8-K
Ipg Photonics Corp (IPGP)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 13, 2020
Date of Report (Date of earliest event reported)
IPG PHOTONICS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware<br><br>(State or Other Jurisdiction<br><br>of Incorporation) | 001-33155<br><br>(Commission File No.) | 04-3444218<br><br>(IRS Employer<br><br>Identification No.) |
|---|
50 Old Webster Road
Oxford, Massachusetts 01540
(Address of Principal Executive Offices, including Zip Code)
(508) 373-1100
(Registrant’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
|---|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| --- | --- | --- |
| Common Stock, par value $0.0001 per share | IPGP | Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
On February 13, 2020, IPG Photonics Corporation (the "Company") announced its financial results for the quarter ended December 31, 2019. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 referenced herein, shall not be deemed "filed" for purposes of Section 18 of the Securities Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit 99.1 relating to Item 2.02 shall be deemed to be furnished, and not filed:
| 99.1 | Press Release issued by IPG Photonics Corporation on February 13, 2020. |
|---|
EXHIBIT INDEX
| EXHIBIT NUMBER | DESCRIPTION |
|---|---|
| 99.1 | Press Release issued by IPG Photonics Corporation on February 13, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized.
| IPG PHOTONICS CORPORATION | ||
|---|---|---|
| February 13, 2020 | By: | /s/ Timothy P.V. Mammen |
| Timothy P.V. Mammen | ||
| Senior Vice President and Chief Financial Officer |
Document
Exhibit 99.1
IPG PHOTONICS ANNOUNCES FOURTH QUARTER 2019 FINANCIAL RESULTS
Fourth Quarter Revenue Exceeds Guidance; Company Generates $130 Million Operating Cash Flow
Goodwill and Asset Impairment, Inventory Provision and Restructuring Charges Reduce Earnings Per Diluted Share by $0.99
OXFORD, Mass. – February 13, 2020 - IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the fourth quarter ended December 31, 2019.
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share data and percentages) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||
| Revenue | $ | 306.6 | $ | 330.1 | (7) | % | $ | 1,314.6 | $ | 1,459.9 | (10) | % | ||||
| Gross margin | 40.5 | % | 50.5 | % | 46.1 | % | 54.8 | % | ||||||||
| Operating income | $ | 0.2 | $ | 96.1 | (100) | % | $ | 233.8 | $ | 523.4 | (55) | % | ||||
| Operating margin | 0.1 | % | 29.1 | % | 17.8 | % | 35.9 | % | ||||||||
| Net income attributable to IPG Photonics Corporation | $ | (4.5) | $ | 75.6 | (106) | % | $ | 180.2 | $ | 404.0 | (55) | % | ||||
| Earnings per diluted share | $ | (0.08) | $ | 1.40 | (106) | % | $ | 3.35 | $ | 7.38 | (55) | % |
Management Comments
"We delivered fourth quarter revenue slightly above our guidance range on strength in the US market and new products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "The global macroeconomic backdrop and the competitive landscape in China both remain challenging. However, we are responding with product cost reductions and differentiated new features and accessories for our core products. Furthermore, we are leveraging one of the largest R&D investments in the laser industry to launch leading-edge laser products and systems for new markets. These new solutions, which represent about one-fifth of total sales, enhance our growth and margin profile and provide greater geographic and end market diversification."
Financial Highlights
Fourth quarter revenue of $307 million decreased 7% year over year. Currency depreciation relative to the exchange rates assumed in our fourth quarter guidance reduced revenue by approximately $2 million. Materials processing sales decreased 11% year over year while sales into other applications increased 42% year over year. Materials processing sales accounted for 90% of total revenue. The acquisition of Genesis Systems Group contributed $19 million during the quarter.
Sales of high power continuous wave (CW) lasers, representing 51% of total revenue, decreased 15% year over year. Sales of fiber lasers at 6 kilowatts of power or greater were approximately 50% of all high power CW laser sales, and high power CW lasers at 10 kilowatts or greater increased more than 30% year over year. Sales of other high power lasers declined year over year due to the weaker demand environment in China and Europe and lower average selling prices. By region, sales decreased 21% in China, 17% in Europe, 37% in Japan and increased 30% in North America on a year over year basis.
