IPG Photonics Announces First Quarter 2019 Financial Results Nasdaq:IPGP

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OXFORD, Mass., April 30, 2019 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the first quarter ended March 31, 2019.

Three Months Ended March 31, (In millions, except per share data and percentages) 2019 2018 Change Revenue $ 315.0 $ 359.9 (12) % Gross margin 47.3% 56.5% Operating income $ 68.3 $ 141.1 (52) % Operating margin 21.7% 39.2% Net income attributable to IPG Photonics Corporation $ 55.2 $ 106.3 (48) % Earnings per diluted share $ 1.02 $ 1.93 (47) %

Management Comments

"We were pleased to deliver first quarter results in line with our guidance given the challenging macroeconomic, geopolitical and competitive backdrop," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "During the quarter business trends improved in China driving sequential growth in orders. More importantly, we have met competitive challenges head on through a combination of substantial reduction of component and manufacturing costs and introduction of unmatched product features that improve processing speed, flexibility and quality for our customers. We continue to demonstrate meaningful traction in ultra high power fiber lasers, and invest in new products and applications. We believe this progress substantially expands our addressable market and opens up opportunities that will drive the company's growth for many years."

Financial Highlights

First quarter revenue of $315 million decreased 12% year over year. Materials processing sales accounted for 96% of total revenue, decreasing 11% year over year due to lower sales in cutting and 3D printing applications. Sales into other applications decreased 32% year over year but with strong order growth in communications and government applications. The acquisition of Genesis Systems Group contributed $24 million during the quarter.

Sales of high power continuous wave (CW) lasers, representing 57% of total revenue, decreased 22% year over year. Sales of fiber lasers at 6 kilowatts of power or greater were nearly 50% of all high power CW laser sales, and high power CW lasers at 10 kilowatts or greater increased more than 40% year over year. Sales of other high power lasers declined year over year due to the weaker demand environment in China and Europe and lower average selling prices. By region, sales decreased 24% in China, 24% in Europe and 20% in Japan but increased 65% in North America on a year over year basis.

Earnings per diluted share ("EPS") of $1.02 decreased 47% year over year. Slightly lower than expected absorption of fixed manufacturing costs and a higher inventory provision reduced EPS by $0.04 relative to guidance. In addition, higher R & D material expenses, nonrecurring legal costs and foreign exchange losses reduced EPS by $0.04. The effective tax rate in the quarter was 24%, which benefited from certain discrete tax items. During the first quarter, IPG generated $46 million in cash from operations. Capital expenditures were $33 million, which included $21 million for the purchase of a new facility in Massachusetts.

Business Outlook and Financial Guidance

"We have seen further signs of improving business conditions in China, our largest region, with sequential growth in orders and good momentum through the first three weeks of the second quarter. Our first quarter book-to-bill ratio was above one, in line with normal seasonality, albeit off a lower base given the weaker macroeconomic climate. If this momentum in China is maintained, it should continue to drive better performance. Performance in Europe is generally stable but down from peak levels, reflecting reported economic trends in the region. We expect pricing headwinds related to competition in China to continue. We believe our innovative new products, accessories and complete solutions, which provide customers with a superior value proposition, both cement and enhance our market leadership position." said Dr. Gapontsev.

For the second quarter of 2019, IPG expects revenue of $340 million to $370 million. The Company expects the second quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $1.25 to $1.55, with 53.0 million basic common shares outstanding and 53.9 million diluted common shares outstanding.

"Commentary from our largest machine tool OEM customers continues to improve, but we do not yet have clear visibility into their full year order plans. As such, we do not believe it is appropriate to provide full year revenue guidance at this time. As a reminder, we would expect year-over-year trends to improve in the back half of 2019 driven by market recovery and strength in new products and solutions," 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 0.89, Russian Ruble 65, Japanese Yen 111 and Chinese Yuan 6.73, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the First Quarter 2019 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, April 30, 2019 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 Hillier
Vice President of Investor Relations
IPG Photonics Corporation
508-373-1467

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, introduction of unmatched product features that improve processing speed, flexibility and quality for our customers, meaningful traction in ultra high power fiber lasers, and investment in new products and applications, expanding our addressable market and opening up opportunities that will drive the company's growth for many years, momentum in China continuing to drive better performance, continued pricing headwinds related to competition in China, our innovative new products, accessories and complete solutions providing customers with a superior value proposition, cementing and enhancing our market leadership position, improving commentary from our largest machine tool OEM customers, and revenue and earnings guidance for Q2 2019. 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 27, 2019) 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 CORPORATION
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2019
2018
(In thousands, except per share data) Net sales $ 315,047 $ 359,864 Cost of sales 166,136 156,502 Gross profit 148,911 203,362 Operating expenses: Sales and marketing 19,275 13,516 Research and development 32,496 28,546 General and administrative 27,212 25,495 Loss (gain) on foreign exchange 1,613 (5,295 ) Total operating expenses 80,596 62,262 Operating income 68,315 141,100 Other income (expense), net: Interest income, net 3,952 311 Other income (expense), net (9 ) 443 Total other income 3,943 754 Income before provision of income taxes 72,258 141,854 Provision for income taxes (17,342 ) (35,520 ) Net income 54,916 106,334 Less: net income (loss) attributable to noncontrolling interests (243 ) — Net income attributable to IPG Photonics Corporation $ 55,159 $ 106,334 Net income attributable to IPG Photonics Corporation per share: Basic $ 1.04 $ 1.98 Diluted $ 1.02 $ 1.93 Weighted average shares outstanding: Basic 53,001 53,694 Diluted 53,874 55,182

IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS March 31, December 31, 2019
2018
(In thousands, except share and per
share data) ASSETS
Current assets: Cash and cash equivalents $ 548,938 $ 544,358 Short-term investments 481,139 500,432 Accounts receivable, net 231,850 255,509 Inventories 417,817 403,579 Prepaid income taxes 50,961 43,782 Prepaid expenses and other current assets 61,389 57,764 Total current assets 1,792,094 1,805,424 Deferred income taxes, net 17,438 19,165 Goodwill 110,349 100,722 Intangible assets, net 93,280 87,139 Property, plant and equipment, net 570,756 543,068 Other assets 41,954 18,932 Total assets $ 2,625,871 $ 2,574,450 LIABILITIES AND EQUITY
Current liabilities: Current portion of long-term debt $ 3,688 $ 3,671 Accounts payable 39,970 36,302 Accrued expenses and other liabilities 153,151 154,640 Income taxes payable 13,007 51,161 Total current liabilities 209,816 245,774 Deferred income taxes and other long-term liabilities 106,988 80,734 Long-term debt, net of current portion 40,779 41,707 Total liabilities 357,583 368,215 Commitments and contingencies IPG Photonics Corporation stockholders' equity: Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,538,307 and 53,108,213 shares issued and outstanding, respectively, at March 31, 2019; 54,371,701 and 52,941,607 shares issued and outstanding, respectively, at December 31, 2018 5 5 Treasury stock, at cost (1,430,094 shares held at both March 31, 2019 and December 31, 2018) (224,998 ) (224,998 ) Additional paid-in capital 746,926 744,937 Retained earnings 1,903,659 1,848,500 Accumulated other comprehensive loss (157,751 ) (162,896 ) Total IPG Photonics Corporation stockholders' equity 2,267,841 2,205,548 Noncontrolling interests 447 687 Total equity 2,268,288 2,206,235 Total liabilities and equity $ 2,625,871 $ 2,574,450

IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2019
2018
(In thousands) Cash flows from operating activities: Net income $ 54,916 $ 106,334 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,802 19,223 Provisions for inventory, warranty  & bad debt 9,912 9,318 Other 16,212 11,829 Changes in assets and liabilities that used cash: Accounts receivable and accounts payable 24,808 9,076 Inventories (19,719 ) (49,744 ) Other (63,381 ) (6,383 ) Net cash provided by operating activities 45,550 99,653 Cash flows from investing activities: Purchases of property, plant and equipment (32,839 ) (39,113 ) Proceeds from sales of property, plant and equipment 181 210 Purchases of investments (178,101 ) (70,777 ) Proceeds from sales of investments 202,856 70,161 Acquisitions of businesses, net of cash acquired (20,005 ) — Other (134 ) 76 Net cash used in investing activities (28,042 ) (39,443 ) Cash flows from financing activities: Principal payments on long-term borrowings (911 ) (895 ) 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 (6,149 ) 3,113 Purchase of treasury stock, at cost — (20,071 ) Net cash used in financing activities (7,060 ) (17,853 ) Effect of changes in exchange rates on cash and cash equivalents (5,868 ) 16,866 Net increase in cash and cash equivalents 4,580 59,223 Cash and cash equivalents — Beginning of period 544,358 909,900 Cash and cash equivalents — End of period $ 548,938 $ 969,123 Supplemental disclosures of cash flow information: Cash paid for interest $ 749 $ 799 Cash paid for income taxes $ 51,438 $ 19,546

IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES Three Months Ended March 31, 2019 2018 (In thousands) Step-up of inventory (1):
Cost of sales $ — $ 282 Amortization of intangible assets: Cost of sales 1,346 1,169 Sales and marketing 1,810 602 Research and development 160 160 Total acquisition related costs and other charges $ 3,316 $ 2,213

(1) 2018 amount relates to step-up adjustments on inventory sold during the period.

IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE Three Months Ended March 31, 2019
2018
(In thousands) Cost of sales $ 2,039 $ 1,568 Sales and marketing 787 556 Research and development 1,857 1,416 General and administrative 3,455 2,875 Total stock-based compensation 8,138 6,415 Tax benefit recognized (1,916 ) (1,431 ) Net stock-based compensation $ 6,222 $ 4,984

Three Months Ended March 31, 2019 2018 (In thousands) Excess tax benefit on exercise of stock options included in net income $ 2,910 $ 3,159

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