IPG Photonics Announces Fourth Quarter 2020 Financial Results

Rhea-AI Summary

IPG Photonics Corporation (NASDAQ: IPGP) reported a strong fourth quarter for 2020, with revenue of $336.6 million, a 10% increase year-over-year, despite a total revenue decline of 9% for the year. The earnings per diluted share rose to $0.92, offset by an inventory charge of $0.20. Gross margin improved to 43.6%, and operating income reached $65.2 million. Book-to-bill ratio exceeded one, indicating strong order flow, particularly in China. For Q1 2021, revenue guidance is set at $310-$340 million, with projected EPS between $0.90 and $1.20.

Positive

• Fourth quarter revenue of $336.6 million increased by 10% year-over-year.
• Earnings per diluted share rose to $0.92, reflecting over 100% growth year-over-year.
• Gross margin improved to 43.6%, with a significant operating income of $65.2 million.
• Book-to-bill ratio was above one, indicating strong demand and order flow, especially in China.

Negative

• Total revenue declined by 9% for the year, from $1,314.6 million in 2019 to $1,200.7 million in 2020.
• Operating income decreased by 15% from $233.8 million in 2019 to $198.7 million in 2020.
• The additional inventory charge of $14 million negatively impacted gross margin.
• Total backlog decreased by 3%, primarily due to a 27% decrease in frame agreements.

Company Ends 2020 with Year-Over-Year Growth in Sales and Strong Bookings

EPS of $0.92 Reduced by Additional Inventory Charge of $0.20 and Foreign Exchange Loss of $0.07

OXFORD, Mass., Feb. 16, 2021 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the fourth quarter ended December 31, 2020.

		Three Months Ended December 31,											Twelve Months Ended December 31,
(In millions, except per share data and percentages)		2020				2019				Change			2020				2019				Change
Revenue		$	336.6			$	306.6			10	%		$	1,200.7			$	1,314.6			(9	)%
Gross margin		43.6		%		40.5		%					44.9		%		46.1		%
Operating income		$	65.2			$	0.2			32,500	%		$	198.7			$	233.8			(15	)%
Operating margin		19.4		%		0.1		%					16.5		%		17.8		%
Net income attributable to IPG Photonics Corporation		$	49.3			$	(4.5	)		NM			$	159.6			$	180.2			(11	)%
Earnings per diluted share		$	0.92			$	(0.08	)		NM			$	2.97			$	3.35			(11	)%

NM - Not meaningful

Management Comments

"We are very pleased with our fourth quarter results as we delivered revenue that was 10% higher than the fourth quarter 2019 and was above the top end of our guidance range," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "In addition, book-to-bill was above one in the fourth quarter as we saw the traction in order flow continue from the third quarter. We are benefiting from the advantages of our leading-edge products, technology differentiation, low-cost production capabilities and global footprint. Although gross margin was reduced by 410 basis points by an additional inventory charge of $14 million, we still achieved a 310 basis point year-over-year increase in gross margin driven by an increase in revenue, product cost reductions, and product mix. Despite numerous challenges in 2020 from COVID-19, we ended the year with a strong performance and are very well positioned as we enter 2021."

Financial Highlights

Fourth quarter revenue of $337 million increased 10% year over year. Materials processing, which is comprised of many different applications, accounted for 90% of total revenue, and increased 10% year over year primarily due to higher sales in cutting applications. Sales into other applications increased 12% year over year, driven by the strength in advanced applications and devices used in medical procedures.

Sales of high power continuous wave ("CW") lasers, representing 55% of total revenue, increased 17% year over year. These sales benefited from growth of ultra-high power fiber lasers (6 kilowatts of power or greater) which represented 56% of all high power CW laser sales. By region, sales increased 52% in China, and decreased 5% in Europe, 29% in Japan and 11% in North America on a year-over-year basis. During the fourth quarter, emerging product and application sales were 28% of total revenue and increased 22% year over year.

Earnings per diluted share ("EPS") of $0.92 increased by more than 100% year over year. The additional inventory charge that negatively impacted EPS was related to optical components that have been replaced by components with better performance. The effective tax rate in the quarter was 24%. During the fourth quarter, IPG generated $85 million in cash from operations and capital expenditures were $26 million. There was no stock repurchased during the quarter.