Net loss per diluted share was $0.08. Foreign exchange losses, higher inventory reserves and charges related to impairment of goodwill and other long-lived assets and restructuring reduced earnings per diluted share ("EPS") by $0.99. During the fourth quarter, we incurred a charge of $42 million for impairment of goodwill and other long-lived assets, primarily related to our communications business, and a charge of $2 million related to our restructuring actions taken during the second half of 2019. During the fourth quarter, IPG generated $130 million in cash from operations. Capital expenditures were $26 million and stock repurchases totaled $15 million.
Business Outlook and Financial Guidance
"We believe we have significant long-term growth opportunities in welding, fine processing of electric vehicle batteries and our portfolio of new products addressing opportunities in microelectronics, medical, systems and beam delivery solutions. Current demand for our leading-edge laser solutions remains mixed, with strength in North America and emerging regions such as India and Southeast Asia offset by ongoing macro softness in Europe and Japan. Prior to the government-extended Lunar New Year holiday, there were signs that business in China was firming, with order flow having picked up in December and January. However, ongoing business disruption related to the novel coronavirus outbreak makes forecasting our business in China and the impact on global demand very challenging at this point. China is a large and important market for IPG, with repercussions for other markets, and we continue to monitor the situation closely," said Dr. Gapontsev
For the first quarter of 2020, IPG expects revenue of $220 million to $250 million. The Company expects the first quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.00 to $0.30, with 52.9 million basic common shares outstanding and 53.6 million diluted common shares outstanding. This guidance assumes approximately $45 million in reduced revenue and $0.45 lower EPS from business disruption related to the novel coronavirus outbreak.
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, tariffs, trade policy changes, health epidemics 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 0.89, Russian Ruble 62, Japanese Yen 109 and Chinese Yuan 6.98, respectively.
Supplemental Financial Information
Additional supplemental financial information is provided in the unaudited Fourth Quarter 2019 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 13, 2020 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
James Hillier
Vice President of Investor Relations
IPG Photonics Corporation
508-373-1467
jhillier@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 product cost reductions, core products having differentiated new features and accessories; leveraging the our R&D investment to launch leading edge laser products and systems for new markets; products and systems enhancing our growth and margin profile, and greater geographic and end market diversification; significant long-term growth opportunities in welding, fine processing of electric vehicle batteries and our portfolio of new products in microelectronics, medical. systems and beam delivery solutions; ongoing business disruption related to the novel coronavirus outbreak and its impact on global demand and other markets; and revenue, tax rate and earnings guidance for Q1 2020. 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 Quarterly Report on Form 10-Q (filed with the SEC on August 6, 2019) and its 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, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||
| (In thousands, except per share data) | ||||||||
| Net sales | $ | 306,627 | $ | 330,051 | $ | 1,314,581 | $ | 1,459,874 |
| Cost of sales | 182,424 | 163,303 | 708,372 | 659,606 | ||||
