ipgp-20210504

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

May 4, 2021

Date of Report (Date of earliest event reported)

IPG PHOTONICS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or Other Jurisdiction

of Incorporation)

001-33155

(Commission File No.)

04-3444218

(IRS Employer

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 May 4, 2021, IPG Photonics Corporation (the “Company”) announced its financial results for the quarter ended March 31, 2021. 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 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Principal Officers.

On May 4, 2021, the Company announced that Valentin P. Gapontsev, Ph.D., has transitioned to the role of Executive Chair and will continue to serve as a director of the Company. Eugene A. Scherbakov, Ph.D., currently Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director, succeeds Dr. Gapontsev as the Company’s Chief Executive Officer effective immediately. Dr. Scherbakov has served as Managing Director of IPG Laser GmbH, IPG’s German subsidiary, since August 2000, Senior Vice President-Europe since February 2013 and Chief Operating Officer since February 2017. Dr. Scherbakov has also been a member of the Company’s board of directors (the “Board”) since 2000 and will continue as a director.

On May 4, 2021, the Company amended the employment agreement with Dr. Gapontsev to reflect his new role and title. On the same day, the Company entered into a new service agreement between Dr. Scherbakov and IPG Laser GmbH and entered into a secondment agreement with Dr. Scherbakov to reflect Dr. Scherbakov’s new role, title, compensation and responsibilities at the Company. The agreements with Dr. Gapontsev and Dr. Scherbakov expire December 31, 2022, and renew annually for a period of one year unless the Company or the executive gives notice of intent not to renew at least 180 days before the expiration of the then current term.

Dr. Scherbakov, as CEO, will receive an annual base salary of $850,000, and his annual incentive target (financial plus individual performance) under the Company’s Senior Executive Annual Incentive Plan will increase to 110% of his base salary, with the financial performance minimum, target and maximum payout increasing to 20.75%, 83% and 221% of base salary, respectively, and the individual performance maximum payout increasing to 27.5% of base salary.

In connection with the appointment of Dr. Scherbakov to the new position, the Company also approved the grant of $2,000,000 of long-term incentives in the form of equity awards consisting of service-based restricted stock units (“RSUs”) weighted 50% and performance-based stock units (“PSUs”) weighted 50%. The RSUs vest in four equal annual installments with the first 25% vesting on May 7, 2022. The PSUs vest May 7, 2024, should any PSUs vest at all. The PSUs are weighted 50% on relative total stockholder return (“TSR”) and 50% on operating cash flow (“OCF”). Both the RSUs and PSUs have the same performance criteria and performance periods as those granted to Dr. Scherbakov on February 19, 2021. Dividends, if any, on shares underlying the RSUs and PSUs do not vest until the awards vest.

Under the secondment agreement, the Company agreed to pay or reimburse Dr. Scherbakov for his expenses related to moving to and his employment in the United States, including but not limited to relocation assistance, automobile, housing costs, health and disability insurance, tax preparation, repatriation and air transportation costs for him and his spouse, which will be tax-grossed up. Prior to this change, he lived in Germany. Dr. Scherbakov will keep his household there.

Dr. Scherbakov also entered into a new Confidentiality, Non-Competition and Confirmatory Assignment Agreement which is substantially the same as his current agreement.

All of the other terms of the agreements with Dr. Gapontsev and Dr. Scherbakov remain in full force and effect.

