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IPG Photonics Announces Fourth Quarter 2019 Financial Results

February 13, 2020

 Fourth Quarter Revenue Exceeds Guidance; Company Generates $130 Million Operating Cash Flow

Goodwill and Asset Impairment, Inventory Provision and Restructuring Charges Reduce Earnings Per Diluted Share by $0.99

OXFORD, Mass., Feb. 13, 2020 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the fourth quarter ended December 31, 2019.

    Three Months Ended December 31,       Twelve Months Ended December 31,    
(In millions, except per share data and percentages)   2019   2018   Change   2019   2018   Change
Revenue   $ 306.6        $ 330.1      (7 ) %   $ 1,314.6      $ 1,459.9      (10 ) %
Gross margin   40.5    %   50.5  %       46.1  %   54.8  %    
Operating income   $ 0.2        $ 96.1      (100 ) %   $ 233.8      $ 523.4      (55 ) %
Operating margin   0.1    %   29.1  %       17.8  %   35.9  %    
Net income attributable to IPG Photonics Corporation   $ (4.5 )     $ 75.6      (106 ) %   $ 180.2      $ 404.0      (55 ) %
Earnings per diluted share   $ (0.08 )     $ 1.40      (106 ) %   $ 3.35      $ 7.38      (55 ) %

Management Comments

"We delivered fourth quarter revenue slightly above our guidance range on strength in the US market and new products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "The global macroeconomic backdrop and the competitive landscape in China both remain challenging. However, we are responding with product cost reductions and differentiated new features and accessories for our core products. Furthermore, we are leveraging one of the largest R&D investments in the laser industry to launch leading-edge laser products and systems for new markets. These new solutions, which represent about one-fifth of total sales, enhance our growth and margin profile and provide greater geographic and end market diversification."

Financial Highlights

Fourth quarter revenue of $307 million decreased 7% year over year. Currency depreciation relative to the exchange rates assumed in our fourth quarter guidance reduced revenue by approximately $2 million. Materials processing sales decreased 11% year over year while sales into other applications increased 42% year over year. Materials processing sales accounted for 90% of total revenue. The acquisition of Genesis Systems Group contributed $19 million during the quarter.

Sales of high power continuous wave (CW) lasers, representing 51% of total revenue, decreased 15% year over year. Sales of fiber lasers at 6 kilowatts of power or greater were approximately 50% of all high power CW laser sales, and high power CW lasers at 10 kilowatts or greater increased more than 30% year over year. Sales of other high power lasers declined year over year due to the weaker demand environment in China and Europe and lower average selling prices. By region, sales decreased 21% in China, 17% in Europe, 37% in Japan and increased 30% in North America on a year over year basis.

Net loss per diluted share was $0.08. Foreign exchange losses, higher inventory reserves and charges related to impairment of goodwill and other long-lived assets and restructuring reduced earnings per diluted share ("EPS") by $0.99. During the fourth quarter, we incurred a charge of $42 million for impairment of goodwill and other long-lived assets, primarily related to our communications business, and a charge of $2 million related to our restructuring actions taken during the second half of 2019. During the fourth quarter, IPG generated $130 million in cash from operations. Capital expenditures were $26 million and stock repurchases totaled $15 million.

Business Outlook and Financial Guidance

"We believe we have significant long-term growth opportunities in welding, fine processing of electric vehicle batteries and our portfolio of new products addressing opportunities in microelectronics, medical, systems and beam delivery solutions. Current demand for our leading-edge laser solutions remains mixed, with strength in North America and emerging regions such as India and Southeast Asia offset by ongoing macro softness in Europe and Japan. Prior to the government-extended Lunar New Year holiday, there were signs that business in China was firming, with order flow having picked up in December and January. However, ongoing business disruption related to the novel coronavirus outbreak makes forecasting our business in China and the impact on global demand very challenging at this point. China is a large and important market for IPG, with repercussions for other markets, and we continue to monitor the situation closely," said Dr. Gapontsev.

For the first quarter of 2020, IPG expects revenue of $220 million to $250 million. The Company expects the first quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.00 to $0.30, with 52.9 million basic common shares outstanding and 53.6 million diluted common shares outstanding. This guidance assumes approximately $45 million in reduced revenue and $0.45 lower EPS from business disruption related to the novel coronavirus outbreak.

