IPG Photonics Announces Third Quarter 2024 Financial Results
Focusing on Execution and Future Growth Opportunities
Delivered Results At the High End of Guidance
MARLBOROUGH, Mass., Oct. 29, 2024 (GLOBE NEWSWIRE) — IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September 30, 2024.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| (In millions, except per share data and percentages) | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||
| Revenue | $ | 233.1 | $ | 301.4 | (23 | )% | $ | 742.8 | $ | 988.5 | (25 | )% | ||||||||||
| Gross margin | 23.2 | % | 44.1 | % | 33.4 | % | 43.2 | % | ||||||||||||||
| Operating (loss) income | $ | (253.3 | ) | $ | 55.7 | NM | $ | (222.2 | ) | $ | 203.2 | NM | ||||||||||
| Operating margin | (108.7 | )% | 18.5 | % | (29.9 | )% | 20.6 | % | ||||||||||||||
| Net (loss) income attributable to IPG Photonics Corporation | $ | (233.6 | ) | $ | 55.0 | NM | $ | (189.3 | ) | $ | 177.5 | NM | ||||||||||
| (Loss) earnings per diluted share (1) | $ | (5.33 | ) | $ | 1.16 | NM | $ | (4.22 | ) | $ | 3.73 | NM | ||||||||||
(1) Adjusted diluted EPS was $0.29 for the three months ended September 30, 2024. Refer to supplemental schedule of non-GAAP measures for reconciliation details.
NM – not meaningful.
Management Comments
“IPG has made important progress strategically and operationally in the last several months,” said Dr. Mark Gitin, IPG Photonics’ Chief Executive Officer. “Our third-quarter results were at the high end of our guidance when adjusted for the divested revenue. We completed our exit from Russia and are strengthening our position in fast-growing high-precision laser cleaning applications with the announced acquisition of cleanLASER. These moves, along with progress in our innovation pipeline and actions underway to gain efficiencies across our business, underscore that we are controlling what we can control as we position for demand recovery.”
Financial Highlights
Third quarter revenue of $233 million decreased 23% year over year due to lower demand in industrial and e-mobility markets. Changes in foreign exchange rates did not have a material impact on revenue. Materials processing sales accounted for 89% of total revenue and decreased 22% year over year, primarily due to lower sales in cutting applications. Other sales decreased 28% year over year due to lower revenue in medical and advanced applications. Emerging growth products sales accounted for 45% of total revenue, a slight decrease from 46% in the prior quarter due to lower revenue for high power pulsed lasers and medical products. By region, sales decreased 20% in North America, 27% in China, 29% in Europe and 8% in Japan on a year-over-year basis.
Gross margin of 23.2% decreased significantly year over year due to increased inventory provision and reduced absorption of manufacturing expenses, partially offset by lower tariffs and shipping costs. The inventory provision included $30 million related to a change in estimate of recoverability due to the current demand environment, which reduced gross margin by 12.8%, and diluted EPS by $0.49. Excluding this inventory provision results in an adjusted gross margin of 36.0%. Loss per diluted share (EPS) of $5.33 included loss on divestiture of our Russian operations which decreased operating income by $198 million and asset impairment charges of $27 million. These items decreased diluted EPS by $5.16 in the third quarter. Foreign exchange transaction loss decreased operating income by $1 million and earnings per share by $0.02. Excluding these items results in an adjusted diluted EPS of $0.29 (1) in the third quarter. During the third quarter, IPG generated $66 million in cash from operations and spent $23 million on capital expenditures and $74 million on share repurchases.
Business Outlook and Financial Guidance
“We continue to believe we are bouncing along the bottom of a muted demand environment, which is supported by a book-to-bill of one for the third quarter. IPG’s strong technology portfolio and expertise across lasers positions us well in new growth areas where fiber lasers can replace incumbent technologies and differentiates us from competition,” concluded Dr. Gitin.
For the fourth quarter of 2024, IPG expects revenue of $210 million to $240 million, gross margin between 35% and 38%, and operating expenses of $78 million to $80 million. The Company expects the fourth quarter tax rate to be approximately 25%, including certain discrete items. IPG anticipates delivering earnings per diluted share in the range of $0.05 to $0.35. This guidance excludes Russian operations which were sold in the third quarter.
