )
NET INCOME   52,956     75,130     347,588     260,716  
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST       (3 )   (26 )   (36 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION   $ 52,956     $ 75,133     $ 347,614     $ 260,752  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:                
Basic   $ 0.99     $ 1.42     $ 6.50     $ 4.91  
Diluted   $ 0.96     $ 1.39     $ 6.36     $ 4.85  
WEIGHTED AVERAGE SHARES OUTSTANDING:                
Basic   53,460     53,097     53,495     53,068  
Diluted   54,923     53,873     54,699     53,797  

IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE
    Three Months Ended December 31,   Twelve Months Ended December 31,
(In thousands)   2017   2016   2017   2016
Cost of sales   $ 1,543     $ 1,439     $ 5,863     $ 6,018  
Sales and marketing   537     523     2,041     1,820  
Research and development   1,286     1,324     5,001     4,905  
General and administrative   2,666     2,349     10,116     8,991  
Total stock-based compensation   6,032     5,635     23,021     21,734  
Tax benefit recognized   (1,894 )   (1,805 )   (7,367 )   (6,971 )
Net stock-based compensation   $ 4,138     $ 3,830     $ 15,654     $ 14,763  

(In thousands, except share and per share data)   Three Months EndedDecember 31,   Twelve Months EndedDecember 31,
    2017   2016   2017   2016
Excess tax benefit on exercise of stock options included in net income   $ 3,700     $     $ 14,585     $  
Increase in weighted-average diluted shares outstanding   407,316         255,812      

IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES
    Three Months Ended December 31,   Twelve Months Ended December 31,
(In thousands)   2017   2016     2017     2016
Step-up of inventory (1)                
Cost of sales   $ 992     $ 715     $ 2,573     $ 2,100  
Amortization of intangible assets                
Cost of sales   $ 1,435     $ 866     $ 3,774   $ 2,966
Sales and marketing   346     38       1,485       153  
Research and development   160     160       640       640  
Impairment charge related to long-lived asset                
General and administrative             162        
Total acquisition related costs and other charges   $ 2,933     $ 1,778     $ 8,634     $ 5,859  

(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

    December 31,   December 31,
    2017   2016
    (In thousands, except share and per share data)
ASSETS
CURRENT ASSETS:        
Cash and cash equivalents   $ 909,900     $ 623,855  
Short-term investments   206,257     206,779  
Accounts receivable, net   237,278     155,901  
Inventories   307,712     239,010  
Prepaid income taxes   44,944     34,128  
Prepaid expenses and other current assets   47,919     41,289  
Total current assets   1,754,010     1,300,962  
DEFERRED INCOME TAXES, NET   31,696     42,442  
GOODWILL   55,831     19,828  
INTANGIBLE ASSETS, NET   51,223     28,789  
PROPERTY, PLANT AND EQUIPMENT, NET   460,206     379,375  
OTHER ASSETS   19,009     18,603  
TOTAL   $ 2,371,975     $ 1,789,999  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:        
Current portion of long-term debt   $ 3,604     $ 3,188  
Accounts payable   35,109     28,048  
Accrued expenses and other liabilities   144,417     102,485  
Income taxes payable   15,773     24,554  
Total current liabilities   198,903     158,275  
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES   105,372     36,365  
LONG-TERM DEBT, NET OF CURRENT PORTION   45,378     37,635  
Total liabilities   349,653     232,275  
COMMITMENTS AND CONTINGENCIES        
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:        
Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,007,708and 53,629,439 shares issued and outstanding, respectively, at December 31,2017; 53,354,579 and 53,251,805 shares issued and outstanding, respectively,at December 31, 2016   5     5  
Treasury stock, at cost (378,269 and 102,774 shares held)   (48,933 )   (8,946 )
Additional paid-in capital   704,727     650,974  
Retained earnings   1,443,867     1,094,108  
Accumulated other comprehensive loss   (77,344 )   (178,583 )
Total IPG Photonics Corporation stockholders' equity   2,022,322     1,557,558  
NONCONTROLLING INTERESTS       166  
Total equity   $ 2,022,322     $ 1,557,724  
TOTAL   $ 2,371,975     $ 1,789,999  

IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
    Twelve Months Ended December 31,
    2017   2016
    (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 347,588     $ 260,716  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   64,568     51,475  
Provisions for inventory, warranty & bad debt   44,978     46,469  
Other   54,837     13,848  
Changes in assets and liabilities that used cash:        
Accounts receivable/payable   (60,916 )   (11,851 )
Inventories   (71,080 )   (53,626 )
Other   24,473     (9,335 )
Net cash provided by operating activities   404,448     297,696  
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property, plant and equipment   (126,535 )   (127,042 )
Proceeds from sales of property, plant and equipment   15,882     658  
Purchases of short-term investments   (211,832 )   (299,508 )
Proceeds from sales of short-term investments   212,515     198,808  
Acquisitions of businesses, net of cash acquired   (59,536 )   (47,792 )
Other   (352 )   468  
Net cash used in investing activities   (169,858 )   (274,408 )
CASH FLOWS FROM FINANCING ACTIVITIES:        
Purchase of noncontrolling interests   (197 )   (950 )
Proceeds on long-term borrowings   28,000      
Principal payments on long-term borrowings   (19,842 )   (2,594 )
Proceeds from issuance of common stock under employee stock option and purchase plans lesspayments for taxes related to net share settlement of equity awards   28,654     16,183  
Purchase of Treasury Stock, at cost   (39,987 )   (8,946 )
Net cash (used in) provided by financing activities   (3,372 )   3,693  
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   54,827     (9,408 )
NET INCREASE IN CASH AND CASH EQUIVALENTS   286,045     17,573  
CASH AND CASH EQUIVALENTS — Beginning of period   623,855     582,532  
CASH AND CASH EQUIVALENTS — End of period   $ 909,900     $ 600,105  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
Cash paid for interest   $ 2,583     $ 942  
Cash paid for income taxes   $ 155,559     $ 126,964  

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