Revenue and Earnings per Diluted Share
Decrease 9% and 13%, Respectively
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 HillierVice President of Investor RelationsIPG Photonics
Corporation508-373-1467jhillier@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
CORPORATIONCONSOLIDATED 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
CORPORATIONCONSOLIDATED 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
CORPORATIONCONSOLIDATED 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
CORPORATIONSUPPLEMENTAL SCHEDULE OF ACQUISITION
RELATED COSTS AND OTHER CHARGES |
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
(In
thousands) |
|
2018 |
|
2017 |
2018 |
|
2017 |
Step-up of inventory
(1) |
|
|
|
|
|
|
|
Cost of sales |
|
$ |
50 |
|
$ |
1,571 |
$ |
556 |
|
$ |
1,581 |
Amortization of
intangible assets |
|
|
|
|
|
|
|
Cost of
sales |
|
1,513 |
|
1,002 |
4,026 |
|
2,339 |
Sales and
marketing |
|
469 |
|
563 |
1,635 |
|
1,139 |
Research
and development |
|
— |
|
160 |
160 |
|
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
CORPORATIONSUPPLEMENTAL 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 |
IPG Photonics (NASDAQ:IPGP)
Historical Stock Chart
From Jun 2024 to Jul 2024
IPG Photonics (NASDAQ:IPGP)
Historical Stock Chart
From Jul 2023 to Jul 2024