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IPG Photonics Announces Second Quarter 2017 Financial Results

Revenue and Earnings per Diluted Share at Record Levels, Increasing 46% and 53%, Respectively

OXFORD, Mass., Aug. 01, 2017 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ:IPGP) today reported financial results for the second quarter ended June 30, 2017.

    Three Months Ended June 30,       Six Months Ended June 30,    
(In millions, except per share data)   2017   2016   % Change   2017   2016   % Change
Revenue   $ 369.4     $ 252.8     46 %   $ 655.2     $ 460.0     42 %
Gross margin   55.9 %   54.5 %       55.5 %   54.8 %    
Operating income   $ 141.1     $ 95.0     49 %   $ 242.6     $ 165.0     47 %
Operating margin   38.2 %   37.6 %       37.0 %   35.9 %    
Net income attributable to IPG Photonics Corporation   $ 104.1     $ 67.1     55 %   $ 179.1     $ 116.4     54 %
Earnings per diluted share   $ 1.91     $ 1.25     53 %   $ 3.29     $ 2.17     52 %

/EIN News/ -- Management Comments

“IPG delivered record quarterly results, driven by rapid growth in our core products, applications, and geographies,” said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. “As the market leader in fiber lasers, we are benefiting from accelerating adoption of fiber lasers over conventional lasers and non-laser cutting and welding equipment. Second quarter revenue and net income were both at record levels, highlighting the strength of our business model.”

Second quarter revenue of $369.4 million increased 46% year over year, and earnings per diluted share ("EPS") of $1.91 increased 53% year over year. Materials processing sales increased 48% year-over-year in the second quarter and accounted for approximately 96% of total sales driven by strength in cutting and welding applications. Sales to other markets were up 19% year-over-year driven by strong sales in telecom. High-power laser sales increased 57% year over year from rapid growth in cutting and welding applications while sales of QCW lasers increased 82% year over year driven by growth in consumer electronics production and percussion hole drilling. While all main geographies other than Japan experienced increases, sales growth in China was particularly strong, almost doubling, and represented half of total revenue in the second quarter.

During the second quarter, IPG generated $82.3 million in cash from operations and used $21.8 million to finance capital expenditures. IPG ended the quarter with $930.4 million in cash and cash equivalents and short-term investments, representing an increase of $99.8 million from December 31, 2016.

Business Outlook and Financial Guidance

“Demand for our core products, particularly high-power, kilowatt-scale fiber lasers, has never been stronger. Our leadership position within this fast-growing market drove record order activity in the quarter, resulting in a book-to-bill ratio above one. Based on these trends and the strength of our current backlog, we believe we are in excellent position to deliver another strong quarter in three months,” said Dr. Gapontsev.

IPG Photonics expects revenue in the range of $350 million to $375 million for the third quarter of 2017. The Company anticipates earnings per diluted share in the range of $1.70 to $1.90 based on 54,471,000 diluted common shares, which includes 53,380,000 basic common shares outstanding and 1,091,000 potentially dilutive options at June 30, 2017.

Dr. Gapontsev added, “Year-to-date bookings have exceeded our expectations, pointing to strong revenue growth in 2017. Based on first half outperformance and current backlog, we are now targeting approximately 32% to 34% revenue growth for the full year. Our fourth quarter performance will be driven by order activity through the end of the third quarter and during the fourth quarter, for which our visibility is low. Given the magnitude of outperformance during the first half of the year, we believe it is prudent to assume a lower growth rate in the fourth quarter due to more challenging comparisons and an expected slowdown in spending related to typical seasonality in China and the consumer electronics investment cycle. Should this anticipated spending slowdown fail to materialize at a level consistent with historic trends, this could result in upside to our full year guidance range.”

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 0.88, Russian Ruble 59, Japanese Yen 112 and Chinese Yuan 6.77, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Second 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, August 1, 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 Hillier
Vice President of Investor Relations
IPG Photonics Corporation
508-373-1467
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, delivering a strong set of results again in the third quarter, guidance for the third quarter of 2017, full-year revenue growth outlook, growth rates in fourth quarter and spending slowdown 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 June 30,   Six Months Ended June 30,
    2017   2016   2017   2016
    (in thousands, except per share data)
NET SALES   $ 369,373     $ 252,787     $ 655,219     $ 460,035  
COST OF SALES   163,077     115,084     291,656     207,921  
GROSS PROFIT   206,296     137,703     363,563     252,114  
OPERATING EXPENSES:                
Sales and marketing   12,136     9,689     22,963     17,723  
Research and development   25,960     18,412     48,740     35,901  
General and administrative   19,875     16,151     37,601     30,052  
Loss (gain) on foreign exchange   7,183     (1,556 )   11,636     3,411  
Total operating expenses   65,154     42,696     120,940     87,087  
OPERATING INCOME   141,142     95,007     242,623     165,027  
OTHER INCOME (EXPENSE), Net:                
Interest income, net   468     270     776     462  
Other income (expense), net   23     141     (506 )   148  
Total other income (expense)   491     411     270     610  
INCOME BEFORE PROVISION FOR INCOME TAXES   141,633     95,418     242,893     165,637  
PROVISION FOR INCOME TAXES   (37,530 )   (28,387 )   (63,858 )   (49,277 )
NET INCOME   104,103     67,031     179,035     116,360  
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (13 )   (27 )   (26 )   (25 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION   $ 104,116     $ 67,058     $ 179,061     $ 116,385  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:                
Basic   $ 1.95     $ 1.26     $ 3.35     $ 2.20  
Diluted   $ 1.91     $ 1.25     $ 3.29     $ 2.17  
WEIGHTED AVERAGE SHARES OUTSTANDING:                
Basic   53,380     53,065     53,403     52,981  
Diluted   54,471     53,788     54,450     53,705  



IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD
IMPACTS TO NET INCOME AND EARNINGS PER SHARE

 
    Three Months Ended June 30,   Six Months Ended June 30,
(In thousands)   2017   2016   2017   2016
Cost of sales   $ 1,462     $ 1,545     $ 2,853     $ 2,964  
Sales and marketing   516     497     968     912  
Research and development   1,232     1,220     2,437     2,313  
General and administrative   2,498     2,215     4,801     4,247  
Total stock-based compensation   5,708     5,477     11,059     10,436  
Tax benefit recognized   (1,853 )   (1,765 )   (3,573 )   (3,349 )
Net stock-based compensation   $ 3,855     $ 3,712     $ 7,486     $ 7,087  


(In thousands, except share and per share data)   Three Months Ended June 30,   Six Months Ended June 30,
    2017   2016   2017   2016
Excess tax benefit on exercise of stock options included in net income   $ 3,394     $     $ 7,524     $  
Increase in weighted-average diluted shares outstanding   238,917         210,776      



IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES
    Three Months Ended June 30,   Six Months Ended June 30,
(In thousands)   2017   2016     2017     2016
Step-up of inventory (1)                
Cost of sales   $ 10     $ 374     $ 10     $ 374  
Amortization of intangible assets                
Cost of sales   $ 592     $ 579     $ 1,337   $ 924
Sales and marketing   416     162       576       200  
Research and development   160     160       320       320  
Impairment charge related to long-lived asset                
General and administrative             162        
Total acquisition related costs and other charges   $ 1,178     $ 1,275     $ 2,405     $ 1,818  

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

IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS

 
    June 30,   December 31,
    2017   2016
    (In thousands, except share and per
share data)
ASSETS
CURRENT ASSETS:        
Cash and cash equivalents   $ 808,111     $ 623,855  
Short-term investments   122,304     206,779  
Accounts receivable, net   237,332     155,901  
Inventories   260,661     239,010  
Prepaid income taxes   37,912     34,128  
Prepaid expenses and other current assets   44,454     41,289  
Total current assets   1,510,774     1,300,962  
DEFERRED INCOME TAXES, NET   47,843     42,442  
GOODWILL   28,728     19,828  
INTANGIBLE ASSETS, NET   32,294     28,789  
PROPERTY, PLANT AND EQUIPMENT, NET   389,853     379,375  
OTHER ASSETS   21,050     18,603  
TOTAL   $ 2,030,542     $ 1,789,999  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:        
Current portion of long-term debt   $ 1,188     $ 3,188  
Accounts payable   28,996     28,048  
Accrued expenses and other liabilities   116,499     102,485  
Income taxes payable   10,102     24,554  
Total current liabilities   156,785     158,275  
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES   48,025     36,365  
LONG-TERM DEBT, NET OF CURRENT PORTION   21,375     37,635  
Total liabilities   226,185     232,275  
COMMITMENTS AND CONTINGENCIES        
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:        
Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,793,622 and 53,492,316 shares issued and outstanding, respectively, at June 30, 2017; 53,354,579 and 53,251,805 shares issued and outstanding, respectively, at December 31, 2016   5     5  
Treasury stock, at cost (301,306 and 102,774 shares held)   (33,058 )   (8,946 )
Additional paid-in capital   681,263     650,974  
Retained earnings   1,275,314     1,094,108  
Accumulated other comprehensive loss   (119,167 )   (178,583 )
Total IPG Photonics Corporation stockholders' equity   1,804,357     1,557,558  
NONCONTROLLING INTERESTS       166  
Total equity   $ 1,804,357     $ 1,557,724  
TOTAL   $ 2,030,542     $ 1,789,999  



IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    Six Months Ended June 30,
    2017   2016
    (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 179,035     $ 116,360  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   29,714     23,653  
Provisions for inventory, warranty & bad debt   22,754     20,459  
Other   21,818     3,702  
Changes in assets and liabilities that used cash:        
Accounts receivable/payable   (71,720 )   (5,556 )
Inventories   (25,820 )   (34,668 )
Other   (22,679 )   (15,646 )
Net cash provided by operating activities   133,102     108,304  
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property, plant and equipment   (43,632 )   (70,863 )
Proceeds from sales of property, plant and equipment   15,284     184  
Purchases of short-term investments   (71,244 )   (62,211 )
Proceeds from short-term investments   156,171     41,720  
Acquisition of businesses, net of cash acquired   (11,307 )   (46,527 )
Other   (568 )   72  
Net cash provided by (used in) investing activities   44,704     (137,625 )
CASH FLOWS FROM FINANCING ACTIVITIES:        
Purchase of noncontrolling interests   (197 )   (950 )
Proceeds on long-term borrowings       23,750  
Principal payments on long-term borrowings   (18,260 )   (1,000 )
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   17,152     8,579  
Purchase of Treasury Stock, at cost   (24,112 )    
Net cash (used in) provided by financing activities   (25,417 )   30,379  
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   31,867     3,696  
NET INCREASE IN CASH AND CASH EQUIVALENTS   184,256     4,754  
CASH AND CASH EQUIVALENTS — Beginning of period   623,855     582,532  
CASH AND CASH EQUIVALENTS — End of period   $ 808,111     $ 587,286  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
Cash paid for interest   $ 975     $ 349  
Cash paid for income taxes   $ 80,956     $ 66,478  


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