IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the fourth quarter ended December 31, 2016.

                       

Three Months Ended
December 31,

Twelve Months Ended
December 31,

(In millions, except per share data) 2016         2015 % Change 2016       2015 % Change
Revenue $ 280.1 $ 223.6 25 % $ 1,006.2 $ 901.3 12 %
Gross margin 55.5 % 54.6 % 54.9 % 54.6 %
Operating income $ 105.2 $ 83.0 27 % $ 364.3 $ 342.0 7 %
Operating margin 37.6 % 37.1 % 36.2 % 38.0 %
Net income attributable to IPG Photonics Corporation $ 75.1 $ 60.7 24 % $ 260.8 $ 242.2 8 %
Earnings per diluted share $ 1.39 $ 1.14 22 % $ 4.85 $ 4.53 7 %
 

Management Comments

"IPG delivered another year of record results in 2016 exceeding $1 billion in sales for the first time as we celebrate our 10th anniversary as a public company," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "For the fourth quarter of 2016 we reported revenue and EPS above our guidance ranges. Record sales of $280.1 million increased 25% year-over-year for the fourth quarter driven by continued strength in materials processing. We achieved a strong gross margin of 55.5% and a 22% year-over-year increase in earnings per diluted share to a record $1.39, demonstrating the leverage in our operating model."

Materials processing sales in the fourth quarter increased 24% year-over-year, primarily due to solid demand for cutting and micro materials processing applications. Sales to other markets were up 48% from the fourth quarter of 2015 driven by strong growth in telecom related to IPG's recent acquisition and robust organic growth. This was partially offset by lower sales for medical and advanced applications. High-power fiber laser sales had another record quarter with 35% growth year-over-year, while sales of QCW lasers grew by double digits and pulsed lasers by single digits. Medium-power, low-power and laser systems were essentially flat with the prior year. On a geographic basis, IPG reported strong growth in China, Europe, Russia and Japan, while sales in North America were slightly up from the fourth quarter of 2015.

During the fourth quarter, IPG generated $99.3 million in cash from operations and used $27.0 million to finance capital expenditures. During 2016, IPG generated $292.3 million in cash from operations and used $127.0 million to finance capital expenditures. IPG ended the quarter with $830.6 million in cash and cash equivalents and short-term investments, representing an increase of $141.5 million from December 31, 2015.

Business Outlook and Financial Guidance

"The book-to-bill ratio was greater than one in the fourth quarter as order flow remained strong through the quarter," said Dr. Gapontsev. "Backlog for orders with firm shipment dates increased by 23% to $226.7 million from $185.1 million while backlog of frame agreements expected to ship within one year decreased by 27% to $187.2 million from $257.4 million primarily due to the timing of when new frame agreements have been received as, this year, a large number of frame agreements were booked in January 2017."

"Looking ahead, we are building on strong momentum as we capitalize on new growth opportunities with existing and new OEMs and end users. In addition, we are enthusiastic about the new innovative products we are bringing to market to extend our technology lead and address applications beyond our core markets. We are confident in our prospects for strong sales and profitability growth as we enter 2017," concluded Dr. Gapontsev.

IPG Photonics expects revenue in the range of $245 million to $260 million for the first quarter of 2017. The Company anticipates earnings per diluted share in the range of $1.10 to $1.25 based on 53,873,000 diluted common shares, which includes 53,097,000 basic common shares outstanding and 776,000 potentially dilutive options at December 31, 2016. For the full year 2017, IPG Photonics expects revenue growth in the range of 10% to 14%. The annual guidance reflects foreign currency headwinds that the Company estimates will reduce growth by approximately three percentage points. Therefore IPG Photonics expects local currency sales to show stronger growth in 2017 as compared to 2016. 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 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 0.94, Russian Ruble 63, Japanese Yen 105 and Chinese Yuan 7.00, respectively.

Conference Call Reminder

The Company will hold a conference call today, February 14, 2017 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) 407-5790 or (201) 689-8328. 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 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, strong momentum in IPG's business, capitalizing on growth opportunities to expand its business, development and timing of new products and innovative products, extension of technology lead, addressing applications beyond its core markets, continued strong year-over-year sales and earnings growth, guidance for the first quarter of 2017 and annual revenue guidance for full year 2017. 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; 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 26, 2016) 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
December 31,

        

Twelve Months Ended
December 31,

2016       2015 2016       2015
(in thousands, except per share data)
NET SALES $ 280,121 $ 223,626 $ 1,006,173 $ 901,265
COST OF SALES 124,785   101,583   453,933   409,388  
GROSS PROFIT 155,336   122,043   552,240   491,877  
OPERATING EXPENSES:
Sales and marketing 10,210 8,640 38,393 31,868
Research and development 22,108 17,769 78,552 63,334
General and administrative 19,637 14,718 66,486 57,192
(Gain) loss on foreign exchange (1,820 ) (2,100 ) 4,496   (2,560 )
Total operating expenses 50,135   39,027   187,927   149,834  
OPERATING INCOME 105,201   83,016   364,313   342,043  
OTHER INCOME (EXPENSE), Net:
Interest income (expense), net 469 34 1,304 (301 )
Other income (expense), net 606   (503 ) 948   (125 )
Total other income (expense) 1,075   (469 ) 2,252   (426 )
INCOME BEFORE PROVISION FOR INCOME TAXES 106,276 82,547 366,565 341,617
PROVISION FOR INCOME TAXES (31,146 ) (21,869 ) (105,849 ) (99,590 )
NET INCOME 75,130 60,678 260,716 242,027
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (3 ) (26 ) (36 ) (127 )
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION $ 75,133   $ 60,704   $ 260,752   $ 242,154  
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:
Basic $ 1.42 $ 1.15 $ 4.91 $ 4.60
Diluted $ 1.39 $ 1.14 $ 4.85 $ 4.53
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53,097 52,714 53,068 52,676
Diluted 53,873 53,434 53,797 53,427
 
