EQNX::TICKER_START (NASDAQ:IPGP), EQNX::TICKER_END Strong Performance in Electric Vehicle and Medical Applications Drives Sales
Company Announces New $300 million Stock Repurchase Program After Completing $312 million of Repurchases in the First Half of 2022
IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the second quarter ended June 30, 2022.
Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share data and percentages) 2022 2021 Change 2022 2021 Change Revenue $ 377.0 $ 371.7 1 % $ 747.0 $ 717.2 4 % Gross margin 45.7 % 48.6 % 46.1 % 48.0 % Operating income $ 71.7 $ 92.3 (22) % $ 164.8 $ 181.1 (9) % Operating margin 19.0 % 24.8 % 22.1 % 25.2 % Net income attributable to IPG Photonics Corporation $ 57.0 $ 69.8 (18) % $ 126.5 $ 137.9 (8) % Earnings per diluted share $ 1.10 $ 1.29 (15) % $ 2.41 $ 2.55 (5) %
"Strong sales in North America and Japan drove our revenue growth as we focus on opportunities that diversify our revenue across key geographies and applications, including e-mobility and medical," said Dr. Eugene Scherbakov, IPG Photonics' Chief Executive Officer. "IPG's innovative solutions are generating increased laser adoption in welding applications, primarily in electric vehicle manufacturing, but also in general automotive and industrial applications with continued adoption of the LightWELD in handheld applications. We reached a significant milestone as revenue from welding applications surpassed high power cutting revenue in a number of key geographies. We are also seeing higher demand across many emerging growth products that help diversify our exposure across different applications, such as medical, battery welding and foil cutting applications."
Second quarter revenue of $377 million increased 1% year over year. Exchange rates were a meaningful headwind to revenue, reducing it by approximately $18 million on a constant currency basis. Materials processing sales accounted for 91% of total revenue and decreased 1% year over year with higher sales in welding and cleaning applications offset by lower revenue in cutting and solar cell manufacturing applications. Sales into Other applications increased 29% year over year, driven by the strength in medical. Emerging growth products sales accounted for 40% of total revenue.
Revenue in high power continuous wave (CW) lasers declined 14% year over year due to lower demand in high power cutting applications in China, which was partially offset by strong growth in welding and cutting applications in North America and Japan. Sales of pulsed lasers grew significantly compared with the prior year primarily driven by foil cutting, partially offset by lower sales into solar cell manufacturing. By region, sales increased 33% in North America, 43% in Japan, and 2% in Europe, and decreased 14% in China on a year-over-year basis.
Earnings per diluted share (EPS) of $1.10 decreased by 15% year over year. Foreign exchange transaction losses reduced operating income by $18 million or 4.7 percentage points and also reduced EPS by $0.28. The effective tax rate in the quarter was 22%, benefiting from certain discrete items. During the second quarter, IPG generated $79 million in cash from operations. Capital expenditures were $35 million and stock repurchases were $233 million in the quarter.
Business Outlook and Financial Guidance
"Second quarter book-to-bill was slightly below one and bookings declined from the record level last quarter on more moderate demand in Europe as well as currency headwinds. While the operating environment is uncertain, we believe that fiber laser adoption will continue to drive demand across many applications and geographies and will benefit from global trends including increasing automation, e-mobility, renewable energy and energy efficiency as energy costs rise globally," concluded Dr. Scherbakov.
For the third quarter of 2022, IPG expects revenue of $350 to $380 million. The Company expects the third quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $1.00 to $1.30. We estimate that the third quarter guidance range is reduced by approximately $15 million due to foreign currency translation headwinds that are primarily related to the strength of the U.S. dollar as compared to the Euro and Chinese Yuan.
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, trade policy changes and trade restrictions with Russia, the COVID-19 pandemic, product demand, order cancellations and delays, competition, tariffs, currency fluctuations 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 filed with the SEC, and assumes exchange rates relative to the U.S. Dollar of Euro 0.96, Russian Ruble 51, Japanese Yen 136 and Chinese Yuan 6.71, respectively.
Authorization of New Stock Buyback Program
After completing previously authorized share repurchase programs during the quarter, the Board of Directors has authorized a new program to purchase up to $300 million of IPG common stock. In the first half of 2022, the Company repurchased $312 million of its common stock. Share repurchases may be made periodically in open-market or other transactions, and are subject to market conditions, legal requirements and other factors. The share repurchase program authorization does not obligate the Company to repurchase any dollar amount or number of its shares, and repurchases may be commenced or suspended from time to time without prior notice.
Supplemental Financial Information
Additional supplemental financial information is provided in the unaudited Second Quarter 2022 Financial Data Workbook and Earnings Call Presentation 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, August 2, 2022 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.