| Gross profit | 124,203 | 166,748 | 606,209 | 800,268 | ||||
| Operating expenses: | ||||||||
| Sales and marketing | 18,838 | 16,284 | 77,745 | 57,815 | ||||
| Research and development | 30,469 | 31,501 | 129,997 | 122,769 | ||||
| General and administrative | 25,071 | 27,572 | 107,597 | 102,429 | ||||
| Goodwill impairment | 37,120 | — | 37,120 | — | ||||
| Impairment of long-lived assets and other restructuring charges | 7,130 | — | 7,130 | — | ||||
| Loss (gain) on foreign exchange | 5,332 | (4,661) | 12,827 | (6,150) | ||||
| Total operating expenses | 123,960 | 70,696 | 372,416 | 276,863 | ||||
| Operating income | 243 | 96,052 | 233,793 | 523,405 | ||||
| Other income, net: | ||||||||
| Interest income, net | 2,501 | 4,132 | 14,238 | 9,057 | ||||
| Other income, net | 216 | 681 | 345 | 1,933 | ||||
| Total other income | 2,717 | 4,813 | 14,583 | 10,990 | ||||
| Income before provision of income taxes | 2,960 | 100,865 | 248,376 | 534,395 | ||||
| Provision for income taxes | 7,263 | 25,399 | 68,115 | 130,226 | ||||
| Net (loss) income | (4,303) | 75,466 | 180,261 | 404,169 | ||||
| Less: net income (loss) attributable to non-controlling interests | 147 | (93) | 27 | 142 | ||||
| Net (loss) income attributable to IPG Photonics Corporation | $ | (4,450) | $ | 75,559 | $ | 180,234 | $ | 404,027 |
| Net (loss) income attributable to IPG Photonics Corporation per share: | ||||||||
| Basic | $ | (0.08) | $ | 1.42 | $ | 3.40 | $ | 7.55 |
| Diluted | $ | (0.08) | $ | 1.40 | $ | 3.35 | $ | 7.38 |
| Weighted average shares outstanding: | ||||||||
| Basic | 52,916 | 53,243 | 53,061 | 53,522 | ||||
| Diluted | 52,916 | 54,107 | 53,839 | 54,726 |
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| December 31, | ||||
|---|---|---|---|---|
| 2019 | 2018 | |||
| (In thousands, except share and per<br>share data) | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 680,070 | $ | 544,358 |
| Short-term investments | 502,546 | 500,432 | ||
| Accounts receivable, net | 238,479 | 255,509 | ||
| Inventories | 380,790 | 403,579 | ||
| Prepaid income taxes | 38,873 | 43,782 | ||
| Prepaid expenses and other current assets | 55,876 | 57,764 | ||
| Total current assets | 1,896,634 | 1,805,424 | ||
| Deferred income taxes, net | 31,395 | 19,165 | ||
| Goodwill | 82,092 | 100,722 | ||
| Intangible assets, net | 74,271 | 87,139 | ||
| Property, plant and equipment, net | 600,852 | 543,068 | ||
| Other assets | 45,192 | 18,932 | ||
| Total assets | $ | 2,730,436 | $ | 2,574,450 |
| LIABILITIES AND EQUITY | ||||
| Current liabilities: | ||||
| Current portion of long-term debt | $ | 3,740 | $ | 3,671 |
| Accounts payable | 27,329 | 36,302 | ||
| Accrued expenses and other liabilities | 149,782 | 154,640 | ||
| Income taxes payable | 11,053 | 51,161 | ||
| Total current liabilities | 191,904 | 245,774 | ||
| Deferred income taxes and other long-term liabilities | 98,121 | 80,734 | ||
| Long-term debt, net of current portion | 37,968 | 41,707 | ||
| Total liabilities | 327,993 | 368,215 | ||
| Commitments and contingencies | ||||
| IPG Photonics Corporation equity: | ||||
| Common stock, $0.0001 par value, 175,000,000 shares authorized; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019; 54,371,701 and 52,941,607 shares issued and outstanding, respectively, at December 31, 2018. | 5 | 5 | ||
| Treasury stock, at cost, 1,732,352 and 1,430,094 shares held at December 31, 2019 and December 31, 2018, respectively. | (265,730) | (224,998) | ||
| Additional paid-in capital | 785,636 | 744,937 | ||
| Retained earnings | 2,028,734 | 1,848,500 | ||
| Accumulated other comprehensive loss | (146,919) | (162,896) | ||
| Total IPG Photonics Corporation shareholders' equity | 2,401,726 | 2,205,548 | ||
| Non-controlling interests | 717 | 687 | ||
| Total equity | 2,402,443 | 2,206,235 | ||
