IPG Photonics Announces Third Quarter 2023 Financial Results
IPG Photonics Corporation reported a 14% decrease in revenue for the third quarter of 2023, with weak industrial demand and lower e-mobility sales in China negatively impacting results. Gross margin improved to 44.1% due to a continued focus on manufacturing costs and efficiency. Operating income decreased by 40% compared to the same period last year, while net income attributable to IPG Photonics Corporation decreased by 28%. The company's earnings per diluted share also decreased by 21%.
10/31/2023 - 08:00 AM
Weak Industrial Demand and Lower E-mobility Sales in China Negatively Impacted Results
Gross Margin Improved to 44.1% Driven by Continued Focus on Manufacturing Costs and Efficiency
MARLBOROUGH, Mass., Oct. 31, 2023 (GLOBE NEWSWIRE) -- IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September 30, 2023.
Three Months Ended September 30, Nine Months Ended September 30, (In millions, except per share data and percentages) 2023 2022 Change 2023 2022 Change Revenue $ 301.4 $ 349.0 (14)% $ 988.5 $ 1,096.0 (10)% Gross margin 44.1 % 43.1 % 43.2 % 45.1 % Operating income $ 55.7 $ 93.2 (40)% $ 203.2 $ 258.0 (21)% Operating margin 18.5 % 26.7 % 20.6 % 23.5 % Net income attributable to IPG Photonics Corporation $ 55.0 $ 76.3 (28)% $ 177.5 $ 202.8 (12)% Earnings per diluted share $ 1.16 $ 1.47 (21)% $ 3.73 $ 3.93 (5)%
Management Comments
"We are navigating through a challenging capital investment cycle and our materials processing sales were impacted by weak global industrial demand and reduced investments in electric vehicle battery capacity in China. Nevertheless, we saw growth in welding applications outside of China, including handheld and e-mobility, and increased demand in 3D printing applications. Our medical sales also increased following an inventory adjustment by a large customer in the prior quarter," said Dr. Eugene Scherbakov, IPG Photonics' Chief Executive Officer. "We are seeing further adoption of laser welding technology and introduced products to explore new applications for our lasers, such as cleaning and drying, in order to unlock additional growth opportunities for IPG. Our gross margin continues to improve, despite lower revenue, as we focused on reducing costs, managing inventory and improving manufacturing efficiency."
Financial Highlights
Third quarter revenue of $301 million decreased 14% year over year. Changes in foreign exchange rates reduced revenue by approximately $6 million or 2% . Materials processing sales accounted for 88% of total revenue and decreased 15% year over year. The decline was due to lower revenue in cutting, welding and marking applications in China, partially offset by growth in 3D printing applications and higher handheld welder sales. Emerging growth products sales accounted for 42% of total revenue and were negatively impacted by lower sales to e-mobility applications in China and lower demand in solar cell manufacturing applications. Other applications sales decreased 1% year over year due to lower revenue in advanced and telecom applications.
Revenue in high power continuous wave (CW) lasers declined 22% year over year due to competition and lower demand in flat sheet cutting and reduced demand in welding applications due to the timing of projects. Sales of pulsed lasers declined 25% compared with the prior year due to lower demand in marking and solar cell manufacturing applications. By region, sales decreased 28% in China and 13% in North America, but increased 3% in Europe and 41% in Japan on a year-over-year basis.
Gross margin of 44.1% increased 100 basis points year over year. Earnings per diluted share (EPS) of $1.16 decreased 21% year over year. The gain on sale of the telecom business increased operating income by $22 million and benefited diluted EPS by $0.32 in the third quarter of 2022. Foreign exchange transaction gains increased operating income by $0.4 million and earnings per share by $0.01 in the third quarter. The effective tax rate in the quarter was 19% , benefiting from certain discrete items. During the third quarter, IPG generated $86 million in cash from operations and spent $26 million on capital expenditures and $46 million on share repurchases.
Business Outlook and Financial Guidance
“Third quarter book-to-bill was below one due to continued economic uncertainty which is impacting industrial demand in China and Europe; European customer activity and sentiment softened during the third quarter. General industrial demand in North America has held up better than expected, but many customers continue to predict a slowdown and are delaying purchase decisions, so our visibility is limited. At the same time, we remain optimistic that sales in China should recover with an increase in investment in EV battery capacity in 2024 and sales in the U.S. are likely to benefit from government investment and onshoring initiatives in the next several years," concluded Dr. Scherbakov.
