IPGP IPG Photonics Corporation

Strong High-Power Laser Sales Drive 18% Increase in Materials Processing Business and Record Revenue Results

IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the second quarter ended June 30, 2014.

    Three Months Ended June 30,         Six Months Ended June 30,     (In millions, except per share data) 2014     2013 % Change 2014     2013 % Change Revenue $ 192.2 $ 168.2 14 % $ 362.8 $ 310.0 17 % Gross margin 54.2 % 53.5 % 53.3 % 53.4 % Operating income $ 68.7 $ 59.9 15 % $ 126.5 $ 109.5 16 % Operating margin 35.8 % 35.6 % 34.9 % 35.3 % Net income attributable to IPG Photonics Corporation $ 48.3 $ 41.7 16 % $ 88.8 $ 76.8 16 % Earnings per diluted share $ 0.92 $ 0.80 15 % $ 1.68 $ 1.47 14 %

Management Comments

"IPG's record revenues of $192.2 million for the second quarter resulted from a strong increase in high-power fiber laser sales for materials processing applications," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Materials processing sales increased 18% year over year, driven by strength in cutting and welding applications as well as growth in 3D printing, glass cutting and cleaning applications. The increase in materials processing, which accounts for 96% of our revenue, shows the progress we continue to make in penetrating OEMs for key applications that represent significant growth opportunities. The 70 basis point year-over-year increase in gross margins to 54.2% and growth in net income of 16% demonstrated some leverage returning to our operating model."

"We continue to see strong growth in high-power fiber laser sales, which increased by 22%," said Dr. Gapontsev. "Sales for medium-power lasers increased by 35% and QCW sales were up 44% year over year. While pulsed laser sales declined as expected by 19% year over year due to increased low-power competition in China, we are encouraged by a 12% increase from the sequential first quarter. We are also seeing fast-growing demand for our new generation of picosecond high peak power fiber lasers and multi-hundred watt average power pulsed lasers and where we have technological advantages for new applications such as deep engraving, ablation and cleaning."

"Geographically, we reported strong sales growth in Europe and Asia," said Dr. Gapontsev. "In the U.S., sales and order flow remain positive; however, we shipped some large advanced applications and marking & engraving orders in Q2 2013 that resulted in an unfavorable year-over-year comparison."

"We generated $33.5 million in cash from operating activities and had cash and cash equivalents of $483.4 million after using $34.3 million to finance capital expenditures during the second quarter," Dr. Gapontsev said.

Business Outlook and Financial Guidance

"As we enter the second half of 2014, we remain focused on generating profitable growth through expanding our business with existing and new OEMs, developing new applications and introducing new fiber laser-based products. Order flow in Q2 was strong and, with a book-to-bill ratio of greater than one, we anticipate sequential and year-over-year revenue growth for the third quarter. We will continue to target margins in the range of 50% to 55% while making strategic investments to enhance our product pipeline and expand our worldwide infrastructure," concluded Dr. Gapontsev.

IPG Photonics expects revenue in the range of $190 million to $205 million for the third quarter of 2014. The Company anticipates earnings per diluted share in the range of $0.88 to $1.03 based on 52,769,000 diluted common shares, which includes 52,068,000 basic common shares outstanding and 701,000 potentially dilutive options at June 30, 2014.

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 cancelations and delays, competition and general economic conditions. This guidance is subject to the risks outlined in the Company's reports with the SEC, and assumes that exchange rates remain at present levels.

Conference Call Reminder

The Company will hold a conference call to review its financial results and business highlights today, July 29, 2014 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) 709-8155 or (201) 689-8881. Interested parties that are unable to listen to the live call may access an archived version of the webcast, which 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 the Company 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, generating profitable growth through expanding the Company's business with existing OEMs, finding new OEMs and applications and introducing new fiber laser-based products; anticipation of sequential and year-over-year revenue growth for the third quarter; and achievement of target margins in the range of 50% to 55%, making continued strategic investments to advance IPG's technology and guidance for the third quarter of 2014. 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 the Company serves, particularly the effect of downturns in the markets served; uncertainties and adverse changes in the general economic conditions of markets; the Company's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; 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; foreign currency fluctuations; intellectual property infringement claims and litigation; interruption in supply of key components; manufacturing risks; building and expanding field service and support operations; inability to manage risks associated with international customers and operations; and other risks identified in the Company's SEC filings. Readers are encouraged to refer to the risk factors described in the Company's Annual Report on Form 10-K (filed with the SEC on February 28, 2014) 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. The Company 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, 2014       2013   2014       2013   (in thousands, except per share data) NET SALES $ 192,204 $ 168,171 $ 362,779 $ 310,023 COST OF SALES 87,977   78,249   169,268   144,460   GROSS PROFIT 104,227   89,922   193,511   165,563   OPERATING EXPENSES: Sales and marketing 8,047 6,845 15,212 12,713 Research and development 13,362 10,483 26,146 19,281 General and administrative 13,124 12,829 26,040 24,639 Loss (gain) on foreign exchange 945   (110 ) (425 ) (591 ) Total operating expenses 35,478   30,047   66,973   56,042   OPERATING INCOME 68,749   59,875   126,538   109,521   OTHER INCOME (EXPENSE), NET: Interest expense, net — (35 ) (139 ) (88 ) Other income (expense), net 239   (239 ) 573   (169 ) Total other income (expense) 239   (274 ) 434   (257 ) INCOME BEFORE PROVISION FOR INCOME TAXES 68,988 59,601 126,972 109,264 PROVISION FOR INCOME TAXES (20,705 ) (17,881 ) (38,158 ) (32,417 ) NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $ 48,283   $ 41,720   $ 88,814   $ 76,847   NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE: Basic $ 0.93 $ 0.81 $ 1.71 $ 1.49 Diluted $ 0.92 $ 0.80 $ 1.68 $ 1.47 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 52,068 51,462 52,019 51,435 Diluted 52,769 52,385 52,747 52,357        

