IPG Photonics Reports 9% Revenue Growth for Third Quarter 2016

IPG Photonics Reports 9% Revenue Growth for Third Quarter 2016

Record Quarterly Revenues of $266.0 Million Driven by Strength in Materials Processing Sales

Growth in Core Applications From Strong Asian Sales and Solid Sales in Europe

OXFORD, Mass.--(BUSINESS WIRE)-- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September 30, 2016.

               

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In millions, except per share data)2016     2015% Change2016     2015% Change
Revenue $ 266.0 $ 243.5 9 % $ 726.1 $ 677.6 7 %
Gross margin 54.4 % 54.7 % 54.7 % 54.6 %
Operating income $ 94.1 $ 89.6 5 % $ 259.1 $ 259.0 %
Operating margin 35.4 % 36.8 % 35.7 % 38.2 %
Net income attributable to IPG Photonics Corporation $ 69.2 $ 62.8 10 % $ 185.6 $ 181.5 2 %
Earnings per diluted share $ 1.29 $ 1.18 9 % $ 3.45 $ 3.40 1 %
 

Management Comments

"IPG achieved another quarter of record sales for the third quarter of 2016," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. “Sales of $266 million were above the high end of our guidance range, reflecting a rebound in our core materials processing applications driven by increased demand in Asia, North America and certain parts of Europe. In addition to our record sales, we are also encouraged by robust bookings that remained strong throughout the quarter and were not impacted by the typical seasonality. As a result, our book-to-bill was above one for the third quarter."

Materials processing sales increased 10% year-over-year, primarily driven by demand for IPG's core cutting and welding applications, as well as strength in marking and engraving, laser sintering, hole drilling and cladding applications. High-power fiber laser sales had a record quarter with 17% growth year-over-year, while sales of medium-power, pulsed, QCW and laser systems decreased by single digits compared with the prior year. Sales to other markets were flat from the same quarter last year. Strong growth in telecom sales was offset by lower sales for medical and advanced applications. On a geographic basis, IPG reported strong growth in China, Japan and Korea despite foreign exchange headwinds, while sales in Europe and North America were up slightly from the third quarter of last year.

During the third quarter, IPG generated $87.7 million in cash from operations and used $30.8 million to finance capital expenditures. IPG ended the quarter with $772.5 million in cash and cash equivalents and short-term investments, representing an increase of $83.4 million from December 31, 2015.

Business Outlook and Financial Guidance

"We are seeing strong momentum in our business as we enter the final quarter of our fiscal year. We have significant opportunities to expand our business through both existing and new OEMs and end-users as we develop innovative products to address applications beyond our core markets. While the fourth quarter can be seasonally weaker, we believe we are well positioned for continued strong year-over-year sales and earnings growth and are confident in our short- and long-term opportunities," concluded Dr. Gapontsev.

IPG Photonics expects revenue in the range of $255 million to $270 million for the fourth quarter of 2016. The Company anticipates earnings per diluted share in the range of $1.17 to $1.32 based on 53,761,000 diluted common shares, which includes 53,071,000 basic common shares outstanding and 690,000 potentially dilutive options at September 30, 2016. 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 0.89, Russian Ruble 63, Japanese Yen 101 and Chinese Yuan 6.68, respectively.

Conference Call Reminder

The Company will hold a conference call today, October 27, 2016 at 10:00 a.m. ET. The conference call will be webcast live and can be accessed on the "Investors" section of the Company's website at www.ipgphotonics.com. The conference call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. An archived version of the webcast will be available for approximately one year on IPG's website.

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, strong momentum in IPG's business, significant opportunities to expand its business, development of innovative products to address applications beyond its core markets, continued strong year-over-year sales and earnings growth, and guidance for the fourth quarter of 2016. 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; 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 26, 2016) 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,

2016     20152016     2015
(in thousands, except per share data)
NET SALES $ 266,017 $ 243,541 $ 726,052 $ 677,639
COST OF SALES 121,226   110,237   329,147   307,805  
GROSS PROFIT 144,791   133,304   396,905   369,834  
OPERATING EXPENSES:
Sales and marketing 10,460 7,717 28,183 23,228
Research and development 20,543 16,221 56,444 45,565
General and administrative 16,797 14,679 46,849 42,474
Loss (gain) on foreign exchange 2,905   5,125   6,316   (460 )
Total operating expenses 50,705   43,742   137,792   110,807  
OPERATING INCOME 94,086   89,562   259,113   259,027  
OTHER INCOME (EXPENSE), Net:
Interest income (expense), net 373 (40 ) 835 (335 )
Other income, net 194   132   342   378  
Total other income (expense) 567   92   1,177   43  
INCOME BEFORE PROVISION FOR INCOME TAXES 94,653 89,654 260,290 259,070
PROVISION FOR INCOME TAXES (25,426 ) (26,897 ) (74,703 ) (77,721 )
NET INCOME 69,227 62,757 185,587 181,349
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (8 ) (34 ) (33 ) (101 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $ 69,235   $ 62,791   $ 185,620   $ 181,450  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:
Basic $ 1.30 $ 1.19 $ 3.50 $ 3.45
Diluted $ 1.29 $ 1.18 $ 3.45 $ 3.40
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53,071 52,675 53,039 52,628
Diluted 53,761 53,392 53,752 53,390
 