For the fourth quarter of 2023, IPG expects revenue of $270 million to $300 million . The Company expects the fourth quarter tax rate to be approximately 20% , including certain discrete items. IPG anticipates delivering earnings per diluted share in the range of $0.80 t o $1.10 .
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, 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 0.95 , Russian ruble 97, Japanese yen 149 and Chinese yuan 7.18, respectively.
Supplemental Financial Information
Additional supplemental financial information is provided in the unaudited Financial Data Workbook and Third Quarter 2023 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, October 31, 2023 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 Fedotoffefedotoff@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 develop innovative laser solutions making the world a better place. 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 Marlborough, 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 sales in China should recover with an increase in investment in EV battery capacity in 2024 and sales in U.S. are likely to benefit from government investment and onshoring initiatives in the next several years, revenue outlook, tax rate and earnings guidance, and the impact of the U.S. dollar on our guidance for fourth quarter of 2023. 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 27, 2023) 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 CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands, except per share data) Net sales $ 301,401 $ 349,006 $ 988,546 $ 1,096,008 Cost of sales 168,499 198,582 561,015 601,419 Gross profit 132,902 150,424 427,531 494,589 Operating expenses: Sales and marketing 22,243 19,383 63,518 58,767 Research and development 24,708 25,436 70,990 89,494 General and administrative 30,958 33,813 90,746 97,888 Gain on divestiture — (21,748 ) — (21,748 ) Impairment of long-lived assets 1,237 919 1,237 919 Restructuring charges (recoveries), net (1,501 ) — (357 ) — (Gain) loss on foreign exchange (449 ) (541 ) (1,798 ) 11,289 Total operating expenses 77,196 57,262 224,336 236,609 Operating income 55,706 93,162 203,195 257,980 Other income, net: Interest income, net 11,569 3,625 28,366 4,732 Other income, net 545 301 1,161 683 Total other income 12,114 3,926 29,527 5,415 Income before provision of income taxes 67,820 97,088 232,722 263,395 Provision for income taxes 12,826 20,390 55,272 59,738 Net income 54,994 76,698 177,450 203,657 Less: net income attributable to non-controlling interests — 434 — 853 Net income attributable to IPG Photonics Corporation $ 54,994 $ 76,264 $ 177,450 $ 202,804 Net income attributable to IPG Photonics Corporation per share: Basic $ 1.16 $ 1.48 $ 3.75 $ 3.94 Diluted $ 1.16 $ 1.47 $ 3.73 $ 3.93 Weighted average shares outstanding: Basic 47,237 51,629 47,364 51,449 Diluted 47,388 51,737 47,536 51,626
IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2023 2022 (In thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents $ 528,284 $ 698,209 Short-term investments 605,207 479,374 Accounts receivable, net 229,597 211,347 Inventories 479,829 509,363 Prepaid income taxes 32,538 40,934 Prepaid expenses and other current assets 45,005 47,047 Total current assets 1,920,460 1,986,274 Deferred income taxes, net 79,583 75,152 Goodwill 38,265 38,325 Intangible assets, net 28,056 34,120 Property, plant and equipment, net 581,970 580,561 Other assets 24,530 28,848 Total assets $ 2,672,864 $ 2,743,280 LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt $ — $ 16,031 Accounts payable 33,126 46,233 Accrued expenses and other current liabilities 174,517 202,764 Income taxes payable 12,066 9,618 Total current liabilities 219,709 274,646 Other long-term liabilities and deferred income taxes 69,204 83,274 Total liabilities 288,913 357,920 Commitments and contingencies IPG Photonics Corporation equity: Common stock, $0.00 01 par value, 175,000,000 shares authorized; 56,249,626 and 46,921,754 shares issued and outstanding, respectively, at September 30, 2023; 56,017,672 and 48,138,257 shares issued and outstanding, respectively, at December 31, 2022. 6 6 Treasury stock, at cost, 9,327,872 and 7,879,415 shares held at September 30, 2023 and December 31, 2022, respectively. (1,097,537 ) (938,009 ) Additional paid-in capital 978,331 951,371 Retained earnings 2,753,966 2,576,516 Accumulated other comprehensive loss (250,815 ) (204,524 ) Total IPG Photonics Corporation equity 2,383,951 2,385,360 Total liabilities and equity $ 2,672,864 $ 2,743,280
IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 177,450 $ 203,657 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 52,678 69,852 Impairment of long-lived assets and restructuring charges (recoveries), net (486 ) 919 Provisions for inventory, warranty & bad debt 43,889 58,990 Gain on divestiture — (21,748 ) Other 5,238 20,201 Changes in assets and liabilities that (used) provided cash, net of acquisitions: Accounts receivable and accounts payable (35,257 ) 39,680 Inventories (20,736 ) (148,959 ) Other (32,852 ) (51,566 ) Net cash provided by operating activities 189,924 171,026 Cash flows from investing activities: Purchases of and deposits on property, plant and equipment (85,256 ) (84,552 ) Proceeds from sales of property, plant and equipment 30,425 837 Purchases of short-term investments (898,455 ) (914,598 ) Proceeds from short-term investments 789,844 1,355,883 Acquisitions of businesses, net of cash acquired — (2,000 ) Proceeds from divestiture, net of cash sold — 52,141 Other 446 (246 ) Net cash (used in) provided by investing activities (162,996 ) 407,465 Cash flows from financing activities: Principal payments on long-term borrowings (16,031 ) (17,829 ) 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 (432 ) 2,353 Purchase of treasury stock, at cost (159,528 ) (382,885 ) Purchase of non-controlling interests — (2,500 ) Net cash used in financing activities (175,991 ) (400,861 ) Effect of changes in exchange rates on cash and cash equivalents (20,862 ) (17,461 ) Net (decrease) increase in cash and cash equivalents (169,925 ) 160,169 Cash and cash equivalents — Beginning of period 698,209 709,105 Cash and cash equivalents — End of period 528,284 869,274 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,110 $ 2,766 Cash paid for income taxes $ 55,001 $ 83,771
IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Amortization of intangible assets: Cost of sales $ 564 $ 796 $ 1,692 $ 3,024 Sales and marketing 1,456 1,651 4,370 5,353 Total amortization of intangible assets $ 2,020 $ 2,447 $ 6,062 $ 8,377
IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Cost of sales $ 1,503 $ 2,961 $ 6,664 $ 9,234 Sales and marketing 1,362 1,191 4,045 3,709 Research and development 2,330 986 6,171 5,889 General and administrative 2,949 3,640 10,582 10,370 Total stock-based compensation 8,144 8,778 27,462 29,202 Tax effect of stock-based compensation (1,772 ) (1,894 ) (6,016 ) (6,279 ) Net stock-based compensation $ 6,372 $ 6,884 $ 21,446 $ 22,923
Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Excess tax benefit (detriment) on stock-based compensation $ (55 ) $ (114 ) $ (1,741 ) $ (2,254 )
What were IPG Photonics Corporation's financial results for the third quarter of 2023?
IPG Photonics Corporation reported a 14% decrease in revenue, a 40% decrease in operating income, a 28% decrease in net income attributable to the company, and a 21% decrease in earnings per diluted share for the third quarter of 2023 compared to the same period last year.
What factors negatively impacted IPG Photonics Corporation's results?
Weak global industrial demand and reduced investments in electric vehicle battery capacity in China negatively impacted IPG Photonics Corporation's results for the third quarter of 2023.
What contributed to the improvement in gross margin for IPG Photonics Corporation?
IPG Photonics Corporation's gross margin improved to 44.1% due to a continued focus on manufacturing costs and efficiency.
How did IPG Photonics Corporation's sales perform in different regions?
Sales decreased by 28% in China and 13% in North America, but increased by 3% in Europe and 41% in Japan on a year-over-year basis for IPG Photonics Corporation.
What is IPG Photonics Corporation's business outlook for the fourth quarter of 2023?
IPG Photonics Corporation expects revenue of $270 million to $300 million and earnings per diluted share in the range of $0.80 to $1.10 for the fourth quarter of 2023.