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION

  Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2014     2013 2014     2013 Cost of sales $ 1,041 $ 806 $ 1,931 $ 1,482 Sales and marketing 434 317 807 601 Research and development 772 482 1,426 864 General and administrative 1,658   1,335   3,008   2,525   Total stock-based compensation 3,905 2,940 7,172 5,472 Tax benefit recognized

(1,250

) (959 ) (2,295 ) (1,776 ) Net stock-based compensation $

2,655

  $ 1,981   $ 4,877   $ 3,696          

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS IN COST OF SALES

  Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2014     2013 2014     2013 Cost of sales Step-up of inventory (1) $ — $ 456 $ — $ 862 Amortization of intangible assets (2) 156   180  

312

  643 Total acquisition related costs $ 156   $ 636   $ 312   $ 1,505

(1) Amount relates to Microsystems 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

  June 30,

December 31,

2014 2013  

(In thousands, except share and per share data)

ASSETS CURRENT ASSETS: Cash and cash equivalents $ 483,432 $ 448,776 Accounts receivable, net 124,144 103,803 Inventories 178,925 172,700 Prepaid income taxes and income taxes receivable 19,706 15,996 Prepaid expenses and other current assets 32,634 30,836 Deferred income taxes, net 15,251   14,232   Total current assets 854,092 786,343 DEFERRED INCOME TAXES, NET 8,139 4,799 GOODWILL 455 455 INTANGIBLE ASSETS, NET 8,472 9,564 PROPERTY, PLANT AND EQUIPMENT, NET 268,122 252,245

OTHER ASSETS

19,106   7,810   TOTAL $ 1,158,386   $ 1,061,216   LIABILITIES AND EQUITY CURRENT LIABILITIES: Revolving line-of-credit facilities $ 2,724 $ 3,296 Current portion of long-term debt 12,000 1,333 Accounts payable 15,059 18,787 Accrued expenses and other liabilities 63,379 59,336 Deferred income taxes, net 3,187 2,109 Income taxes payable 16,823   15,218   Total current liabilities 113,172 100,079 DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 21,354 21,835 LONG-TERM DEBT, NET OF CURRENT PORTION —   11,333   Total liabilities 134,526 133,247 COMMITMENTS AND CONTINGENCIES IPG PHOTONICS CORPORATION STOCKHOLDERS’ EQUITY: Common stock, $0.0001 par value, 175,000,000 shares authorized; 52,121,222 shares issued and outstanding at June 30, 2014; 51,930,978 shares issued and outstanding at December 31, 2013 5 5 Additional paid-in capital 551,885 538,908 Retained earnings 479,571 390,757 Accumulated other comprehensive loss (7,601 ) (1,701 ) Total IPG Photonics Corporation stockholders’ equity 1,023,860   927,969   TOTAL $ 1,158,386   $ 1,061,216      

IPG PHOTONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Six Months Ended June 30, 2014       2013   (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 88,814 $ 76,847

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 17,088 14,885 Provisions for inventory, warranty & bad debt 12,207 10,255 Other 389 1,956 Changes in assets and liabilities that (used) provided cash: Accounts receivable/payable (23,404 ) (18,704 ) Inventories (14,988 ) (23,814 ) Other (3,231 ) (37,151 ) Net cash provided by operating activities 76,875   24,274   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of and deposits on property, plant and equipment (45,781 ) (34,263 ) Proceeds from sales of property, plant and equipment 254 166 Acquisition of businesses — (5,555 ) Other 42   407   Net cash used in investing activities (45,485 ) (39,245 ) CASH FLOWS FROM FINANCING ACTIVITIES: Line-of-credit facilities (535 ) (620 ) Principal payments on long-term borrowings (667 ) (2,186 ) Tax benefits from exercise of employee stock options 2,426 2,356 Exercise of employee stock options and issuances under employee stock purchase plan 3,379   2,177   Net cash provided by financing activities 4,603   1,727   EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (1,337 ) (1,325 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 34,656 (14,569 ) CASH AND CASH EQUIVALENTS — Beginning of period 448,776   384,053   CASH AND CASH EQUIVALENTS — End of period $ 483,432   $ 369,484   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 223   $ 165   Cash paid for income taxes $ 41,525   $ 61,308  

IPG Photonics CorporationTim Mammen, 508-373-1100Chief Financial OfficerorSharon MerrillDavid Calusdian, 617-542-5300Executive Vice President