IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the fourth quarter and fiscal year ended December 31, 2014.

     

Three Months Ended
December 31,

          

Twelve Months Ended
December 31,

      
(In millions, except per share data) 2014     2013 % Change 2014     2013 % Change
Revenue $ 207.4 $ 165.9 25 % $ 769.8 $ 648.0 19 %
Gross margin 54.9 % 49.2 % 54.1 % 52.5 %
Operating income $ 79.6 $ 48.9 63 % $ 283.8 $ 218.1 30 %
Operating margin 38.4 % 29.5 % 36.9 % 33.7 %

Net income attributable to
   IPG Photonics Corporation

$ 56.4 $ 36.6 54 % $ 200.4 $ 155.8 29 %
Earnings per diluted share $ 1.07 $ 0.70 53 % $ 3.79 $ 2.97 28 %
 

Management Comments

IPG delivered another record quarter increasing revenue and net income by 25% and 54%, respectively, for the fourth quarter 2014 compared to the same period last year. For the full year, IPG grew its top-line approximately 19% while increasing the bottom-line by 29%.

"We continued to expand our breadth of applications, made great strides in penetrating cutting OEMs, and improved our competitive position in the automotive market," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "In addition, the growth we anticipated in metal-based 3D printing at the beginning of the year materialized. The growth in net income reflects the leverage we expected to achieve in our operating model."

Revenues for the fourth quarter of 2014 increased 25% year-over-year to a record $207.4 million, driven by continued strong sales in materials processing as well as increases from other non-materials processing applications. High-power laser revenue increased 32% from the fourth quarter of 2013 due in part to strong sales in the North American automotive industry and continued penetration of the metal cutting market worldwide. Medium-power laser sales grew 58% related to sales for fine-processing applications. Increased demand for IPG's new low cost pulsed lasers drove a 16% increase in pulsed laser sales, while QCW lasers sales increased 23% in the fourth quarter compared to the prior year period as this product line continued to gain acceptance.

In the fourth quarter earnings per diluted share increased by 52.9% to a record $1.07 including a benefit of $0.03 related to foreign exchange transaction gains. The growth in earnings per share was driven by the increase in revenue and an improvement in operating margins.

During the fourth quarter, IPG generated $60.1 million in cash from operations and used $15.9 million to finance capital expenditures. IPG ended the quarter with $522.2 million in cash and cash equivalents.

Business Outlook and Financial Guidance

"The book-to-bill ratio was greater than one in the fourth quarter," said Dr. Gapontsev. "We exited 2014 with a backlog of $321.0 million, representing an increase of 21% from year-end 2013. Backlog includes $174.5 million of orders with firm shipment dates and $146.5 million of frame agreements that we expect to ship within one year."

"We enter 2015 with a strong backlog and remain focused on gaining further share in our established materials processing applications, completing development of and introducing new products which will expand our available market and applying our lasers in large scale and novel applications beyond our core applications in metal processing," concluded Dr. Gapontsev.

IPG Photonics expects revenue in the range of $195 million to $205 million for the first quarter of 2015. The Company anticipates earnings per diluted share in the range of $0.92 to $1.02 based on 52,873,000 diluted common shares, which includes 52,153,000 basic common shares outstanding and 720,000 potentially dilutive options at December 31, 2014.

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 and general economic conditions. This guidance is subject to the risks outlined in the Company's reports with the SEC, and assumes that exchange rates remain at present levels.

Conference Call Reminder

The Company will hold a conference call today, February 20, 2015 at 10:00 a.m. ET. The conference call will be webcast live and can be accessed on the "Investors" section of the Company's website at www.ipgphotonics.com. The conference call also can be accessed by dialing (877) 709-8155 or (201) 689-8881. An archived version of the webcast will be available for approximately one year on IPG's website.

About IPG Photonics Corporation

IPG Photonics Corporation is the world leader in high-power fiber lasers and amplifiers. Founded in 1990, IPG pioneered the development and commercialization of optical fiber-based lasers for use in diverse applications, primarily materials processing. Fiber lasers have revolutionized the industry by delivering superior performance, reliability and usability at a lower total cost of ownership compared with conventional lasers, allowing end users to increase productivity and decrease operating costs. IPG has its headquarters in Oxford, Massachusetts, and has additional plants and offices throughout the world. For more information, please visit www.ipgphotonics.com.

Safe Harbor Statement

Information and statements provided by the Company 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, IPG's prospects for growth in 2015, shipment of products pursuant to frame agreements, gaining further share in the Company’s established materials processing applications, completing development of and introducing new products, expanding its available market, applying its lasers in large scale and novel applications beyond the Company’s core applications in metal processing and guidance for the first quarter of 2015. 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 the Company serves, particularly the effect of downturns in the markets IPG serves; uncertainties and adverse changes in the general economic conditions of markets; the Company's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; high levels of fixed costs from IPG's vertical integration; the appropriateness of the Company's manufacturing capacity for the level of demand; competitive factors, including declining average selling prices; the effect of acquisitions and investments; inventory write-downs; foreign currency fluctuations; intellectual property infringement claims and litigation; interruption in supply of key components; manufacturing risks; government regulations and trade sanctions; building and expanding field service and support operations; inability to manage risks associated with international customers and operations; and other risks identified in the Company's SEC filings. Readers are encouraged to refer to the risk factors described in the Company's Annual Report on Form 10-K (filed with the SEC on February 28, 2014) 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. The Company 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
December 31,

    

