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
August 4, 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 August 4, 2020, IPG Photonics Corporation (the "Company") announced its financial results for the quarter ended June 30, 2020. 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:
| Exhibit Number | Exhibit Description |
|---|---|
| Exhibit 99.1 | Press Release issued by IPG Photonics Corporation on August 4, 2020 |
| Exhibit 104 | Inline XBRL for the cover page of this Current Report on Form 8-K. |
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 | ||
|---|---|---|
| August 4, 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 SECOND QUARTER 2020 FINANCIAL RESULTS
Earnings Per Diluted Share of $0.71 Reduced by $0.20 from Foreign Exchange Loss and Charge for Restructuring and Asset Impairment
OXFORD, Mass. – August 4, 2020 - IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the second quarter ended June 30, 2020.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share data and percentages) | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||||||
| Revenue | $ | 296.4 | $ | 363.8 | (19) | % | $ | 545.7 | $ | 678.8 | (20) | % | ||||
| Gross margin | 46.0 | % | 49.5 | % | 43.9 | % | 48.5 | % | ||||||||
| Operating income | $ | 47.2 | $ | 91.1 | (48) | % | $ | 92.0 | $ | 159.4 | (42) | % | ||||
| Operating margin | 15.9 | % | 25.0 | % | 16.9 | % | 23.5 | % | ||||||||
| Net income attributable to IPG Photonics Corporation | $ | 38.2 | $ | 72.3 | (47) | % | $ | 74.6 | $ | 127.4 | (41) | % | ||||
| Earnings per diluted share | $ | 0.71 | $ | 1.34 | (47) | % | $ | 1.39 | $ | 2.36 | (41) | % |
Management Comments
"Despite the continued challenges to our business from the COVID-19 pandemic, we delivered second quarter results above our guidance range on better-than-expected performance in China and strength in new products," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Although our visibility is constrained in the current demand environment, we are demonstrating good progress in leading-edge solutions thanks to our technology differentiation and low cost production capabilities. We continue to believe that our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruptions and emerge from the pandemic in a stronger competitive position."
Financial Highlights
Second quarter revenue of $296 million decreased 19% year over year. Currency depreciation relative to the exchange rates assumed in our second quarter guidance reduced revenue by approximately $2 million. Materials processing sales decreased 21% year over year due to lower sales in cutting, welding and marking applications, while sales into other applications increased 36% year over year on strength in advanced applications and devices used in medical procedures. Materials processing sales accounted for 92% of total revenue.
Sales of high power continuous wave ("CW") lasers, representing 53% of total revenue, decreased 26% year over year due to the effects of COVID-19 on the global demand environment and lower average selling prices. Sales of fiber lasers at 6 kilowatts of power or greater were more than 50% of all high power CW laser sales. By region, sales decreased 11% in China, 24% in Europe, 16% in Japan and 16% in North America on a year over year basis.
Earnings per diluted share ("EPS") of $0.71 decreased 47% year over year. Foreign exchange losses and a $1 million charge related to impairment of long-lived assets and other restructuring charges reduced EPS by $0.20. The effective tax rate in the quarter was 23%, which benefited from certain discrete tax items. During the second quarter, IPG generated $73 million in cash from operations. Capital expenditures were $20 million and stock repurchases totaled $16 million.
Business Outlook and Financial Guidance
"Second quarter book to bill was greater than 1.0, with strong bookings growth in China, offset by weaker order trends in other regions. As expected, the pace of order growth in China moderated as the second quarter progressed while we have seen modest improvement in order trends in other regions. However, visibility into a recovery in global demand remains uncertain at this time. We continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing and systems and devices for the medical industry. We believe the strides we are making in higher power products within our core materials processing business and new solutions will enable us emerge from the pandemic in a stronger competitive position," said Dr. Gapontsev.
For the third quarter of 2020, IPG expects revenue of $280 million to $310 million. The Company expects the third quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.70 to $1.00, with 53.0 million basic common shares outstanding and 53.5 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 to 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 0.89, Russian Ruble 70, Japanese Yen 108 and Chinese Yuan 7.08, respectively.
