IPGP
$122.00
Ipg Photonics
($1.10)
(.89%)
Earnings Details
3rd Quarter September 2018
Tuesday, October 30, 2018 8:00:00 AM
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Summary

Ipg Photonics Reports In-line

Ipg Photonics (IPGP) reported 3rd Quarter September 2018 earnings of $1.87 per share on revenue of $356.3 million. The consensus earnings estimate was $1.85 per share on revenue of $355.2 million. The Earnings Whisper number was $1.87 per share. Revenue fell 9.2% compared to the same quarter a year ago.

The company said it expects fourth quarter earnings of $1.30 to $1.50 per share on revenue of $300.0 million to $330.0 million. The current consensus earnings estimate is $1.80 per share on revenue of $360.3 million for the quarter ending December 31, 2018.

IPG Photonics Corp develops and manufactures broad line of high-performance fiber lasers, fiber amplifiers and diode lasers that are used for diverse applications in materials processing.

Results
Reported Earnings
$1.87
Earnings Whisper
$1.87
Consensus Estimate
$1.85
Reported Revenue
$356.3 Mil
Revenue Estimate
$355.2 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

IPG Photonics Announces Third Quarter 2018 Financial Results

Revenue and Earnings per Diluted Share Decrease 9% and 13%, Respectively

OXFORD, Mass., Oct. 30, 2018 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September 30, 2018.

  Three Months Ended September 30,   Nine Months Ended September 30,  
(In millions, except per share data) 2018 2017 % Change 2018 2017 % Change
Revenue $356.3  $392.6   (9)% $1,129.8  $1,047.8  8%
Gross margin  54.8%  57.2%      56.1%  56.1%   
Operating income  123.9   160.2   (23)%  427.4   402.8  6%
Operating margin  34.8%  40.8%      37.8%  38.4%   
Net income attributable to IPG Photonics Corporation  100.5   115.6   (13)%  328.5   294.7  11%
Earnings per diluted share $1.84  $2.11   (13)% $5.97  $5.40  11%

Management Comments

"Our third quarter results were affected by macroeconomic headwinds and geopolitical factors that reduced demand in China and Europe; nevertheless, IPG made significant strides driving higher power solutions into the market and generating meaningful traction selling our newest products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Despite the challenging environment, we shipped a record number of ultra high power lasers and successfully introduced the world's smallest 20 kilowatt cutting laser and most compact and power efficient 1-3 kilowatt product lineup. We delivered strong growth in our newest laser products and systems as the company continues to broaden its solutions portfolio. We believe our progress in higher power solutions and new products will help us emerge from the current downturn in a stronger competitive position with greater opportunity to address the growing market for laser solutions."

Financial Highlights

Third quarter revenue of $356 million decreased 9% year over year. Depreciation of the Euro and Renminbi relative to the exchange rates assumed in the company's third quarter guidance reduced revenue by $5 million. Materials processing sales accounted for 94% of total revenue, decreasing 11% year over year due to lower sales in metal welding, 3D printing, and cutting applications. Sales to other markets increased 22% year over year driven by growth in communications and government applications.

Sales of high power continuous wave (CW) lasers decreased 7% year over year, representing 64% of total revenue. Sales of fiber lasers at 6 kilowatts and above increased more than 10% year over year and now account for nearly 50% of all high power CW laser sales, driven by strong adoption in cutting applications. Sales of other high power lasers declined year over year due to the weaker demand environment in China and Europe. By region, sales decreased 9% in China and 25% in Europe but increased 29% in North America and 4% in Japan on a year over year basis.

Earnings per diluted share ("EPS") of $1.84 decreased 13% year over year. Foreign exchange losses reduced EPS by $0.03. The effective tax rate in the quarter was 21%, which benefited from certain discrete tax items including a net benefit from the Global Intangible Low Taxed Income (GILTI) provisions and Foreign Derived Intangible Income (FDII) deductions in the U.S. Tax Act due to clarification from the IRS on how these taxes should be calculated.

During the third quarter, IPG generated $72 million in cash from operations. Capital expenditures were $37 million, and the company repurchased 371 thousand shares for $61 million.