Business Outlook and Financial Guidance

"Bookings growth was strong across all our key geographies, building on the improvements that started in the third quarter. We believe we are starting to benefit more meaningfully from a stronger investment cycle driven by equipment upgrades, automation, the need for flexible processing and even improved efficiency. In total, fourth quarter book-to-bill was above 1. Our total backlog was $674 million, which comprised of $376 million of orders with firm shipment dates, and $298 million of frame agreements. While total backlog decreased by 3%, this was due to a 27% decrease in frame agreements. Importantly, orders with firm shipment dates increased by 32%. In addition, order flow for frame agreements, which are primarily booked in China, has been very strong in the first weeks of the year."

"While considerable macroeconomic uncertainty related to the pandemic remains, we are incrementally more optimistic in our outlook given the near-term trends we have seen in the last quarter. We continue to see sales improve in our core materials processing market and are excited about our ability to grow in other applications outside of cutting and welding, primarily in advanced applications, electric vehicle battery processing, micro-processing and medical. We have continued to execute admirably in these challenging times, and our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruptions and maintain our leading competitive position," concluded Dr. Gapontsev.

For the first quarter of 2021, IPG expects revenue of $310 to $340 million. The Company expects the first quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $0.90 to $1.20, with 53.2 million basic common shares outstanding and 53.9 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 on 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 0.82, Russian Ruble 74, Japanese Yen 103 and Chinese Yuan 6.52, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Fourth 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, February 16, 2021 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

Eugene Fedotoff
Director of Investor Relations
IPG Photonics Corporation
508-597-4713
efedotoff@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 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 signs of improving sales in our core materials processing market and our ability to grow in other applications outside of cutting and welding, primarily in advanced applications, electric vehicle battery processing, micro-processing and medical, our ability to benefit from a stronger investment cycle driven by equipment upgrades, automation, the need for flexible processing and even improved efficiency, 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, impacts of COVID-19 on our business, the global economy and government policies, revenue, tax rate and earnings guidance for Q1 2021. 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 November 3, 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 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2020				2019				2020				2019
		(In thousands, except per share data)
Net sales		$	336,630			$	306,627			$	1,200,724			$	1,314,581
Cost of sales		189,751				182,424				661,728				708,372
Gross profit		146,879				124,203				538,996				606,209
Operating expenses:
Sales and marketing		17,242				18,838				70,583				77,745
Research and development		31,766				30,469				126,898				129,997
General and administrative		27,444				25,071				110,005				107,597
Goodwill impairment		—				37,120				44,589				37,120
Impairment of long-lived assets and other restructuring charges		—				7,130				1,177				7,130
Loss (gain) on foreign exchange		5,186				5,332				(12,915		)		12,827
Total operating expenses		81,638				123,960				340,337				372,416
Operating income		65,241				243				198,659				233,793
Other income, net:
Interest income, net		173				2,501				6,270				14,238
Other income, net		182				216				763				345
Total other income		355				2,717				7,033				14,583
Income before provision of income taxes		65,596				2,960				205,692				248,376
Provision for income taxes		15,920				7,263				45,354				68,115
Net income (loss)		49,676				(4,303		)		160,338				180,261
Less: net income attributable to non-controlling interests		337				147				766				27
Net income (loss) attributable to IPG Photonics Corporation		$	49,339			$	(4,450	)		$	159,572			$	180,234
Net income attributable to IPG Photonics Corporation per share:
Basic		$	0.92			$	(0.08	)		$	3.00			$	3.40
Diluted		$	0.92			$	(0.08	)		$	2.97			$	3.35
Weighted average shares outstanding:
Basic		53,187				52,916				53,186				53,061
Diluted		53,865				52,916				53,785				53,839

IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

		December 31,				December 31,
		2020				2019
		(In thousands, except share and  per share data)
ASSETS
Current assets:
Cash and cash equivalents		$	876,231			$	680,070
Short-term investments		514,835				502,546
Accounts receivable, net		264,321				238,479
Inventories		364,993				380,790
Prepaid income taxes		69,893				38,873
Prepaid expenses and other current assets		57,804				55,876
Total current assets		2,148,077				1,896,634
Deferred income taxes, net		43,197				31,395
Goodwill		41,366				82,092
Intangible assets, net		62,114				74,271
Property, plant and equipment, net		597,527				600,852
Other assets		43,419				45,192
Total assets		$	2,935,700			$	2,730,436
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	3,810			$	3,740
Accounts payable		25,748				27,329
Accrued expenses and other current liabilities		176,740				149,782
Income taxes payable		8,280				11,053
Total current liabilities		214,578				191,904
Deferred income taxes and other long-term liabilities		92,854				98,121
Long-term debt, net of current portion		34,157				37,968
Total liabilities		341,589				327,993
Commitments and contingencies
IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,461,246 and 53,427,234 shares issued and outstanding, respectively, at December 31, 2020; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019.		6				5
Treasury stock, at cost (2,034,012 and 1,732,352 shares held at December 31, 2020 and December 31, 2019, respectively.)		(303,614		)		(265,730		)
Additional paid-in capital		854,301				785,636
Retained earnings		2,188,191				2,028,734
Accumulated other comprehensive loss		(146,065		)		(146,919		)
Total IPG Photonics Corporation equity		2,592,819				2,401,726
Non-controlling interests		1,292				717
Total equity		2,594,111				2,402,443
Total liabilities and equity		$	2,935,700			$	2,730,436

IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Twelve Months Ended December 31,
		2020				2019
		(In thousands)
Cash flows from operating activities:
Net income		$	160,338			$	180,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		94,554				96,268
Goodwill impairment		44,589				37,120
Impairment of long-lived assets		671				5,350
Provisions for inventory, warranty & bad debt		70,572				63,752
Other		11,366				32,198
Changes in assets and liabilities that used cash, net of acquisitions:
Accounts receivable and accounts payable		(14,964		)		(481		)
Inventories		(39,900		)		(28,105		)
Other		(41,891		)		(62,842		)
Net cash provided by operating activities		285,335				323,521
Cash flows from investing activities:
Purchases of property, plant and equipment		(87,696		)		(133,536		)
Proceeds from sales of property, plant and equipment		889				661
Purchases of short-term and long-term investments		(1,111,555		)		(760,300		)
Proceeds from short-term investments		1,099,224				768,078
Acquisitions of businesses, net of cash acquired		(429		)		(15,115		)
Other		(7		)		237
Net cash used in investing activities		(99,574		)		(139,975		)
Cash flows from financing activities:
Principal payments on long-term borrowings		(3,740		)		(3,671		)
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		33,194				7,336
Purchase of treasury stock, at cost		(37,884		)		(40,732		)
Payment of purchase price holdback from business combination		(1,650		)		—
Net cash used in financing activities		(10,080		)		(37,067		)
Effect of changes in exchange rates on cash and cash equivalents and restricted cash		19,888				(7,853		)
Net increase in cash, cash equivalents and restricted cash		195,569				138,626
Cash, cash equivalents and restricted cash — Beginning of period		682,984				544,358
Cash, cash equivalents and restricted cash — End of period		878,553				682,984
Supplemental disclosures of cash flow information:
Cash paid for interest		$	2,234			$	2,683
Cash paid for income taxes		$	85,861			$	116,951

IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED)

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2020				2019				2020				2019
		(In thousands)
Amortization of intangible assets:
Cost of sales		$	1,166			$	1,273			$	4,728			$	5,167
Sales and marketing		1,779				1,779				7,113				7,138
Research and development		—				160				133				640
Total amortization of intangible assets		$	2,945			$	3,212			$	11,974			$	12,945

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

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2020				2019				2020				2019
		(In thousands)
Cost of sales		$	2,690			$	2,443			$	10,392			$	9,249
Sales and marketing		1,120				908				4,395				3,815
Research and development		2,317				1,735				9,122				7,690
General and administrative		3,051				2,728				11,749				12,824
Total stock-based compensation		9,178				7,814				35,658				33,578
Tax effect of stock-based compensation		(1,912		)		(2,007		)		(7,498		)		(8,128		)
Net stock-based compensation		$	7,266			$	5,807			$	28,160			$	25,450

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2020				2019				2020				2019
		(In thousands)
Excess tax benefit on exercise of stock options included in net income		$	3,074			$	645			$	9,664			$	5,114

 

FAQ

What are IPGP's fourth quarter earnings results for 2020?

IPG Photonics reported fourth quarter revenue of $336.6 million, a 10% increase from 2019, with earnings per diluted share of $0.92.

What factors impacted IPGP's fourth quarter gross margin?

The gross margin was impacted by an additional inventory charge of $14 million but still improved year-over-year to 43.6%.

What is IPGP's revenue guidance for the first quarter of 2021?

IPG Photonics expects revenue in the range of $310 million to $340 million for Q1 2021.

How did the pandemic affect IPGP's overall performance in 2020?

IPG faced challenges due to COVID-19, contributing to a 9% decline in total revenue for the year.

What is the book-to-bill ratio for IPGP in the fourth quarter of 2020?

The book-to-bill ratio for IPG Photonics was above one in the fourth quarter, indicating strong order flow.