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, 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 0.90, Japanese yen 143 and Chinese yuan 7.01, respectively.
Supplemental Financial Information
Additional supplemental financial information is provided in the unaudited Financial Data Workbook and Third Quarter 2024 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 29, 2024 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
Senior Director, 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 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 those statements related to the acquisition of cleanLASER, our strong technology portfolio and expertise across lasers positioning us well in new growth areas where fiber lasers can replace incumbent technologies and differentiates us from competition, and statements related to revenue, gross margin and operating expenses outlook, tax rate and earnings guidance, and the impact of the U.S. dollar on our guidance for fourth quarter of 2024. 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 21, 2024) 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.
Use of Non-GAAP Adjusted Financial Information
We refer to certain financial measures that are not recognized under United States generally accepted accounting principles (“GAAP”). Please see “Supplemental Schedule of Non-GAAP Financial Measures” below for additional information and a reconciliation of the Non-GAAP financial measures to the most comparable GAAP financial measures.
| IPG PHOTONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Net sales | $ | 233,143 | $ | 301,401 | $ | 742,797 | $ | 988,546 | ||||||||
| Cost of sales | 179,054 | 168,499 | 494,986 | 561,015 | ||||||||||||
| Gross profit | 54,089 | 132,902 | 247,811 | 427,531 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 22,233 | 22,243 | 67,718 | 63,518 | ||||||||||||
| Research and development | 27,177 | 24,708 | 84,045 | 70,990 | ||||||||||||
| General and administrative | 32,660 | 30,958 | 95,420 | 90,746 | ||||||||||||
| Net loss from divestiture and sale of assets | 197,651 | — | 190,201 | — | ||||||||||||
| Impairment of long-lived assets | 26,566 | 1,237 | 26,566 | 1,237 | ||||||||||||
| Restructuring charges (recoveries), net | — | (1,501 | ) | — | (357 | ) | ||||||||||
| Loss (gain) on foreign exchange | 1,148 | (449 | ) | 6,067 | (1,798 | ) | ||||||||||
| Total operating expenses | 307,435 | 77,196 | 470,017 | 224,336 | ||||||||||||
| Operating (loss) income | (253,346 | ) | 55,706 | (222,206 | ) | 203,195 | ||||||||||
| Other income, net: | ||||||||||||||||
| Interest income, net | 11,103 | 11,569 | 38,058 | 28,366 | ||||||||||||
| Other (loss) income, net | (271 | ) | 545 | 248 | 1,161 | |||||||||||
| Total other income | 10,832 | 12,114 | 38,306 | 29,527 | ||||||||||||
| (Loss) income before provision for income taxes | (242,514 | ) | 67,820 | (183,900 | ) | 232,722 | ||||||||||
| Income tax (benefit) expense | (8,920 | ) | 12,826 | 5,441 | 55,272 | |||||||||||
| Net (loss) income attributable to IPG Photonics Corporation | $ | (233,594 | ) | $ | 54,994 | $ | (189,341 | ) | $ | 177,450 | ||||||
| Net (loss) income attributable to IPG Photonics Corporation per share: | ||||||||||||||||
| Basic | $ | (5.33 | ) | $ | 1.16 | $ | (4.22 | ) | $ | 3.75 | ||||||
| Diluted | $ | (5.33 | ) | $ | 1.16 | $ | (4.22 | ) | $ | 3.73 | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 43,837 | 47,237 | 44,901 | 47,364 | ||||||||||||
| Diluted | 43,837 | 47,388 | 44,901 | 47,536 | ||||||||||||
| IPG PHOTONICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||||||||
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (In thousands, except share and per share data) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 883,871 | $ | 514,674 | ||||
| Short-term investments | 135,444 | 662,807 | ||||||
| Accounts receivable, net | 163,541 | 219,053 | ||||||
| Inventories | 320,723 | 453,874 | ||||||
| Prepaid income taxes | 27,115 | 26,038 | ||||||
| Prepaid expenses and other current assets | 39,720 | 38,208 | ||||||
| Total current assets | 1,570,414 | 1,914,654 | ||||||
| Deferred income taxes, net | 106,254 | 88,788 | ||||||
| Goodwill | 38,484 | 38,540 | ||||||
| Intangible assets, net | 22,054 | 26,234 | ||||||