| Total liabilities and equity | $ | 2,730,436 | $ | 2,574,450 |
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Twelve Months Ended December 31, | ||||
|---|---|---|---|---|
| 2019 | 2018 | |||
| (In thousands) | ||||
| Cash flows from operating activities: | ||||
| Net income | $ | 180,261 | $ | 404,169 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 96,268 | 80,271 | ||
| Goodwill impairment | 37,120 | — | ||
| Impairment of long-lived assets | 5,350 | — | ||
| Provisions for inventory, warranty & bad debt | 63,752 | 38,862 | ||
| Other | 32,198 | 17,195 | ||
| Changes in assets and liabilities that used cash: | ||||
| Accounts receivable and accounts payable | (481) | (20,240) | ||
| Inventories | (28,105) | (135,440) | ||
| Other | (62,842) | 8,484 | ||
| Net cash provided by operating activities | 323,521 | 393,301 | ||
| Cash flows from investing activities: | ||||
| Purchases of property, plant and equipment | (133,536) | (160,343) | ||
| Proceeds from sales of property, plant and equipment | 661 | 1,026 | ||
| Purchases of short and long-term investments | (760,300) | (765,310) | ||
| Proceeds from short-term investments | 768,078 | 470,328 | ||
| Acquisitions of businesses, net of cash acquired | (15,115) | (109,115) | ||
| Other | 237 | 415 | ||
| Net cash used in investing activities | (139,975) | (562,999) | ||
| Cash flows from financing activities: | ||||
| Principal payments on long-term borrowings | (3,671) | (3,604) | ||
| 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 | 7,336 | 12,183 | ||
| Cash contributed by non-controlling interest | — | 839 | ||
| Purchase of treasury stock, at cost | (40,732) | (176,065) | ||
| Net cash used in financing activities | (37,067) | (166,647) | ||
| Effect of changes in exchange rates on cash and cash equivalents | (7,853) | (29,197) | ||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 138,626 | (365,542) | ||
| Cash and cash equivalents — Beginning of period | 544,358 | 909,900 | ||
| Cash, cash equivalents and restricted cash — End of period | $ | 682,984 | $ | 544,358 |
| Supplemental disclosures of cash flow information: | ||||
| Cash paid for interest | $ | 2,683 | $ | 3,052 |
| Cash paid for income taxes | $ | 116,951 | $ | 112,762 |
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES (UNAUDITED)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||
| (In thousands) | (In thousands) | |||||||
| Step-up of inventory ^(1)^: | ||||||||
| Cost of sales | $ | — | $ | — | $ | — | $ | 556 |
| Amortization of intangible assets: | ||||||||
| Cost of sales | 1,273 | 1,213 | 5,167 | 4,840 | ||||
| Sales and marketing | 1,779 | 976 | 7,138 | 2,690 | ||||
| Research and development | 160 | 160 | 640 | 640 | ||||
| Total acquisition related costs and other charges | $ | 3,212 | $ | 2,349 | $ | 12,945 | $ | 8,726 |
^(1)^2018 amount relates to ILT step-up adjustments on inventory sold during the period.
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION IMPACT TO NET INCOME (UNAUDITED)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||
| (In thousands) | (In thousands) | |||||||
| Cost of sales | $ | 2,443 | $ | 1,292 | $ | 9,249 | $ | 6,535 |
| Sales and marketing | 908 | 586 | 3,815 | 2,550 | ||||
| Research and development | 1,735 | 1,516 | 7,690 | 6,410 | ||||
| General and administrative | 2,728 | 3,190 | 12,824 | 12,532 | ||||
| Total stock-based compensation | 7,814 | 6,584 | 33,578 | 28,027 | ||||
| Tax effect of stock-based compensation | (2,007) | (1,578) | (8,128) | (6,632) | ||||
| Net stock-based compensation | $ | 5,807 | $ | 5,006 | $ | 25,450 | $ | 21,395 |
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2019 | 2018 | 2019 | 2018 | |||||
| (In thousands) | (In thousands) | |||||||
| Excess tax benefit on exercise of stock options included in net income | $ | 645 | $ | 146 | $ | 5,114 | $ | 13,926 |