Item 7.01. Regulation FD Disclosure

The Company’s press release announcing the management transition described above is furnished as Exhibit 99.2 to this Current Report on Form 8-K.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

Exhibit 99.1 relating to Item 2.02, and Exhibit 99.2 shall be deemed to be furnished, and not filed:




Exhibit Number						Exhibit Description
Exhibit 99.1						Press Release issued by IPG Photonics Corporation on May 4, 2021.
Exhibit 99.2						Press Release issued by IPG Photonics Corporation on May 4, 2021.
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

May 4, 2021

By:

/s/ Timothy P.V. Mammen

Timothy P.V. Mammen

Senior Vice President and Chief Financial Officer

Exhibit 99.1

IPG PHOTONICS REPORTS FIRST QUARTER 2021 FINANCIAL RESULTS

Demand Recovery Strengthens, Driving Revenue of $346 Million and Earnings per Diluted Share of $1.26

Eugene A. Scherbakov to become CEO and Valentin P. Gapontsev to transition to Executive Chairman of the Board

OXFORD, Mass. – May 4, 2021 - IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the first quarter ended March 31, 2021. In a separate press release, the Company announced CEO transition, which is effective immediately.


	Three Months Ended March 31,
(In millions, except per share data and percentages)	2021			2020			Change
Revenue	$	345.6		$	249.2		39	%
Gross margin	47.5		%	41.3		%
Operating income	$	88.8		$	44.8		98	%
Operating margin	25.7		%	18.0		%
Net income attributable to IPG Photonics Corporation	$	68.1		$	36.4		87	%
Earnings per diluted share	$	1.26		$	0.68		85	%

Management Comments

"We were pleased to see continued strong demand in China and North America as well as a further improvement in Europe. These drove both year-over-year and sequential increases in sales, despite typical seasonality, helping us achieve our best first quarter results since 2018, which was a record year, and a solid start to 2021," said Dr. Valentin Gapontsev, IPG Photonics' Executive Chairman of the Board. "We saw firm demand in welding applications, growth in electric vehicle battery production and solar cell manufacturing that helped our results. Initial orders for our handheld welder were strong and we are increasing production of this innovative device to meet growing customer demand," said Dr. Eugene Scherbakov, IPG Photonics’ Chief Executive Officer.

Financial Highlights

First quarter revenue of $346 million increased 39% year over year. Materials processing sales increased 45% year over year due to higher sales in welding, cutting, solar cell manufacturing, sintering and ablation applications. Materials processing sales accounted for 92% of total revenue in the quarter. Sales into other applications decreased 9% year over year as strength in advanced applications and telecom was offset by lower revenue in medical.

Sales of high power continuous wave ("CW") lasers, representing 49% of total revenue, increased 43% year over year. These sales benefited from growth of ultra-high power fiber lasers (6 kilowatts of power or greater), which represented 55% of all high power CW laser sales, as well as strong demand for pulsed and adjustable mode beam (AMB) lasers. By region, sales increased 104% in China, 14% in Europe, and 9% in North America on a year-over-year basis. Sales decreased 21% in Japan.

Earnings per diluted share ("EPS") of $1.26 increased 85% year over year. Foreign exchange gains benefited EPS by $0.09. The effective tax rate in the quarter was 23%. During the first quarter, IPG generated $88 million in cash from operations. Capital expenditures were $27 million and stock repurchases totaled $3 million.

Business Outlook and Financial Guidance

"The broad-based economic recovery across most of our end markets supported strong bookings in the first quarter and resulted in a book-to-bill that was meaningfully above 1. I am encouraged to see strong bookings for our core high power fiber lasers used in cutting and welding applications as well as for newer emerging products in medical applications, electric vehicle battery production and solar cell manufacturing. We believe that global trends such as increasing energy efficiency and sustainability, displacement of legacy non-laser processes and growth in electric vehicle battery capacity, together with a recovery in global capital spending and improving economic conditions will continue to drive demand for our fiber lasers," concluded Dr. Gapontsev.

