GlobeNewswire Inc | Aug 4, 2020 08:00AM EDT

August 04, 2020

OXFORD, Mass., Aug. 04, 2020 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the second quarter ended June30, 2020.

Three Months Ended June 30, Six Months Ended June 30, (Inmillions,except per 2020 2019 Change 2020 2019 Changeshare dataandpercentages)Revenue $ 296.4 $ 363.8 (19) % $ 545.7 $ 678.8 (20) %Gross margin 46.0 % 49.5 % 43.9 % 48.5 % Operating $ 47.2 $ 91.1 (48) % $ 92.0 $ 159.4 (42) %incomeOperating 15.9 % 25.0 % 16.9 % 23.5 % marginNet incomeattributableto IPG $ 38.2 $ 72.3 (47) % $ 74.6 $ 127.4 (41) %PhotonicsCorporationEarnings perdiluted $ 0.71 $ 1.34 (47) % $ 1.39 $ 2.36 (41) %share

Management Comments

"Despite the continued challenges to our business from the COVID-19 pandemic, we delivered second quarter results above our guidance range on better-than-expected performance in China and strength in new products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Although our visibility is constrained in the current demand environment, we are demonstrating good progress in leading-edge solutions thanks to our technology differentiation and low cost production capabilities. We continue to believe that our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruptions and emerge from the pandemic in a stronger competitive position."

Financial Highlights

Second quarter revenue of $296 million decreased 19% year over year. Currency depreciation relative to the exchange rates assumed in our second quarter guidance reduced revenue by approximately $2 million. Materials processing sales decreased 21% year over year due to lower sales in cutting, welding and marking applications, while sales into other applications increased 36% year over year on strength in advanced applications and devices used in medical procedures. Materials processing sales accounted for 92% of total revenue.

Sales of high power continuous wave ("CW") lasers, representing 53% of total revenue, decreased 26% year over year due to the effects of COVID-19 on the global demand environment and lower average selling prices. Sales of fiber lasers at 6 kilowatts of power or greater were more than 50% of all high power CW laser sales. By region, sales decreased 11% in China, 24% in Europe, 16% in Japan and 16% in North America on a year over year basis.

Earnings per diluted share ("EPS") of $0.71 decreased 47% year over year. Foreign exchange losses and a $1 million charge related to impairment of long-lived assets and other restructuring charges reduced EPS by $0.20. The effective tax rate in the quarter was 23%, which benefited from certain discrete tax items. During the second quarter, IPG generated $73 million in cash from operations. Capital expenditures were $20 million and stock repurchases totaled $16 million.

Business Outlook and Financial Guidance

"Second quarter book to bill was greater than 1.0, with strong bookings growth in China, offset by weaker order trends in other regions. As expected, the pace of order growth in China moderated as the second quarter progressed while we have seen modest improvement in order trends in other regions. However, visibility into a recovery in global demand remains uncertain at this time. We continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing and systems and devices for the medical industry. We believe the strides we are making in higher power products within our core materials processing business and new solutions will enable us emerge from the pandemic in a stronger competitive position," said Dr. Gapontsev.

For the third quarter of 2020, IPG expects revenue of $280 million to $310 million. The Company expects the third quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.70 to $1.00, with 53.0 million basic common shares outstanding and 53.5 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 0.89, Russian Ruble 70, Japanese Yen 108 and Chinese Yuan 7.08, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Second 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, August4, 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

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 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, our strong balance sheet and free cash flow helping us through the COVID-19 pandemic and business disruptions and emerge in a stronger competitive position, improvement in order trends in regions other than China, growth opportunities in ultra-high power cutting, electric vehicle battery processing and systems and devices for the medical industry, strides in higher power products 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 Q3 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 June 30, Six Months Ended June 30, 2020 2019 2020 2019 (Inthousands,exceptpersharedata)Net sales $ 296,411 $ 363,769 $ 545,653 $ 678,816 Cost of sales 159,962 183,532 306,328 349,668 Gross profit 136,449 180,237 239,325 329,148 Operating expenses:Sales and 17,326 20,663 36,009 39,938 marketingResearch and 31,584 34,872 63,422 67,368 developmentGeneral and 26,399 28,538 53,523 55,750 administrativeImpairment oflong-lived assetsand other 1,165 ? 1,165 ? restructuringchargesLoss (gain) on 12,766 5,074 (6,799 ) 6,687 foreign exchangeTotal operating 89,240 89,147 147,320 169,743 expensesOperating income 47,209 91,090 92,005 159,405 Other income, net:Interest income, 1,856 4,051 4,929 8,003 netOther income, net 449 658 640 649 Total other 2,305 4,709 5,569 8,652 incomeIncome beforeprovision of 49,514 95,799 97,574 168,057 income taxesProvision for 11,148 23,278 22,442 40,620 income taxesNet income 38,366 72,521 75,132 127,437 Less: net incomeattributable to 140 249 503 6 non-controllinginterestsNet incomeattributable to $ 38,226 $ 72,272 $ 74,629 $ 127,431 IPG PhotonicsCorporationNet incomeattributable toIPG Photonics Corporation pershare:Basic $ 0.72 $ 1.36 $ 1.41 $ 2.40 Diluted $ 0.71 $ 1.34 $ 1.39 $ 2.36 Weighted averageshares outstanding:Basic 53,040 53,042 53,083 53,076 Diluted 53,530 53,848 53,628 53,915