| Property, plant and equipment, net | 589,559 | 602,257 | ||||||
| Other assets | 28,365 | 28,425 | ||||||
| Total assets | $ | 2,355,130 | $ | 2,698,898 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 39,578 | $ | 28,618 | ||||
| Accrued expenses and other current liabilities | 150,788 | 181,350 | ||||||
| Income taxes payable | 3,816 | 4,893 | ||||||
| Total current liabilities | 194,182 | 214,861 | ||||||
| Other long-term liabilities and deferred income taxes | 46,336 | 68,652 | ||||||
| Total liabilities | 240,518 | 283,513 | ||||||
| Commitments and contingencies | ||||||||
| IPG Photonics Corporation equity: | ||||||||
| Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,591,081 and 43,248,080 shares issued and outstanding, respectively, at September 30, 2024; 56,317,438 and 46,320,671 shares issued and outstanding, respectively, at December 31, 2023. | 6 | 6 | ||||||
| Treasury stock, at cost, 13,343,001 and 9,996,767 shares held at September 30, 2024 and December 31, 2023, respectively. | (1,447,984 | ) | (1,161,505 | ) | ||||
| Additional paid-in capital | 1,025,268 | 994,020 | ||||||
| Retained earnings | 2,606,053 | 2,795,394 | ||||||
| Accumulated other comprehensive loss | (68,731 | ) | (212,530 | ) | ||||
| Total IPG Photonics Corporation equity | 2,114,612 | 2,415,385 | ||||||
| Total liabilities and equity | $ | 2,355,130 | $ | 2,698,898 | ||||
| IPG PHOTONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (189,341 | ) | $ | 177,450 | |||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 46,623 | 52,678 | ||||||
| Impairment of long-lived assets and restructuring charges (recoveries), net | 26,566 | (486 | ) | |||||
| Provisions for inventory, warranty & bad debt | 76,434 | 43,889 | ||||||
| Net loss from divestiture and sale of assets | 190,201 | — | ||||||
| Other | (2,338 | ) | 5,238 | |||||
| Changes in assets and liabilities that provided (used) cash, net of acquisitions: | ||||||||
| Accounts receivable and accounts payable | 56,156 | (35,257 | ) | |||||
| Inventories | 29,760 | (20,736 | ) | |||||
| Other | (59,949 | ) | (32,852 | ) | ||||
| Net cash provided by operating activities | 174,112 | 189,924 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of and deposits on property, plant and equipment | (75,358 | ) | (85,256 | ) | ||||
| Proceeds from sales of property, plant and equipment | 28,538 | 30,425 | ||||||
| Purchases of short-term investments | (423,176 | ) | (898,455 | ) | ||||
| Proceeds from short-term investments | 966,214 | 789,844 | ||||||
| Net cash outflow from divestiture | (25,324 | ) | — | |||||
| Other | 385 | 446 | ||||||
| Net cash provided by (used in) investing activities | 471,279 | (162,996 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Principal payments on long-term borrowings | — | (16,031 | ) | |||||
| 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 | 1,870 | (432 | ) | |||||
| Purchase of treasury stock, at cost | (286,479 | ) | (159,528 | ) | ||||
| Net cash used in financing activities | (284,609 | ) | (175,991 | ) | ||||
| Effect of changes in exchange rates on cash and cash equivalents | 8,415 | (20,862 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 369,197 | (169,925 | ) | |||||
| Cash and cash equivalents — Beginning of period | 514,674 | 698,209 | ||||||
| Cash and cash equivalents — End of period | $ | 883,871 | $ | 528,284 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 95 | $ | 1,110 | ||||
| Cash paid for income taxes | $ | 38,905 | $ | 55,001 | ||||
| IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED) | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||
| (In thousands) | ||||||||||||
| Amortization of intangible assets: | ||||||||||||
| Cost of sales | $ | 441 | $ | 564 | $ | 1,369 | $ | 1,692 | ||||
| Sales and marketing | 937 | 1,456 | 2,811 | 4,370 | ||||||||
| Total amortization of intangible assets | $ | 1,378 | $ | 2,020 | $ | 4,180 | $ | 6,062 | ||||
| IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION (UNAUDITED) | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Cost of sales | $ | 2,206 | $ | 1,503 | $ | 6,472 | $ | 6,664 | ||||||||
| Sales and marketing | 1,695 | 1,362 | 4,652 | 4,045 | ||||||||||||
| Research and development | 2,966 | 2,330 | 8,048 | 6,171 | ||||||||||||