For the second quarter of 2021, IPG expects revenue of $360 to $390 million. The Company expects the second quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $1.20 to $1.50, with 53.5 million basic common shares outstanding and 54.2 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 0.85, Russian Ruble 76, Japanese Yen 111 and Chinese Yuan 6.57, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited First Quarter 2021 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, May 4, 2021 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

Director of Investor Relations

IPG Photonics Corporation

508-597-4713

[email protected]

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 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, broad-based economic recovery, global trends such as increasing energy efficiency and sustainability, displacement of legacy non-laser processes and growth in electric vehicle battery capacity, a recovery in global capital spending and improving economic conditions that continue to drive demand for our fiber lasers, impacts of COVID-19 on our business, the global economy and government policies, revenue, tax rate and earnings guidance for Q2 2021. 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 22, 2021) 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 March 31,
	2021		2020
	(In thousands, except per share data)
Net sales	$	345,585	$	249,242
Cost of sales	181,594		146,366
Gross profit	163,991		102,876
Operating expenses:
Sales and marketing	18,883		18,683
Research and development	33,339		31,838
General and administrative	30,092		27,124


(Gain) on foreign exchange	(7,165)		(19,565)
Total operating expenses	75,149		58,080
Operating income	88,842		44,796
Other (expense) income, net:
Interest (expense) income, net	(495)		3,073
Other income, net	253		191
Total other (expense) income	(242)		3,264
Income before provision of income taxes	88,600		48,060
Provision for income taxes	20,378		11,294
Net income	68,222		36,766
Less: net income attributable to non-controlling interests	95		363
Net income attributable to IPG Photonics Corporation common stockholders	$	68,127	$	36,403
Net income attributable to IPG Photonics Corporation per common share:
Basic	$	1.27	$	0.69
Diluted	$	1.26	$	0.68
Weighted average common shares outstanding:
Basic	53,541		53,075
Diluted	54,201		53,676

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31,		December 31,
	2021		2020
	(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	896,741	$	876,231
Short-term investments	548,196		514,835
Accounts receivable, net	252,877		264,321
Inventories	368,149		364,993
Prepaid income taxes	70,421		69,893
Prepaid expenses and other current assets	65,877		57,804

Total current assets	2,202,261		2,148,077
Deferred income taxes, net	41,276		43,197
Goodwill	38,764		41,366
Intangible assets, net	61,768		62,114
Property, plant and equipment, net	600,911		597,527
Other assets	37,971		43,419
Total assets	$	2,982,951	$	2,935,700
LIABILITIES AND EQUITY
Current liabilities:

Current portion of long-term debt	$	3,828	$	3,810
Accounts payable	44,704		25,748
Accrued expenses and other current liabilities	162,775		176,740

Income taxes payable	3,446		8,280
Total current liabilities	214,753		214,578
Deferred income taxes and other long-term liabilities	94,335		92,854
Long-term debt, net of current portion	33,193		34,157
Total liabilities	342,281		341,589

Commitments and contingencies
IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,672,783 and 53,623,865 shares issued and outstanding, respectively, at March 31, 2021; 55,416,246 and 53,427,234 shares issued and outstanding, respectively, at December 31, 2020.	6		6
Treasury stock, at cost, 2,048,918 and 2,034,012 shares held at March 31, 2021 and December 31, 2020, respectively.	(306,662)		(303,614)
Additional paid-in capital	868,097		854,301
Retained earnings	2,256,318		2,188,191
Accumulated other comprehensive loss	(178,257)		(146,065)
Total IPG Photonics Corporation equity	2,639,502		2,592,819
Non-controlling interests	1,168		1,292
Total equity	2,640,670		2,594,111
Total liabilities and equity	$	2,982,951	$	2,935,700

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(In thousands)
Cash flows from operating activities:
Net income	$	68,222	$	36,766
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,819		24,099


Provisions for inventory, warranty and bad debt	16,685		13,486
Other	6,421		(11,079)
Changes in assets and liabilities that provided (used) cash, net of acquisitions:
Accounts receivable and accounts payable	26,340		40,546
Inventories	(20,084)		(10,429)
Other	(33,860)		(36,608)
Net cash provided by operating activities	87,543		56,781
Cash flows from investing activities:
Purchases of property, plant and equipment	(27,421)		(17,801)

Proceeds from sales of property, plant and equipment	130		139
Purchases of short-term investments	(513,564)		(308,195)
Proceeds from short-term investments	480,163		186,024