Twelve Months Ended
December 31,

2014       2013   2014       2013  
(in thousands, except per share data)
NET SALES $ 207,402 $ 165,859 $ 769,832 $ 648,034
COST OF SALES 93,485   84,337   353,314   308,136  
GROSS PROFIT 113,917   81,522   416,518   339,898  
OPERATING EXPENSES:
Sales and marketing 7,929 7,178 30,637 26,692
Research and development 13,810 10,878 53,403 41,660
General and administrative 15,126 13,049 55,338 50,863
(Gain) loss on foreign exchange (2,579 ) 1,564   (6,618 ) 2,536  
Total operating expenses 34,286   32,669   132,760   121,751  
OPERATING INCOME 79,631   48,853   283,758   218,147  
OTHER INCOME (EXPENSE), NET:
Interest income (expense), net 66 24 (77 ) (1 )
Other income, net 58   106   793   155  
Total other income (expense) 124   130   716   154  
INCOME BEFORE PROVISION FOR INCOME TAXES 79,755 48,983 284,474 218,301
PROVISION FOR INCOME TAXES (23,324 ) (12,388 ) (84,029 ) (62,521 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $ 56,431   $ 36,595   $ 200,445   $ 155,780  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:
Basic $ 1.08 $ 0.71 $ 3.85 $ 3.02
Diluted $ 1.07 $ 0.70 $ 3.79 $ 2.97
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 52,153 51,660 52,104 51,548
Diluted 52,873 52,487 52,824 52,375
 
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION
 
      Three Months Ended December 31,       Twelve Months Ended December 31,
(In thousands) 2014     2013   2014     2013  
Cost of sales $ 1,131 $ 863 $ 4,153 $ 3,187
Sales and marketing 442 267 1,567 1,195
Research and development 804 552 3,033 1,929
General and administrative 1,728   1,434   6,419   5,409  
Total stock-based compensation 4,105 3,116 15,172 11,720
Tax benefit recognized (1,305 ) (1,012 ) (4,865 ) (3,784 )
Net stock-based compensation $ 2,800   $ 2,104   $ 10,307   $ 7,936  
 
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS IN COST OF SALES
 
      Three Months Ended December 31,       Twelve Months Ended December 31,
(In thousands) 2014       2013   2014       2013
Cost of sales    
Step-up of inventory (1) $ — $ — $ — $ 1,318
Amortization of intangible assets (2) 248   180   716   721
Total acquisition related costs $ 248   $ 180   $ 716   $ 2,039
 

(1) Amount relates to Microsystems step-up adjustment on inventory sold during the period
(2) Amount relates to intangible amortization expense during periods presented including amortization of acquired patents

IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
 
      December 31,   December 31,
2014   2013  

(In thousands, except share and per
share data)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 522,150 $ 448,776
Accounts receivable, net 143,109 103,803
Inventories 171,009 172,700
Prepaid income taxes and income taxes receivable 20,967 15,996
Prepaid expenses and other current assets 21,295 30,836
Deferred income taxes, net 15,308   14,232  
Total current assets 893,838 786,343
DEFERRED INCOME TAXES, NET 5,438 4,799
GOODWILL 455 455
INTANGIBLE ASSETS, NET 9,227 9,564
PROPERTY, PLANT AND EQUIPMENT, NET 275,082 252,245
OTHER ASSETS 26,847   7,810  
TOTAL $ 1,210,887   $ 1,061,216  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Revolving line-of-credit facilities $ 2,631 $ 3,296
Current portion of long-term debt 13,333 1,333
Accounts payable 17,141 18,787
Accrued expenses and other liabilities 64,057 59,336
Deferred income taxes, net 3,241 2,109
Income taxes payable 21,672   15,218  
Total current liabilities 122,075 100,079
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 22,584 21,835
LONG-TERM DEBT, NET OF CURRENT PORTION 19,667   11,333  
Total liabilities 164,326 133,247
COMMITMENTS AND CONTINGENCIES
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:

Common stock, $0.0001 par value, 175,000,000 shares authorized; 52,369,688
shares issued and outstanding at December 31, 2014; 51,930,978 shares issued
and outstanding at December 31, 2013

5 5
Additional paid-in capital 567,617 538,908
Retained earnings 591,202 390,757
Accumulated other comprehensive loss (112,263 ) (1,701 )
Total IPG Photonics Corporation stockholders' equity 1,046,561   927,969  
TOTAL $ 1,210,887   $ 1,061,216  
 
IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
      Twelve Months Ended December 31,
2014         2013  
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 200,445 $ 155,780
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 35,612 31,524
Provisions for inventory, warranty & bad debt 28,036 29,975
Other 14,748 5,379
Changes in assets and liabilities that (used) provided cash:
Accounts receivable/payable (45,256 ) (9,017 )
Inventories (42,246 ) (50,355 )
Other (7,134 ) (43,919 )
Net cash provided by operating activities 184,205   119,367  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment and intangible assets (90,601 ) (70,919 )
Proceeds from sales of property, plant and equipment 434 236
Proceeds from sale of investment — 495
Acquisition of businesses — (5,555 )
Other 87   (143 )
Net cash used in investing activities (90,080 ) (75,886 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Line-of-credit facilities (341 ) 853
Principal payments on long-term borrowings (1,667 ) (2,853 )
Tax benefits from exercise of employee stock options 5,979 8,874
Exercise of employee stock options and issuances under employee stock purchase plan 7,558   7,275  
Net cash provided by financing activities 11,529   14,149  
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (32,280 ) 7,093  
NET INCREASE IN CASH AND CASH EQUIVALENTS 73,374 64,723
CASH AND CASH EQUIVALENTS — Beginning of period 448,776   384,053  
CASH AND CASH EQUIVALENTS — End of period $ 522,150   $ 448,776  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 253   $ 208  
Cash paid for income taxes $ 73,544   $ 89,611