         

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION

 
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2016   20152016   2015
Cost of sales $ 1,615 $ 1,404 $ 4,579 $ 3,919
Sales and marketing 385 522 1,297 1,466
Research and development 1,268 1,077 3,581 2,940
General and administrative 2,395   2,010   6,642   5,550  
Total stock-based compensation 5,663 5,013 16,099 13,875
Tax benefit recognized (1,817 ) (1,542 ) (5,166 ) (4,450 )
Net stock-based compensation $ 3,846   $ 3,471   $ 10,933   $ 9,425  
 
     

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS IN COST OF SALES

 
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2016   20152016   2015
Cost of sales
Step-up of inventory (1) $ 1,012 $ $ 1,385 $
Amortization of intangible assets (2) 931   387   1,978   1,033
Total acquisition related costs $ 1,943   $ 387   $ 3,363   $ 1,033
 

(1) Amount relates to Menara step-up adjustment on inventory sold during the period

(2) Amount relates to intangible amortization expense during periods presented including amortization of acquired patents

 

IPG PHOTONICS CORPORATION

CONSOLIDATED BALANCE SHEETS

         
September 30,December 31,
20162015

(In thousands, except share and per
share data)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 645,558 $ 582,532
Short-term investments 126,970 106,584
Accounts receivable, net 162,725 150,479
Inventories 242,370 203,738
Prepaid income taxes 35,342 33,692
Prepaid expenses and other current assets 38,913 25,564
Deferred income taxes, net 24,620   20,346  
Total current assets 1,276,498 1,122,935
DEFERRED INCOME TAXES, NET 15,371 9,386
GOODWILL 20,142 505
INTANGIBLE ASSETS, NET 28,372 11,904
PROPERTY, PLANT AND EQUIPMENT, NET 367,474 288,604
OTHER ASSETS 19,441   20,095  
TOTAL $ 1,727,298   $ 1,453,429  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,188 $ 2,000
Accounts payable 17,899 26,314
Accrued expenses and other liabilities 96,376 75,667
Deferred income taxes, net 4,047 3,190
Income taxes payable 34,117   37,809  
Total current liabilities 155,627 144,980
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 30,223 30,117
LONG-TERM DEBT, NET OF CURRENT PORTION 38,432   17,667  
Total liabilities 224,282 192,764
COMMITMENTS AND CONTINGENCIES
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:

Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,171,115
and 53,129,315 shares issued and outstanding, respectively, at September 30,
2016; 52,883,902 shares issued and outstanding at December 31, 2015

5 5
Treasury stock, at cost (41,800 and 0 shares held) (3,483 )
Additional paid-in capital 635,778 607,649
Retained earnings 1,018,976 833,356
Accumulated other comprehensive loss (148,430 ) (181,482 )
Total IPG Photonics Corporation stockholders' equity 1,502,846 1,259,528
NONCONTROLLING INTERESTS 170   1,137  
Total equity $ 1,503,016   $ 1,260,665  
TOTAL $ 1,727,298   $ 1,453,429  
 
     

IPG PHOTONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine Months Ended September 30,
2016   2015
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 185,587 $ 181,349
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 37,646 31,079
Provisions for inventory, warranty & bad debt 33,506 29,414
Other 10,282 3,029
Changes in assets and liabilities that used cash:
Accounts receivable/payable (20,669 ) (15,485 )
Inventories (42,814 ) (52,172 )
Other (10,537 ) 17,397  
Net cash provided by operating activities 193,001   194,611  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (101,668 ) (50,759 )
Proceeds from sales of property, plant and equipment 1,841 231
Purchases of short-term investments (179,374 )
Proceeds from short-term investments 158,808
Acquisition of businesses, net of cash acquired (46,527 ) (4,958 )
Other 16   63  
Net cash used in investing activities (166,904 ) (55,423 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Line-of-credit facilities (2,274 )
Proceeds on long-term borrowings 23,750
Principal payments on long-term borrowings (1,797 ) (12,833 )
Purchase of noncontrolling interests (950 )
Exercise of employee stock options and issuances under employee stock purchase plan 9,186 10,489
Tax benefits from exercise of employee stock options 2,844 5,822
Purchase of Treasury Stock, at cost (3,483 )  
Net cash provided by financing activities 29,550   1,204  
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 7,379   (11,322 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 63,026 129,070
CASH AND CASH EQUIVALENTS — Beginning of period 582,532   522,150  
CASH AND CASH EQUIVALENTS — End of period $ 645,558   $ 651,220  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 623   $ 688  
Cash paid for income taxes $ 92,539   $ 65,376  
 

IPG Photonics Corporation
Tim Mammen, 508-373-1100
Chief Financial Officer
or
Sharon Merrill Associates
David Calusdian, 617-542-5300
President

Source: IPG Photonics Corporation