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, tariffs, trade policy changes, health epidemics 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 62, Japanese Yen 109 and Chinese Yuan 6.98, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Fourth Quarter 2019 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 13, 2020 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 Hillier
Vice President of Investor Relations
IPG Photonics Corporation
508-373-1467
jhillier@ipgphotonics.com

About IPG Photonics Corporation

IPG Photonics Corporation is the leader in high-power fiber lasers and amplifiers used primarily in materials processing and other diverse applications. The Company’s mission is to make its fiber laser technology the tool of choice in mass production. IPG accomplishes this mission by delivering superior performance, reliability and usability at a lower total cost of ownership compared with other types of lasers and non-laser tools, allowing end users to increase productivity and decrease costs. A member of the S&P 500® Index, IPG is headquartered in Oxford, Massachusetts and has more than 25 facilities worldwide. For more information, 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 product cost reductions, core products having differentiated new features and accessories; leveraging the our R&D investment to launch leading edge laser products and systems for new markets; products and systems enhancing our growth and margin profile, and greater geographic and end market diversification; significant long-term growth opportunities in welding, fine processing of electric vehicle batteries and our portfolio of new products in microelectronics, medical. systems and beam delivery solutions; ongoing business disruption related to the novel coronavirus outbreak and its impact on global demand and other markets; and revenue, tax rate and earnings guidance for Q1 2020. 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; changes in trade controls and trade policies; 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 Quarterly Report on Form 10-Q (filed with the SEC on August 6, 2019) and its 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2019   2018   2019   2018
    (In thousands, except per share data)
Net sales   $ 306,627        $ 330,051        $ 1,314,581      $ 1,459,874     
Cost of sales   182,424        163,303        708,372      659,606     
Gross profit   124,203        166,748        606,209      800,268     
Operating expenses:                
Sales and marketing   18,838        16,284        77,745      57,815     
Research and development   30,469        31,501        129,997      122,769     
General and administrative   25,071        27,572        107,597      102,429     
Goodwill impairment   37,120        —        37,120      —     
Impairment of long-lived assets and other restructuring charges   7,130        —        7,130      —     
Loss (gain) on foreign exchange   5,332        (4,661 )     12,827      (6,150 )  
Total operating expenses   123,960        70,696        372,416      276,863     
Operating income   243        96,052        233,793      523,405     
Other income, net:                
Interest income, net   2,501        4,132        14,238      9,057     
Other income, net   216        681        345      1,933     
Total other income   2,717        4,813        14,583      10,990     
Income before provision of income taxes   2,960        100,865        248,376      534,395     
Provision for income taxes   7,263        25,399        68,115      130,226     
Net (loss) income   (4,303 )     75,466        180,261      404,169     
Less: net income (loss) attributable to non-controlling interests   147        (93 )     27      142     
Net (loss) income attributable to IPG Photonics Corporation   $ (4,450 )     $ 75,559        $ 180,234      $ 404,027     
Net (loss) income attributable to IPG Photonics Corporation per share:                
Basic   $ (0.08 )     $ 1.42        $ 3.40      $ 7.55     
Diluted   $ (0.08 )     $ 1.40        $ 3.35      $ 7.38     
Weighted average shares outstanding:                
Basic   52,916        53,243        53,061      53,522     
Diluted   52,916        54,107        53,839      54,726     

 

IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

    December 31,
    2019   2018
    (In thousands, except share and per
share data)
ASSETS
Current assets:        
Cash and cash equivalents   $ 680,070        $ 544,358     
Short-term investments   502,546        500,432     
Accounts receivable, net   238,479        255,509     
Inventories   380,790        403,579     
Prepaid income taxes   38,873        43,782     
Prepaid expenses and other current assets   55,876        57,764     
Total current assets   1,896,634        1,805,424     
Deferred income taxes, net   31,395        19,165     
Goodwill   82,092        100,722     
Intangible assets, net   74,271        87,139     
Property, plant and equipment, net   600,852        543,068     
Other assets   45,192        18,932     
Total assets   $ 2,730,436        $ 2,574,450     
         
