EX-99.1 2 ipgp09302020exhibit991.htm EX-99.1 Document

Exhibit 99.1
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IPG PHOTONICS ANNOUNCES THIRD QUARTER 2020 FINANCIAL RESULTS
Revenue of $318 Million Exceeds the Top End of the Guidance Range
Earnings per Diluted Share of $0.66 Reduced by $0.63 due to Goodwill Impairment Charge
OXFORD, Mass. – October 30, 2020 - IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September 30, 2020.
Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except per share data and percentages)20202019Change20202019Change
Revenue$318.4 $329.1 (3)%$864.1 $1,008.0 (14)%
Gross margin48.0 %46.4 %45.4 %47.8 %
Operating income$41.4 $74.1 (44)%$133.4 $233.6 (43)%
Operating margin13.0 %22.5 %15.4 %23.2 %
Net income attributable to IPG Photonics Corporation$35.6 $57.3 (38)%$110.2 $184.7 (40)%
Earnings per diluted share$0.66 $1.07 (38)%$2.05 $3.43 (40)%

Management Comments
"We delivered third quarter results above our guidance range due to sales growth in China and a sequential improvement in Europe," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "We continue to introduce leading-edge solutions to the market thanks to our technology differentiation, low-cost production capabilities and global footprint. Although bottom-line results were impacted by a goodwill impairment charge of $45 million, we achieved a 160 basis point year-over-year increase in gross margin on 3% lower revenue. We demonstrated excellent execution given the circumstances."
Financial Highlights
Third quarter revenue of $318 million decreased 3% year over year. Materials processing sales decreased 5% year over year due to lower sales in cutting, welding and marking applications, while sales into other applications increased 24% year over year on strength in advanced applications and devices used in medical procedures. Materials processing sales accounted for 91% of total revenue.
Sales of high power continuous wave ("CW") lasers, representing 58% of total revenue, were flat on a year over year basis. These sales benefited from growth of ultra-high power fiber lasers (6 kilowatts of power or greater) which represented 58% of all high power CW laser sales. By region, sales increased 22% in China, and decreased 10% in Europe, 41% in Japan and 26% in North America on a year over year basis.
Earnings per diluted share ("EPS") of $0.66 decreased 38% year over year. A goodwill impairment charge reduced EPS by $0.63, while foreign exchange gains benefited EPS by $0.15. The effective tax rate in the quarter was 16%, which benefited from certain discrete tax items. The goodwill impairment charges related to Genesis Systems Group reduced operating income by $45 million and operating margin by 14 percentage points. The results of this business were impacted by lower capital investments from industries impacted greatly by the COVID-19 pandemic, such as aerospace and transportation, as projects have been delayed. During the third quarter, IPG generated $70 million in cash from operations. Capital expenditures were $25 million and stock repurchases totaled $10 million.
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Business Outlook and Financial Guidance
"Bookings growth in North America and Europe was strong when compared sequentially with the second quarter. In North America, we had record bookings aided by several orders for advanced applications. While total orders in China for the third quarter were lower, China continues to have a significant backlog given the exceptional level of orders booked in the first half of the year. In total, third quarter book-to-bill was slightly below 1. Overall, it was notable that order bookings improved markedly during September.
“While the pandemic represents considerable macroeconomic uncertainty for the months ahead, we have continued to demonstrate our ability to execute even in these challenging times. Further, our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruptions and maintain our leading competitive position. We continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing, medical procedures and advanced applications. We believe the strides we are making in higher power products within our core materials processing business and new solutions will enable us to emerge from the current downturn in a stronger competitive position," concluded Dr. Gapontsev.
For the fourth quarter of 2020, IPG expects revenue of $290 to $320 million. The Company expects the fourth quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $0.75 to $1.05, with 53.1 million basic common shares outstanding and 53.7 million diluted common shares outstanding. Financial guidance provided this quarter is subject to greater risk and uncertainty given the COVID-19 pandemic and its associated impacts to the global business environment, public health requirements and government mandates.
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, government and Company measures implemented to address the COVID-19 pandemic, 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 0.85, Russian Ruble 80, Japanese Yen 106 and Chinese Yuan 6.81, respectively.
Supplemental Financial Information
Additional supplemental financial information is provided in the unaudited Third Quarter 2020 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, 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
Nicholas P. Manganaro
Senior Associate
Sharon Merrill Associates, Inc
617-542-5300
nmanganaro@investorrelations.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.
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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, continuing to introduce leading-edge solutions, ability to execute in challenging times, our strong balance sheet and free cash flow providing us ample flexibility to respond to business disruptions and maintain our leading competitive position, growth opportunities in ultra-high power cutting, electric vehicle battery processing, medical procedures and advanced applications, strides in higher power products and new solutions enabling us to emerge from the pandemic in a stronger competitive position, impacts of COVID-19 on our business, the global economy and government policies, revenue, tax rate and earnings guidance for Q4 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 Annual Report on Form 10-K (filed with the SEC on February 24, 2020), Current Report on Form 8-K (filed with the SEC on May 5, 2020) and IPG's 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.
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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands, except per share data)
Net sales$318,441 $329,138 $864,094 $1,007,954 
Cost of sales165,649 176,280 471,977 525,948 
Gross profit152,792 152,858 392,117 482,006 
Operating expenses:
Sales and marketing17,332 18,969 53,341 58,907 
Research and development31,710 32,160 95,132 99,528 
General and administrative29,038 26,776 82,561 82,526 
Goodwill impairment44,589 — 44,589 — 
Impairment of long-lived assets and other restructuring charges12 — 1,177 — 
(Gain) loss on foreign exchange(11,302)808 (18,101)7,495 
Total operating expenses111,379 78,713 258,699 248,456 
Operating income41,413 74,145 133,418 233,550 
Other income, net:
Interest income, net1,168 3,734 6,097 11,737 
Other income (expense), net(59)(520)581 129 
Total other income1,109 3,214 6,678 11,866 
Income before provision of income taxes42,522 77,359 140,096 245,416 
Provision for income taxes6,992 20,232 29,434 60,852 
Net income35,530 57,127 110,662 184,564 
Less: net (loss) income attributable to non-controlling interests(74)(126)429 (120)
Net income attributable to IPG Photonics Corporation$35,604 $57,253 $110,233 $184,684 
Net income attributable to IPG Photonics Corporation per share:
Basic$0.67 $1.08 $2.07 $3.48 
Diluted$0.66 $1.07 $2.05 $3.43 
Weighted average shares outstanding:
Basic53,098 52,928 53,136 53,073 
Diluted53,664 53,622 53,691 53,864 