| General and administrative | 4,261 | 2,949 | 10,258 | 10,582 | ||||||||||||
| Total stock-based compensation | 11,128 | 8,144 | 29,430 | 27,462 | ||||||||||||
| Tax effect of stock-based compensation | (2,517 | ) | (1,772 | ) | (6,504 | ) | (6,016 | ) | ||||||||
| Net stock-based compensation | $ | 8,611 | $ | 6,372 | $ | 22,926 | $ | 21,446 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Excess tax (detriment) benefit on stock-based compensation | $ | (220 | ) | $ | (55 | ) | $ | (4,113 | ) | $ | (1,741 | ) | ||||
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
Use of Non-GAAP Adjusted Financial Information
The following information provides the definition of adjusted gross profit, adjusted gross margin, adjusted net income and adjusted earnings per share (EPS) as presented by IPG Photonics Corporation (the “Company”), which are financial measures that are not calculated or presented in accordance with GAAP, and reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided adjusted gross profit, adjusted gross margin, adjusted net income and adjusted EPS as supplemental information and in addition to the financial measures presented by the Company that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measure presented by the Company.
We define adjusted gross profit as gross profit as reported, adjusted for non-recurring, infrequent, or unusual changes, including a one-time inventory provision related to a change in estimate of recoverability due to the current demand environment.
We define adjusted gross margin as adjusted gross profit divided by total revenue.
We define adjusted net income as net income as reported, adjusted for non-recurring, infrequent, or unusual changes, including one-time charges incurred in connection with the disposition of our Russian operations, impairment of long-lived assets, loss on foreign currency exchange, tax impacts and a one-time adjustment to inventory provision related to a change in estimate of recoverability due to the current demand environment, and other adjustments that the Company believes appropriate.
We define adjusted EPS as adjusted net income divided by the weighted-average diluted shares outstanding.
Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. Specifically, these non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts.
In addition, management understands that some investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies. Management may, however, utilize other measures to illustrate performance in the future. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided below. These non-GAAP measures exclude (a) a one-time adjustment to our inventory provision related to a change in estimate of recoverability due to the current demand environment, (b) one-time adjustments relating to the net loss from divestiture and sale of assets incurred in the disposition of our Russian operations in the third quarter of 2024and (c) impairment of long lived assets related to our Belarusian operations.
| IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES (UNAUDITED) | ||||
| Three Months Ended September 30, | ||||
| 2024 | ||||
| (In thousands, except percentages) | ||||
| Gross profit | $ | 54,089 | ||
| Gross margin | 23.2 | % | ||
| Add: Inventory provision | 29,884 | |||
| Adjusted gross profit | $ | 83,973 | ||
| Adjusted gross margin | 36.0 | % | ||
| Three Months Ended September 30, | |||||||||||||||
| 2024 | |||||||||||||||
| (In thousands, except per share data) | Before Tax | Tax Impact | After Tax | Per Diluted Share | |||||||||||
| Net (loss) income attributable to IPG Photonics Corporation and diluted EPS | $ | (233,594 | ) | $ | (5.33 | ) | |||||||||
| Adjustments to reconcile to adjusted net income: | |||||||||||||||
| Inventory provision | $ | 29,884 | $ | (8,407 | ) | 21,477 | 0.49 | ||||||||
| Long-lived asset impairment | 26,566 | — | 26,566 | 0.61 | |||||||||||
| Loss on divestiture | 197,651 | 1,824 | 199,475 | 4.55 | |||||||||||
| Loss on foreign exchange | 1,148 | (190 | ) | 958 | 0.02 | ||||||||||
| Discrete tax impacts | (1,981 | ) | (1,981 | ) | (0.05 | ) | |||||||||
| Total adjustments | $ | 255,249 | $ | (8,754 | ) | $ | 246,495 | $ | 5.62 | ||||||
| Adjusted net income and adjusted diluted EPS | $ | 12,901 | $ | 0.29 | |||||||||||