LIABILITIES AND EQUITY
Current liabilities:        
Current portion of long-term debt   $ 3,740        $ 3,671     
Accounts payable   27,329        36,302     
Accrued expenses and other liabilities   149,782        154,640     
Income taxes payable   11,053        51,161     
Total current liabilities   191,904        245,774     
Deferred income taxes and other long-term liabilities   98,121        80,734     
Long-term debt, net of current portion   37,968        41,707     
Total liabilities   327,993        368,215     
Commitments and contingencies        
IPG Photonics Corporation equity:        
Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019; 54,371,701 and 52,941,607 shares issued and outstanding, respectively, at December 31, 2018.   5       5    
Treasury stock, at cost, 1,732,352 and 1,430,094 shares held at December 31, 2019 and December 31, 2018, respectively.   (265,730 )     (224,998 )  
Additional paid-in capital   785,636       744,937    
Retained earnings   2,028,734       1,848,500    
Accumulated other comprehensive loss   (146,919 )     (162,896 )  
Total IPG Photonics Corporation shareholders' equity   2,401,726       2,205,548    
Non-controlling interests   717       687    
Total equity   2,402,443       2,206,235    
Total liabilities and equity   $ 2,730,436       $ 2,574,450    

 

IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

    Twelve Months Ended December 31,
    2019   2018
    (In thousands)
Cash flows from operating activities:        
Net income   $ 180,261       $ 404,169    
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   96,268       80,271    
Goodwill impairment   37,120       —     
Impairment of long-lived assets   5,350       —     
Provisions for inventory, warranty & bad debt   63,752       38,862    
Other   32,198       17,195    
Changes in assets and liabilities that used cash:        
Accounts receivable and accounts payable   (481 )     (20,240 )  
Inventories   (28,105 )     (135,440 )  
Other   (62,842 )     8,484    
Net cash provided by operating activities   323,521       393,301    
Cash flows from investing activities:        
Purchases of property, plant and equipment   (133,536 )     (160,343 )  
Proceeds from sales of property, plant and equipment   661       1,026    
Purchases of short and long-term investments   (760,300 )     (765,310 )  
Proceeds from short-term investments   768,078       470,328    
Acquisitions of businesses, net of cash acquired   (15,115 )     (109,115 )  
Other   237       415    
Net cash used in investing activities   (139,975 )     (562,999 )  
Cash flows from financing activities:        
Principal payments on long-term borrowings   (3,671 )     (3,604 )  
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   7,336       12,183    
Cash contributed by non-controlling interest   —        839    
Purchase of treasury stock, at cost   (40,732 )     (176,065 )  
Net cash used in financing activities   (37,067 )     (166,647 )  
Effect of changes in exchange rates on cash and cash equivalents   (7,853 )     (29,197 )  
Net increase (decrease) in cash, cash equivalents and restricted cash   138,626       (365,542 )  
Cash and cash equivalents  — Beginning of period   544,358       909,900    
Cash, cash equivalents and restricted cash — End of period   $ 682,984       $ 544,358    
Supplemental disclosures of cash flow information:        
Cash paid for interest   $ 2,683       $ 3,052    
Cash paid for income taxes   $ 116,951       $ 112,762    

 

IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES (UNAUDITED)

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2019   2018   2019   2018
    (In thousands)   (In thousands)
Step-up of inventory (1):                
Cost of sales   $ —      $ —      $ —      $ 556   
Amortization of intangible assets:                
Cost of sales   1,273      1,213      5,167      4,840   
Sales and marketing   1,779      976      7,138      2,690   
Research and development   160      160      640      640   
Total acquisition related costs and other charges   $ 3,212      $ 2,349      $ 12,945      $ 8,726   

(1) 2018 amount relates to ILT step-up adjustments on inventory sold during the period.

IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION IMPACT TO NET INCOME (UNAUDITED)

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2019   2018   2019   2018
    (In thousands)   (In thousands)
Cost of sales   $ 2,443        $ 1,292        $ 9,249        $ 6,535     
Sales and marketing   908        586        3,815        2,550     
Research and development   1,735        1,516        7,690        6,410     
General and administrative   2,728        3,190        12,824        12,532     
Total stock-based compensation   7,814        6,584        33,578        28,027     
Tax effect of stock-based compensation   (2,007 )     (1,578 )     (8,128 )     (6,632 )  
Net stock-based compensation   $ 5,807        $ 5,006        $ 25,450        $ 21,395     

 

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2019   2018   2019   2018
    (In thousands)   (In thousands)
Excess tax benefit on exercise of stock options included in net income   $ 645      $ 146      $ 5,114      $ 13,926   

 

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Source: IPG Photonics Corporation

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