Other	(2)		79
Net cash used in investing activities	(60,694)		(139,754)
Cash flows from financing activities:



Principal payments on long-term borrowings	(946)		(928)


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	4,981		(5,498)


Purchase of treasury stock, at cost	(3,048)		(12,716)
Payment of purchase price holdback from business combination	(2,624)		(1,650)
Net cash used in financing activities	(1,637)		(20,792)
Effect of changes in exchange rates on cash and cash equivalents and restricted cash	(7,024)		(6,878)
Net increase in cash, cash equivalents and restricted cash	18,188		(110,643)
Cash, cash equivalents and restricted cash — Beginning of period	878,553		682,984
Cash and cash equivalents — End of period	$	896,741	$	572,341
Supplemental disclosures of cash flow information:
Cash paid for interest	$	703	$	447
Cash paid for income taxes	$	21,340	$	29,865

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(In thousands)


Amortization of intangible assets:
Cost of sales	$	1,241	$	1,222
Sales and marketing	2,016		1,778
Research and development	—		133


Total amortization of intangible assets	$	3,257	$	3,133

IPG PHOTONICS CORPORATION

SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(In thousands)
Cost of sales	$	2,626	$	2,532
Sales and marketing	1,160		961
Research and development	2,118		2,071
General and administrative	2,949		2,874
Total stock-based compensation	8,853		8,438
Tax effect of stock-based compensation	(1,878)		(1,936)
Net stock-based compensation	$	6,975	$	6,502


	Three Months Ended March 31,
	2021		2020
	(In thousands)
Excess tax benefit on exercise of stock options included in net income	$	5,596	$	2,918

Exhibit 99.2

IPG Photonics Announces CEO Transition

Eugene A. Scherbakov, COO, to become CEO

Valentin P. Gapontsev, CEO, to transition to Executive Chairman of the Board and remain active

OXFORD, Mass. – May 4, 2021 - IPG Photonics Corporation (NASDAQ: IPGP) today announced a management change, which is effective immediately.

Eugene A. Scherbakov Ph.D., currently Chief Operating Officer, Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director, succeeds Valentin P. Gapontsev, Ph.D., as IPG Photonics’ Chief Executive Officer. Dr. Valentin Gapontsev, founder of the Company and current CEO and Chairman of the Board, becomes Executive Chairman and continues his involvement in directing research and development and strategy.

“Dr. Scherbakov’s technological knowledge as well as extensive understanding of the Company's operations, sales and customers contributed significantly to IPG’s success since he joined us in 1995,” said Dr. Valentin Gapontsev. “Dr. Scherbakov’s leadership at our German operations and expertise resulted in operational excellence and lower production costs for our vertical integration model, making fiber laser technology more cost competitive with traditional materials processing technologies, while preserving IPG’s strong profitability and industry-leading margins.” Dr. Gapontsev continued, “The technology and product opportunities for IPG are enormous and I look forward to spending more time on our technical strategy. It's an exciting evolution for me and a very good transition for the Company.”

“I feel extremely privileged to become the next CEO of this great company,” said Dr. Scherbakov. “I look forward to continuing the strategy of Dr. Gapontsev and building on the strong foundation he set in place. We are lucky that he will continue as Executive Chairman.”

“It is hard to overstate Dr. Gapontsev’s contribution to fiber lasers and IPG, as an inventor, entrepreneur and visionary,” said John Peeler, Lead Independent Director. “This implements the succession plan discussed by the IPG Board for some time. Dr. Scherbakov is uniquely qualified for his new role.”

Dr. Scherbakov has served as Managing Director of IPG Laser GmbH, IPG’s German subsidiary, since August 2000, Senior Vice President-Europe since February 2013 and Chief Operating Officer since February 2017. He has been a member of its Board of Directors since 2000.

About IPG Photonics Corporation

Contact

Eugene Fedotoff

Director of Investor Relations

IPG Photonics Corporation

508-597-4713

[email protected]