Supplemental Financial Information
Additional supplemental financial information is provided in the unaudited Second 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, August 4, 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, our strong balance sheet and free cash flow helping us through the COVID-19 pandemic and business disruptions and emerge in a stronger competitive position, improvement in order trends in regions other than China, growth opportunities in ultra-high power cutting, electric vehicle battery processing and systems and devices for the medical industry, strides in higher power products enabling us to emerge from the pandemic in a stronger competitive position, impacts of COVID-19 on our business, the global economy and government policies, revenue, tax rate and earnings guidance for Q3 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 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 May 5, 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 June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| (In thousands, except per share data) | ||||||||
| Net sales | $ | 296,411 | $ | 363,769 | $ | 545,653 | $ | 678,816 |
| Cost of sales | 159,962 | 183,532 | 306,328 | 349,668 | ||||
| Gross profit | 136,449 | 180,237 | 239,325 | 329,148 | ||||
| Operating expenses: | ||||||||
| Sales and marketing | 17,326 | 20,663 | 36,009 | 39,938 | ||||
| Research and development | 31,584 | 34,872 | 63,422 | 67,368 | ||||
| General and administrative | 26,399 | 28,538 | 53,523 | 55,750 | ||||
| Impairment of long-lived assets and other restructuring charges | 1,165 | — | 1,165 | — | ||||
| Loss (gain) on foreign exchange | 12,766 | 5,074 | (6,799) | 6,687 | ||||
| Total operating expenses | 89,240 | 89,147 | 147,320 | 169,743 | ||||
| Operating income | 47,209 | 91,090 | 92,005 | 159,405 | ||||
| Other income, net: | ||||||||
| Interest income, net | 1,856 | 4,051 | 4,929 | 8,003 | ||||
| Other income, net | 449 | 658 | 640 | 649 | ||||
| Total other income | 2,305 | 4,709 | 5,569 | 8,652 | ||||
| Income before provision of income taxes | 49,514 | 95,799 | 97,574 | 168,057 | ||||
| Provision for income taxes | 11,148 | 23,278 | 22,442 | 40,620 | ||||
| Net income | 38,366 | 72,521 | 75,132 | 127,437 | ||||
| Less: net income attributable to non-controlling interests | 140 | 249 | 503 | 6 | ||||
| Net income attributable to IPG Photonics Corporation | $ | 38,226 | $ | 72,272 | $ | 74,629 | $ | 127,431 |
| Net income attributable to IPG Photonics Corporation per share: | ||||||||
| Basic | $ | 0.72 | $ | 1.36 | $ | 1.41 | $ | 2.40 |
| Diluted | $ | 0.71 | $ | 1.34 | $ | 1.39 | $ | 2.36 |
| Weighted average shares outstanding: | ||||||||
| Basic | 53,040 | 53,042 | 53,083 | 53,076 | ||||
| Diluted | 53,530 | 53,848 | 53,628 | 53,915 |
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| (In thousands, except share and <br>per share data) | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 747,859 | $ | 680,070 |
| Short-term investments | 501,040 | 502,546 | ||
| Accounts receivable, net | 203,568 | 238,479 | ||
| Inventories | 367,166 | 380,790 | ||
| Prepaid income taxes | 62,778 | 38,873 | ||
| Prepaid expenses and other current assets | 68,115 | 55,876 | ||
| Total current assets | 1,950,526 | 1,896,634 | ||
| Deferred income taxes, net | 30,544 | 31,395 | ||
| Goodwill | 81,911 | 82,092 | ||
| Intangible assets, net | 67,995 | 74,271 | ||
| Property, plant and equipment, net | 585,644 | 600,852 | ||
| Other assets | 42,116 | 45,192 | ||
| Total assets | $ | 2,758,736 | $ | 2,730,436 |
| LIABILITIES AND EQUITY | ||||
| Current liabilities: | ||||
| Current portion of long-term debt | $ | 3,775 | $ | 3,740 |
| Accounts payable | 42,261 | 27,329 | ||
| Accrued expenses and other current liabilities | 148,226 | 149,782 | ||
| Income taxes payable | 1,024 | 11,053 | ||
| Total current liabilities | 195,286 | 191,904 | ||
| Deferred income taxes and other long-term liabilities | 90,073 | 98,121 | ||
| Long-term debt, net of current portion | 36,071 | 37,968 | ||
| Total liabilities | 321,430 | 327,993 | ||
| Commitments and contingencies | ||||
| IPG Photonics Corporation equity: | ||||
| Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,154,688 and 53,182,148 shares issued and outstanding, respectively, at June 30, 2020; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019. | 6 | 5 | ||