Business Outlook and Financial Guidance

"Global macroeconomic and geopolitical headwinds have persisted into the fourth quarter affecting our business along with others in the sector. As a result, order flow has continued to soften. We continue to see aggressive pricing for select products by our competitors in China, and we expect currency headwinds to be greater in the fourth quarter than in the third quarter. However, we have made strides competitively selling several hundred more high power lasers during the third quarter to manufacturers of laser cutting systems in China that were either exclusively or predominantly buying lasers from our competition. We are encouraged by this progress and the strength in new products and other regions." said Dr. Gapontsev.

For the fourth quarter of 2018, IPG expects revenue of $300 million to $330 million. The Company expects the fourth quarter tax rate to be approximately 26%, excluding effects relating to equity grants. IPG anticipates delivering earnings per diluted share in the range of $1.30 to $1.50, with 53.6 million basic common shares outstanding and 54.7 million diluted common shares outstanding. Based on this guidance, the company expects to deliver full year revenue growth for 2018 of 1% to 4%.

"We believe there are some encouraging signs for 2019. Indications from several customers in China suggest that order flow may improve in the first quarter. We expect spending on consumer electronics, electric vehicle battery and other metal welding projects to increase in 2019 over 2018. In addition, we believe our early traction in new product areas will drive increasing contributions next year from micro materials processing applications, telecom, entertainment and display products and our systems business. However, our visibility of a trough in the current downcycle is limited by the uncertainty surrounding the global macroeconomic trade and geopolitical environments." added Dr. Gapontsev.

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 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 0.86, Russian Ruble 66, Japanese Yen 114 and Chinese Yuan 6.88, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the Third Quarter 2018 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 30, 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 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, emerging from the current downturn in a stronger competitive position with greater opportunity to address the growing market for laser solutions, greater than average price declines in select products persisting through the fourth quarter, currency headwinds in the fourth quarter, strength in other geographic regions and new products offsetting a modest outlook in China, estimated tax rate, revenue and earnings guidance for the fourth quarter and revenue guidance for the full year, expected improvement of order flow in the first quarter of 2019, and expected increase in spending on consumer electronics and electric vehicle battery welding projects in 2019 over 2018, and early traction in new product areas driving increasing contributions next year from micro materials processing applications, entertainment and display products and our systems business. 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 Annual Report on Form 10-K (filed with the SEC on February 28, 2018) 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,
  2018  2017  2018  2017 
  (in thousands, except per share data)
NET SALES $356,346  $392,615  $1,129,823  $1,047,834 
COST OF SALES 161,162  168,060  496,303  459,716 
GROSS PROFIT 195,184  224,555  633,520  588,118 
OPERATING EXPENSES:        
Sales and marketing 13,479  13,384  41,531  36,347 
Research and development 30,909  25,541  91,268  74,281 
General and administrative 25,245  21,491  74,857  59,092 
Loss (gain) on foreign exchange 1,688  3,917  (1,489) 15,553 
Total operating expenses 71,321  64,333  206,167  185,273 
OPERATING INCOME 123,863  160,222  427,353  402,845 
OTHER INCOME (EXPENSE), Net:        
Interest income, net 3,884  (125) 4,925  651 
Other income (expense), net 423  459  1,252  (47)
Total other income 4,307  334  6,177  604 
INCOME BEFORE PROVISION FOR INCOME TAXES 128,170  160,556  433,530  403,449 
PROVISION FOR INCOME TAXES (27,418) (44,959) (104,827) (108,817)
NET INCOME 100,752  115,597  328,703  294,632 
LESS: NET INCOME (LOSS )ATTRIBUTABLE TO NONCONTROLLING INTERESTS 235    235  (26)
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $100,517  $115,597  $328,468  $294,658 
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:        
Basic $1.88  $2.16  $6.12  $5.51 
Diluted $1.84  $2.11  $5.97  $5.40 
WEIGHTED AVERAGE SHARES OUTSTANDING:        
Basic 53,571  53,440  53,677  53,453 
Diluted 54,696  54,698  54,995  54,570 