 

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION

 
     

Three Months Ended December 31,

       Twelve Months Ended December 31,
(In thousands) 2016       2015 2016       2015
Cost of sales $ 1,439 $ 1,397 $ 6,018 $ 5,316
Sales and marketing 523 532 1,820 1,998
Research and development 1,324 1,109 4,905 4,049
General and administrative 2,349   2,076   8,991   7,626  
Total stock-based compensation 5,635 5,114 21,734 18,989
Tax benefit recognized (1,805 ) (1,691 ) (6,971 ) (6,141 )
Net stock-based compensation $ 3,830   $ 3,423   $ 14,763   $ 12,848  
 
 

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES

 
      Three Months Ended December 31,       Twelve Months Ended December 31,
(In thousands) 2016       2015 2016       2015
Step-up of inventory (1)
Cost of sales $ 715 $ — $ 2,100 $ —
Amortization of intangible assets
Cost of sales 866 370 2,966 1,403
Sales and marketing 37 38 153 231
Research and development 160   160   640   640
Impairment charge related to long-lived asset
General and administrative 2,857   —   2,857   —
Total acquisition related costs and other charges $ 4,635   $ 568   $ 8,716   $ 2,274
 

(1) Amount relates to Menara step-up adjustment on inventory sold during the period

 

IPG PHOTONICS CORPORATION

CONSOLIDATED BALANCE SHEETS

 
      December 31,       December 31,
2016 2015

(In thousands, except share and per
share data)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 623,855 $ 582,532
Short-term investments 206,779 106,584
Accounts receivable, net 155,901 150,479
Inventories 239,010 203,738
Prepaid income taxes 34,128 33,692
Prepaid expenses and other current assets 41,289   25,564  
Total current assets 1,300,962 1,102,589
DEFERRED INCOME TAXES, NET 42,442 29,732
GOODWILL 19,828 505
INTANGIBLE ASSETS, NET 28,789 11,904
PROPERTY, PLANT AND EQUIPMENT, NET 379,375 288,604
OTHER ASSETS 18,603   20,095  
TOTAL $ 1,789,999   $ 1,453,429  
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,188 $ 2,000
Accounts payable 28,048 26,314
Accrued expenses and other liabilities 102,485 75,667
Income taxes payable 24,554   37,809  
Total current liabilities 158,275 141,790
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 36,365 33,307
LONG-TERM DEBT, NET OF CURRENT PORTION 37,635   17,667  
Total liabilities 232,275 192,764
COMMITMENTS AND CONTINGENCIES
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,354,579 and 53,251,805 shares issued and outstanding, respectively, at December 31, 2016; 52,883,902 shares issued and outstanding at December 31, 2015 5 5
Treasury stock, at cost (102,774 and 0 shares held) (8,946 ) —
Additional paid-in capital 650,974 607,649
Retained earnings 1,094,108 833,356
Accumulated other comprehensive loss (178,583 ) (181,482 )
Total IPG Photonics Corporation stockholders' equity 1,557,558 1,259,528
NONCONTROLLING INTERESTS 166   1,137  
Total equity $ 1,557,724   $ 1,260,665  
TOTAL $ 1,789,999   $ 1,453,429  
 

IPG PHOTONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
      Twelve Months Ended December 31,
2016       2015
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 260,716 $ 242,027
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 51,475 42,415
Provisions for inventory, warranty & bad debt 46,469 39,985
Other 13,848 6,855
Changes in assets and liabilities that used cash:
Accounts receivable/payable (11,851 ) (9,230 )
Inventories (53,626 ) (70,565 )
Other (14,743 ) 5,084  

Net cash provided by operating activities

292,288   256,571  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (127,042 ) (70,119 )
Proceeds from sales of property, plant and equipment 658 164
Purchases of short-term investments (299,508 ) (106,747 )
Proceeds from short-term investments 198,808 —
Acquisition of businesses, net of cash acquired (47,792 ) (4,958 )
Other 468   93  
Net cash used in investing activities (274,408 ) (181,567 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Line-of-credit facilities — (2,340 )
Purchase of noncontrolling interests (950 ) —
Proceeds on long-term borrowings 23,750 —
Principal payments on long-term borrowings (2,594 ) (13,333 )
Exercise of employee stock options and issuances under employee stock purchase plan 16,183 14,132
Tax benefits from exercise of employee stock options 5,408 6,911
Purchase of Treasury Stock, at cost (8,946 ) —  
Net cash provided by financing activities 32,851   5,370  
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (9,408 ) (19,992 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,323 60,382
CASH AND CASH EQUIVALENTS — Beginning of period 582,532   522,150  
CASH AND CASH EQUIVALENTS — End of period $ 623,855   $ 582,532  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 942   $ 873  
Cash paid for income taxes $ 126,964   $ 91,329