| Treasury stock, at cost, 1,972,540 and 1,732,352 shares held at June 30, 2020 and December 31, 2019, respectively. | (293,960) | (265,730) | ||
| Additional paid-in capital | 811,559 | 785,636 | ||
| Retained earnings | 2,103,248 | 2,028,734 | ||
| Accumulated other comprehensive loss | (184,501) | (146,919) | ||
| Total IPG Photonics Corporation equity | 2,436,352 | 2,401,726 | ||
| Non-controlling interests | 954 | 717 | ||
| Total equity | 2,437,306 | 2,402,443 | ||
| Total liabilities and equity | $ | 2,758,736 | $ | 2,730,436 |
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended June 30, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| (In thousands) | ||||
| Cash flows from operating activities: | ||||
| Net income | $ | 75,132 | $ | 127,437 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 47,350 | 47,486 | ||
| Impairment of long-lived assets | 671 | — | ||
| Provisions for inventory, warranty & bad debt | 24,484 | 22,697 | ||
| Other | 13,142 | 24,014 | ||
| Changes in assets and liabilities that provided (used) cash, net of acquisitions: | ||||
| Accounts receivable and accounts payable | 46,256 | (21,501) | ||
| Inventories | (15,160) | (40,789) | ||
| Other | (61,619) | (57,565) | ||
| Net cash provided by operating activities | 130,256 | 101,779 | ||
| Cash flows from investing activities: | ||||
| Purchases of property, plant and equipment | (37,370) | (86,492) | ||
| Proceeds from sales of property, plant and equipment | 460 | 288 | ||
| Purchases of short-term and long-term investments | (421,321) | (339,828) | ||
| Proceeds from short-term investments | 422,912 | 334,680 | ||
| Acquisitions of businesses, net of cash acquired | — | (15,115) | ||
| Other | 115 | 209 | ||
| Net cash used in investing activities | (35,204) | (106,258) | ||
| Cash flows from financing activities: | ||||
| Principal payments on long-term borrowings | (1,862) | (1,827) | ||
| 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 | 8,271 | (32) | ||
| Purchase of treasury stock, at cost | (28,230) | (2,284) | ||
| Payment of purchase price holdback from business combination | (1,650) | — | ||
| Net cash used in financing activities | (23,471) | (4,143) | ||
| Effect of changes in exchange rates on cash and cash equivalents and restricted cash | (4,523) | (2,759) | ||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 67,058 | (11,381) | ||
| Cash, cash equivalents and restricted cash — Beginning of period | 682,984 | 544,358 | ||
| Cash, cash equivalents and restricted cash — End of period | $ | 750,042 | $ | 532,977 |
| Supplemental disclosures of cash flow information: | ||||
| Cash paid for interest | $ | 1,061 | $ | 1,164 |
| Cash paid for income taxes | $ | 53,670 | $ | 73,855 |
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS AND OTHER CHARGES (UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| (In thousands) | ||||||||
| Amortization of intangible assets: | ||||||||
| Cost of sales | $ | 1,172 | $ | 1,488 | $ | 2,394 | $ | 2,834 |
| Sales and marketing | 1,777 | 2,000 | 3,555 | 3,810 | ||||
| Research and development | — | 160 | 133 | 320 | ||||
| Total acquisition related costs and other charges | $ | 2,949 | $ | 3,648 | $ | 6,082 | $ | 6,964 |
IPG PHOTONICS CORPORATION
SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION AND ACCOUNTING STANDARD IMPACTS TO NET INCOME AND EARNINGS PER SHARE (UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| (In thousands) | ||||||||
| Cost of sales | $ | 2,507 | $ | 2,192 | $ | 5,039 | $ | 4,231 |
| Sales and marketing | 1,188 | 854 | 2,149 | 1,641 | ||||
| Research and development | 2,475 | 2,063 | 4,547 | 3,920 | ||||
| General and administrative | 3,092 | 3,963 | 5,966 | 7,418 | ||||
| Total stock-based compensation | 9,262 | 9,072 | 17,701 | 17,210 | ||||
| Tax effect of stock-based compensation | (2,123) | (2,131) | (4,059) | (4,047) | ||||
| Net stock-based compensation | $ | 7,139 | $ | 6,941 | $ | 13,642 | $ | 13,163 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2020 | 2019 | 2020 | 2019 | |||||
| (In thousands) | ||||||||
| Excess tax benefit on exercise of stock options included in net income | $ | 1,776 | $ | 1,319 | $ | 4,694 | $ | 4,229 |
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