Director of Investor Relations
IPG Photonics Corporation
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. IPG is headquartered in Oxford, Massachusetts and has more than 30 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 fiber laser adoption will continue to drive demand across many applications and geographies and global trends increasing automation, e-mobility, renewable energy and energy efficiency as energy costs rise globally, as well as revenue, tax rate and earnings guidance, and the impact of U.S. Dollar on our guidance for third quarter of 2022. 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; inability to manage risks associated with international customers and operations; changes in trade controls and trade policies; IPG's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; 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 22, 2022) 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In thousands, except per share data) Net sales $ 377,023 $ 371,658 $ 747,002 $ 717,243 Cost of sales 204,679 191,130 402,837 372,724 Gross profit 172,344 180,528 344,165 344,519 Operating expenses: Sales and marketing 19,010 19,193 39,384 38,076 Research and development 30,608 35,191 64,058 68,530 General and administrative 33,411 31,066 64,075 61,158 Loss (gain) on foreign exchange 17,640 2,826 11,830 (4,339 ) Total operating expenses 100,669 88,276 179,347 163,425 Operating income 71,675 92,252 164,818 181,094 Other income (expense), net: Interest income (expense), net 1,177 (407 ) 1,107 (902 ) Other income, net 618 28 382 281 Total other income (expense) 1,795 (379 ) 1,489 (621 ) Income before provision of income taxes 73,470 91,873 166,307 180,473 Provision for income taxes 16,139 22,196 39,348 42,574 Net income 57,331 69,677 126,959 137,899 Less: net income (loss) attributable to non-controlling interests 363 (123 ) 419 (28 ) Net income attributable to IPG Photonics Corporation $ 56,968 $ 69,800 $ 126,540 $ 137,927 Net income attributable to IPG Photonics Corporation per share: Basic $ 1.10 $ 1.31 $ 2.42 $ 2.58 Diluted $ 1.10 $ 1.29 $ 2.41 $ 2.55 Weighted average shares outstanding: Basic 51,687 53,472 52,111 53,548 Diluted 51,795 53,999 52,311 54,145
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 2022 2021 (In thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents $ 771,788 $ 709,105 Short-term investments 462,865 805,400 Accounts receivable, net 246,877 262,121 Inventories 556,747 460,747 Prepaid income taxes 52,912 36,990 Prepaid expenses and other current assets 79,662 73,320 Total current assets 2,170,851 2,347,683 Deferred income taxes, net 60,563 47,761 Goodwill 39,285 38,609 Intangible assets, net 46,866 52,678 Property, plant and equipment, net 680,321 635,302 Other assets 50,883 48,507 Total assets $ 3,048,769 $ 3,170,540 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt $ 32,225 $ 18,126 Accounts payable 57,276 55,839 Accrued expenses and other current liabilities 210,813 230,826 Income taxes payable 15,588 8,642 Total current liabilities 315,902 313,433 Other long-term liabilities and deferred income taxes 92,516 93,855 Long-term debt, net of current portion -- 16,031 Total liabilities 408,418 423,319 Commitments and contingencies IPG Photonics Corporation equity: Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,967,254 and 50,206,255 shares issued and outstanding, respectively, at June 30, 2022; 55,788,246 and 53,010,265 shares issued and outstanding, respectively, at December 31, 2021. 6 6 Treasury stock, at cost, 5,760,999 and 2,777,981 shares held at June 30, 2022 and December 31, 2021, respectively. (750,109 ) (438,503 ) Additional paid-in capital 930,950 908,423 Retained earnings 2,593,147 2,466,607 Accumulated other comprehensive loss (134,778 ) (189,951 ) Total IPG Photonics Corporation equity 2,639,216 2,746,582 Non-controlling interests 1,135 639 Total equity 2,640,351 2,747,221 Total liabilities and equity $ 3,048,769 $ 3,170,540
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2022 2021 (In thousands) Cash flows from operating activities: Net income $ 126,959 $ 137,899 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 47,104 47,976 Provisions for inventory, warranty & bad debt 38,644 32,654 Other 25,579 18,665 Changes in assets and liabilities that used cash, net of acquisitions: Accounts receivable and accounts payable 4,691 37,404 Inventories (99,233 ) (61,220 ) Other (48,583 ) (10,188 ) Net cash provided by operating activities 95,161 203,190 Cash flows from investing activities: Purchases of and deposits on property, plant and equipment (59,903 ) (54,344 ) Proceeds from sales of property, plant and equipment 645 258 Purchases of short-term investments (583,828 ) (1,014,033 ) Proceeds from short-term investments 925,657 785,023 Acquisitions of businesses, net of cash acquired (2,000 ) -- Other (350 ) (547 ) Net cash provided by (used in) investing activities 280,221 (283,643 ) Cash flows from financing activities: Principal payments on long-term borrowings (1,932 ) (1,896 ) 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 2,088 10,567 Purchase of treasury stock, at cost (311,606 ) (41,731 ) Payment of purchase price holdback from business combination -- (2,624 ) Net cash used in financing activities (311,450 ) (35,684 ) Effect of changes in exchange rates on cash and cash equivalents and restricted cash (1,249 ) (8,217 ) Net increase (decrease) in cash, cash equivalents and restricted cash 62,683 (124,354 ) Cash, cash equivalents and restricted cash -- Beginning of period 709,105 878,553 Cash and cash equivalents -- End of period 771,788 754,199 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,600 $ 1,388 Cash paid for income taxes $ 61,715 $ 41,809
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In thousands) Amortization of intangible assets: Cost of sales $ 1,055 $ 1,200 $ 2,228 $ 2,441 Sales and marketing 1,854 1,879 3,702 3,895 Total amortization of intangible assets $ 2,909 $ 3,079 $ 5,930 $ 6,336
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In thousands) Cost of sales $ 3,215 $ 2,843 $ 6,273 $ 5,469 Sales and marketing 1,309 1,247 2,518 2,407 Research and development 2,374 2,472 4,903 4,590 General and administrative 3,568 3,349 6,730 6,298 Total stock-based compensation 10,466 9,911 20,424 18,764 Tax effect of stock-based compensation (2,251 ) (2,114 ) (4,385 ) (3,992 ) Net stock-based compensation $ 8,215 $ 7,797 $ 16,039 $ 14,772
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (In thousands) Tax (detriment) benefit on stock-based compensation $ (427 ) $ 501 $ (2,140 ) $ 6,097