GlobeNewswire Inc | Oct 30, 2020 08:00AM EDT

October 30, 2020

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., Oct. 30, 2020 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September30, 2020.

Three Months Ended Nine Months Ended September 30, September 30,(Inmillions,except per 2020 2019 Change 2020 2019 Changeshare dataandpercentages)Revenue $ 318.4 $ 329.1 (3)% $ 864.1 $ 1,008.0 (14)%Gross margin 48.0 % 46.4 % 45.4 % 47.8 % Operating $ 41.4 $ 74.1 (44)% $ 133.4 $ 233.6 (43)%incomeOperating 13.0 % 22.5 % 15.4 % 23.2 % marginNet incomeattributableto IPG $ 35.6 $ 57.3 (38)% $ 110.2 $ 184.7 (40)%PhotonicsCorporationEarnings perdiluted $ 0.66 $ 1.07 (38)% $ 2.05 $ 3.43 (40)%share

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.

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, October30, 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. ManganaroSenior AssociateSharon Merrill Associates, Inc617-542-5300nmanganaro@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 Companys 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, 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.

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended Nine Months Ended September September 30, 30, 2020 2019 2020 2019 (Inthousands,exceptpersharedata)Net sales $ 318,441 $ 329,138 $ 864,094 $ 1,007,954 Cost of sales 165,649 176,280 471,977 525,948 Gross profit 152,792 152,858 392,117 482,006 Operating expenses: Sales and marketing 17,332 18,969 53,341 58,907 Research and 31,710 32,160 95,132 99,528 developmentGeneral and 29,038 26,776 82,561 82,526 administrativeGoodwill impairment 44,589 ? 44,589 ? Impairment oflong-lived assets and 12 ? 1,177 ? other restructuringcharges(Gain) loss on (11,302 ) 808 (18,101 ) 7,495 foreign exchangeTotal operating 111,379 78,713 258,699 248,456 expensesOperating income 41,413 74,145 133,418 233,550 Other income, net: Interest income, net 1,168 3,734 6,097 11,737 Other income (59 ) (520 ) 581 129 (expense), netTotal other income 1,109 3,214 6,678 11,866 Income beforeprovision of income 42,522 77,359 140,096 245,416 taxesProvision for income 6,992 20,232 29,434 60,852 taxesNet income 35,530 57,127 110,662 184,564 Less: net (loss)income attributable (74 ) (126 ) 429 (120 )to non-controllinginterestsNet incomeattributable to IPG $ 35,604 $ 57,253 $ 110,233 $ 184,684 Photonics CorporationNet incomeattributable to IPG Photonics Corporationper share:Basic $ 0.67 $ 1.08 $ 2.07 $ 3.48 Diluted $ 0.66 $ 1.07 $ 2.05 $ 3.43 Weighted average shares outstanding:Basic 53,098 52,928 53,136 53,073 Diluted 53,664 53,622 53,691 53,864

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, December 31, 2020 2019 (Inthousands,exceptshareand per share data)ASSETSCurrent assets: Cash and cash equivalents $ 763,920 $ 680,070 Short-term investments 537,696 502,546 Accounts receivable, net 240,352 238,479 Inventories 370,344 380,790 Prepaid income taxes 60,436 38,873 Prepaid expenses and other current 58,905 55,876 assetsTotal current assets 2,031,653 1,896,634 Deferred income taxes, net 38,616 31,395 Goodwill 37,731 82,092 Intangible assets, net 64,999 74,271 Property, plant and equipment, net 576,398 600,852 Other assets 45,535 45,192 Total assets $ 2,794,932 $ 2,730,436 LIABILITIES AND EQUITYCurrent liabilities: Current portion of long-term debt $ 3,792 $ 3,740 Accounts payable 37,375 27,329 Accrued expenses and other current 156,472 149,782 liabilitiesIncome taxes payable 3,806 11,053 Total current liabilities 201,445 191,904 Deferred income taxes and other 87,296 98,121 long-term liabilitiesLong-term debt, net of current portion 35,117 37,968 Total liabilities 323,858 327,993 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 sharesissued and outstanding, respectively, 6 5 at September 30, 2020; 54,743,227 and53,010,875 shares issued andoutstanding, respectively, at December31, 2019.Treasury stock, at cost, 2,034,012 and1,732,352 shares held at September 30, (303,614 ) (265,730 )2020 and December 31, 2019,respectively.Additional paid-in capital 828,796 785,636 Retained earnings 2,138,852 2,028,734 Accumulated other comprehensive loss (193,827 ) (146,919 )Total IPG Photonics Corporation equity 2,470,213 2,401,726 Non-controlling interests 861 717 Total equity 2,471,074 2,402,443 Total liabilities and equity $ 2,794,932 $ 2,730,436

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2020 2019 (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 amortization 71,188 72,531 Goodwill impairment 44,589 ? Impairment of long-lived assets 671 ? Provisions for inventory, warranty& bad debt 42,559 38,748 Other 1,336 29,244 Changes in assets and liabilities that provided (used) cash, net of acquisitions:Accounts receivable and accounts payable 11,127 (15,699 )Inventories (34,213 ) (51,032 )Other (47,902 ) (64,774 )Net cash provided by operating activities 200,017 193,582 Cash flows from investing activities: Purchases of property, plant and equipment (61,871 ) (107,540 )Proceeds from sales of property, plant and 689 348 equipmentPurchases of short-term and long-term investments (732,729 ) (557,674 )Proceeds from short-term investments 697,816 568,501 Acquisitions of businesses, net of cash acquired ? (15,115 )Other 17 243 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 underemployee stock option and purchase plans less 16,767 1,644 payments for taxes related to net share settlementof equity awardsPurchase of treasury stock, at cost (37,884 ) (25,921 )Payment of purchase price holdback from business (1,650 ) ? combinationNet cash used in financing activities (25,565 ) (27,024 )Effect of changes in exchange rates on cash and 4,692 (16,561 )cash equivalents and restricted cashNet increase in cash, cash equivalents and 83,066 38,760 restricted cashCash, cash equivalents and restricted cash ? 682,984 544,358 Beginning of periodCash, cash equivalents and restricted cash ? End of $ 766,050 $ 583,118 periodSupplemental disclosures of cash flow information: Cash paid for interest $ 1,650 $ 1,655 Cash paid for income taxes $ 65,895 $ 97,172

IPG PHOTONICS CORPORATIONSUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES (UNAUDITED)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands)Amortization of intangible assets:Cost of sales $ 1,168 $ 1,484 $ 3,562 $ 4,318 Sales and marketing 1,779 1,973 5,334 5,783 Research and development ? 160 133 480 Total acquisition related $ 2,947 $ 3,617 $ 9,029 $ 10,581 costs and other charges



IPG PHOTONICS CORPORATIONSUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE (UNAUDITED)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands)Cost of sales $ 2,663 $ 2,575 $ 7,702 $ 6,806 Sales and marketing 1,126 1,266 3,275 2,907 Research and 2,258 2,035 6,805 5,955 developmentGeneral and 2,732 2,678 8,698 10,096 administrativeTotal stock-based 8,779 8,554 26,480 25,764 compensationTax effect ofstock-based (1,527 ) (2,074 ) (5,586 ) (6,121 )compensationNet stock-based $ 7,252 $ 6,480 $ 20,894 $ 19,643 compensation

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands)Excess tax benefit onexercise of stock $ 1,896 $ 1,713 $ 6,590 $ 13,780 options included innet income