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, December 31, 2020 2019 (Inthousands,exceptshareand per share data)ASSETSCurrent assets: Cash and cash equivalents $ 747,859 $ 680,070 Short-term investments 501,040 502,546 Accounts receivable, net 203,568 238,479 Inventories 367,166 380,790 Prepaid income taxes 62,778 38,873 Prepaid expenses and other current 68,115 55,876 assetsTotal current assets 1,950,526 1,896,634 Deferred income taxes, net 30,544 31,395 Goodwill 81,911 82,092 Intangible assets, net 67,995 74,271 Property, plant and equipment, net 585,644 600,852 Other assets 42,116 45,192 Total assets $ 2,758,736 $ 2,730,436 LIABILITIES AND EQUITYCurrent liabilities: Current portion of long-term debt $ 3,775 $ 3,740 Accounts payable 42,261 27,329 Accrued expenses and other current 148,226 149,782 liabilitiesIncome taxes payable 1,024 11,053 Total current liabilities 195,286 191,904 Deferred income taxes and other 90,073 98,121 long-term liabilitiesLong-term debt, net of current 36,071 37,968 portionTotal liabilities 321,430 327,993 Commitments and contingencies IPG Photonics Corporation equity: Common stock, $0.0001 par value,175,000,000 shares authorized;55,154,688 and 53,182,148 sharesissued and outstanding, 6 5 respectively, at June 30, 2020;54,743,227 and 53,010,875 sharesissued and outstanding,respectively, at December 31, 2019.Treasury stock, at cost, 1,972,540and 1,732,352 shares held at June (293,960 ) (265,730 )30, 2020 and December 31, 2019,respectively.Additional paid-in capital 811,559 785,636 Retained earnings 2,103,248 2,028,734 Accumulated other comprehensive loss (184,501 ) (146,919 )Total IPG Photonics Corporation 2,436,352 2,401,726 equityNon-controlling interests 954 717 Total equity 2,437,306 2,402,443 Total liabilities and equity $ 2,758,736 $ 2,730,436

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30, 2020 2019 (In thousands)Cash flows from operating activities: Net income $ 75,132 $ 127,437 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 47,350 47,486 Impairment of long-lived assets 671 ? Provisions for inventory, warranty& bad debt 24,484 22,697 Other 13,142 24,014 Changes in assets and liabilities that provided (used) cash, net of acquisitions:Accounts receivable and accounts payable 46,256 (21,501 )Inventories (15,160 ) (40,789 )Other (61,619 ) (57,565 )Net cash provided by operating activities 130,256 101,779 Cash flows from investing activities: Purchases of property, plant and equipment (37,370 ) (86,492 )Proceeds from sales of property, plant and 460 288 equipmentPurchases of short-term and long-term (421,321 ) (339,828 )investmentsProceeds from short-term investments 422,912 334,680 Acquisitions of businesses, net of cash ? (15,115 )acquiredOther 115 209 Net cash used in investing activities (35,204 ) (106,258 )Cash flows from financing activities: Principal payments on long-term borrowings (1,862 ) (1,827 )Proceeds from issuance of common stock underemployee stock option and purchase plans less 8,271 (32 )payments for taxes related to net sharesettlement of equity awardsPurchase of treasury stock, at cost (28,230 ) (2,284 )Payment of purchase price holdback from (1,650 ) ? business combinationNet cash used in financing activities (23,471 ) (4,143 )Effect of changes in exchange rates on cash and (4,523 ) (2,759 )cash equivalents and restricted cashNet increase (decrease) in cash, cash 67,058 (11,381 )equivalents and restricted cashCash, cash equivalents and restricted cash ? 682,984 544,358 Beginning of periodCash, cash equivalents and restricted cash ? $ 750,042 $ 532,977 End of periodSupplemental disclosures of cash flow information:Cash paid for interest $ 1,061 $ 1,164 Cash paid for income taxes $ 53,670 $ 73,855

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

Three Months Ended June Six Months Ended June 30, 30, 2020 2019 2020 2019 (In thousands)Amortization of intangible assets:Cost of sales $ 1,172 $ 1,488 $ 2,394 $ 2,834 Sales and marketing 1,777 2,000 3,555 3,810 Research and development ? 160 133 320 Total acquisition related $ 2,949 $ 3,648 $ 6,082 $ 6,964 costs and other charges



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

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (In thousands)Cost of sales $ 2,507 $ 2,192 $ 5,039 $ 4,231 Sales and 1,188 854 2,149 1,641 marketingResearch and 2,475 2,063 4,547 3,920 developmentGeneral and 3,092 3,963 5,966 7,418 administrativeTotalstock-based 9,262 9,072 17,701 17,210 compensationTax effect ofstock-based (2,123 ) (2,131 ) (4,059 ) (4,047 ) compensationNet stock-based $ 7,139 $ 6,941 $ 13,642 $ 13,163 compensation

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (In thousands)Excess taxbenefit onexercise of $ 1,776 $ 1,319 $ 4,694 $ 4,229 stock optionsincluded in netincome