 
IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
 
  September 30, December 31,
  2018  2017 
  (In thousands, except share and per
share data)
ASSETS
CURRENT ASSETS:    
Cash and cash equivalents $647,606  $909,900 
Short-term investments 474,422  206,257 
Accounts receivable, net 251,613  237,278 
Inventories 397,409  307,712 
Prepaid income taxes 61,222  44,944 
Prepaid expenses and other current assets 50,013  47,919 
Total current assets 1,882,285  1,754,010 
DEFERRED INCOME TAXES, NET 19,995  26,976 
GOODWILL 56,769  55,831 
INTANGIBLE ASSETS, NET 45,844  51,223 
PROPERTY, PLANT AND EQUIPMENT, NET 529,163  460,206 
OTHER ASSETS 28,043  19,009 
TOTAL ASSETS $2,562,099  $2,367,255 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:    
Current portion of long-term debt $3,654  $3,604 
Accounts payable 29,494  35,109 
Accrued expenses and other liabilities 137,060  144,417 
Income taxes payable 47,777  15,773 
Total current liabilities 217,985  198,903 
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 94,675  100,652 
LONG-TERM DEBT, NET OF CURRENT PORTION 42,631  45,378 
Total liabilities 355,291  344,933 
COMMITMENTS AND CONTINGENCIES    
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:    
Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,362,579 and 53,398,504 shares issued and outstanding, respectively, at September 30, 2018; 54,007,708 and 53,629,439 shares issued and outstanding, respectively, at December 31, 2017 5  5 
Treasury stock, at cost (964,075 and 378,269 shares held) (160,859) (48,933)
Additional paid-in capital 738,285  704,727 
Retained earnings 1,772,941  1,443,867 
Accumulated other comprehensive loss (144,409) (77,344)
Total IPG Photonics Corporation stockholders' equity 2,205,963  2,022,322 
NONCONTROLLING INTERESTS 845   
Total equity $2,206,808  $2,022,322 
TOTAL LIABILITIES AND EQUITY $2,562,099  $2,367,255 


 
IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
  Nine Months Ended September 30,
  2018  2017 
  (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $328,703  $294,632 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 58,894  46,416 
Provisions for inventory, warranty & bad debt 30,582  34,690 
Other 20,682  40,419 
Changes in assets and liabilities that used cash:    
Accounts receivable and accounts payable (27,377) (52,993)
Inventories (122,051) (39,697)
Other (9,182) (26,617)
Net cash provided by operating activities 280,251  296,850 
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property, plant and equipment (133,355) (99,221)
Proceeds from sales of property, plant and equipment 755  15,437 
Purchases of investments (566,498) (146,585)
Proceeds from sales of investments 286,346  188,143 
Acquisitions of businesses, net of cash acquired (4,423) (50,594)
Other 307  (496)
Net cash (used in) provided by investing activities (416,868) (93,316)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Purchase of noncontrolling interests   (197)
Proceeds on long-term borrowings   28,000 
Principal payments on long-term borrowings (2,696) (18,951)
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 12,115  23,296 
Cash contributed by noncontrolling interest 378   
Purchase of treasury stock, at cost (111,926) (26,911)
Net cash used in financing activities (102,129) 5,237 
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (23,548) 47,641 
NET INCREASE IN CASH AND CASH EQUIVALENTS (262,294) 256,412 
CASH AND CASH EQUIVALENTS — Beginning of period 909,900  623,855 
CASH AND CASH EQUIVALENTS — End of period $647,606  $880,267 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest $2,402  $1,965 
Cash paid for income taxes $94,801  $118,660 


 
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES
 
  Three Months Ended September 30,Nine Months Ended September 30,
(In thousands) 2018 20172018 2017
Step-up of inventory (1)       
Cost of sales $50 $1,571$556 $1,581
Amortization of intangible assets       
Cost of sales 1,513 1,0024,026 2,339
Sales and marketing 469 5631,635 1,139
Research and development  160160 480
Impairment charge related to long-lived asset       
General and administrative   162
Total acquisition related costs and other charges $2,032 $3,296$6,377 $5,701

(1) 2018 amount relates to robot concept and ILT, while 2017 relates to ILT and OptiGrate step-up adjustments on inventory sold during the period.
               

 
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) 2018  2017  2018  2017 
Cost of sales $1,920  $1,467  $5,243  $4,320 
Sales and marketing 737  536  1,964  1,504 
Research and development 1,781  1,278  4,894  3,715 
General and administrative 3,281  2,649  9,342  7,450 
Total stock-based compensation 7,719  5,930  21,443  16,989 
Tax benefit recognized (1,813) (1,900) (5,054) (5,473)
Net stock-based compensation $5,906  $4,030  $16,389  $11,516 


  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except share and per share data) 2018 2017 2018 2017
Excess tax benefit on exercise of stock options included in net income $1,713 $3,361 $13,780 $10,885
Increase in weighted-average diluted shares outstanding 203,886 317,835 265,306 256,938

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Source: IPG Photonics Corporation