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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
September 30,December 31,
20202019
(In thousands, except share and 
per share data)
ASSETS
Current assets:
Cash and cash equivalents$763,920 $680,070 
Short-term investments537,696 502,546 
Accounts receivable, net240,352 238,479 
Inventories370,344 380,790 
Prepaid income taxes60,436 38,873 
Prepaid expenses and other current assets58,905 55,876 
Total current assets2,031,653 1,896,634 
Deferred income taxes, net38,616 31,395 
Goodwill37,731 82,092 
Intangible assets, net64,999 74,271 
Property, plant and equipment, net576,398 600,852 
Other assets45,535 45,192 
Total assets$2,794,932 $2,730,436 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt$3,792 $3,740 
Accounts payable37,375 27,329 
Accrued expenses and other current liabilities156,472 149,782 
Income taxes payable3,806 11,053 
Total current liabilities201,445 191,904 
Deferred income taxes and other long-term liabilities87,296 98,121 
Long-term debt, net of current portion35,117 37,968 
Total liabilities323,858 327,993 
Commitments and contingencies
IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,278,428 and 53,244,416 shares issued and outstanding, respectively, at September 30, 2020; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019.6 5 
Treasury stock, at cost, 2,034,012 and 1,732,352 shares held at September 30, 2020 and December 31, 2019, respectively. (303,614)(265,730)
Additional paid-in capital828,796 785,636 
Retained earnings2,138,852 2,028,734 
Accumulated other comprehensive loss(193,827)(146,919)
Total IPG Photonics Corporation equity2,470,213 2,401,726 
Non-controlling interests861 717 
Total equity2,471,074 2,402,443 
Total liabilities and equity$2,794,932 $2,730,436 

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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended September 30,
20202019
(In thousands)
Cash flows from operating activities:
Net income$110,662 $184,564 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization71,188 72,531 
Goodwill impairment44,589 — 
Impairment of long-lived assets671 — 
Provisions for inventory, warranty & bad debt42,559 38,748 
Other1,336 29,244 
Changes in assets and liabilities that provided (used) cash, net of acquisitions:
Accounts receivable and accounts payable11,127 (15,699)
Inventories(34,213)(51,032)
Other(47,902)(64,774)
Net cash provided by operating activities200,017 193,582 
Cash flows from investing activities:
Purchases of property, plant and equipment(61,871)(107,540)
Proceeds from sales of property, plant and equipment689 348 
Purchases of short-term and long-term investments(732,729)(557,674)
Proceeds from short-term investments697,816 568,501 
Acquisitions of businesses, net of cash acquired— (15,115)
Other17 243 
Net cash used in investing activities(96,078)(111,237)
Cash flows from financing activities:
Principal payments on long-term borrowings(2,798)(2,747)
Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards16,767 1,644 
Purchase of treasury stock, at cost(37,884)(25,921)
Payment of purchase price holdback from business combination(1,650)— 
Net cash used in financing activities(25,565)(27,024)
Effect of changes in exchange rates on cash and cash equivalents and restricted cash4,692 (16,561)
Net increase in cash, cash equivalents and restricted cash83,066 38,760 
Cash, cash equivalents and restricted cash — Beginning of period682,984 544,358 
Cash, cash equivalents and restricted cash — End of period$766,050 $583,118 
Supplemental disclosures of cash flow information:
Cash paid for interest$1,650 $1,655 
Cash paid for income taxes$65,895 $97,172 

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IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES (UNAUDITED)
 
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands)
Amortization of intangible assets:
Cost of sales$1,168 $1,484 $3,562 $4,318 
Sales and marketing1,779 1,973 5,334 5,783 
Research and development— 160 133 480 
Total acquisition related costs and other charges$2,947 $3,617 $9,029 $10,581 
 

    


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IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE (UNAUDITED)
 
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands)
Cost of sales$2,663 $2,575 $7,702 $6,806 
Sales and marketing1,126 1,266 3,275 2,907 
Research and development2,258 2,035 6,805 5,955 
General and administrative2,732 2,678 8,698 10,096 
Total stock-based compensation8,779 8,554 26,480 25,764 
Tax effect of stock-based compensation(1,527)(2,074)(5,586)(6,121)
Net stock-based compensation$7,252 $6,480 $20,894 $19,643 

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands)
Excess tax benefit on exercise of stock options included in net income$1,896 $1,713 $6,590 $13,780 



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