IPG Photonics Announces Third Quarter 2023 Financial Results

 Weak Industrial Demand and Lower E-mobility Sales in China Negatively Impacted Results

Gross Margin Improved to 44.1% Driven by Continued Focus on Manufacturing Costs and Efficiency

MARLBOROUGH, Mass., Oct. 31, 2023 (GLOBE NEWSWIRE) --   IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the third quarter ended September 30, 2023.

  Three Months Ended September 30,   Nine Months Ended September 30,  
(In millions, except per share data and percentages)  2023   2022  Change  2023   2022  Change
Revenue $301.4  $349.0  (14)% $988.5  $1,096.0  (10)%
Gross margin  44.1%  43.1%    43.2%  45.1%  
Operating income $55.7  $93.2  (40)% $203.2  $258.0  (21)%
Operating margin  18.5%  26.7%    20.6%  23.5%  
Net income attributable to IPG Photonics Corporation $55.0  $76.3  (28)% $177.5  $202.8  (12)%
Earnings per diluted share $1.16  $1.47  (21)% $3.73  $3.93  (5)%

Management Comments

"We are navigating through a challenging capital investment cycle and our materials processing sales were impacted by weak global industrial demand and reduced investments in electric vehicle battery capacity in China. Nevertheless, we saw growth in welding applications outside of China, including handheld and e-mobility, and increased demand in 3D printing applications. Our medical sales also increased following an inventory adjustment by a large customer in the prior quarter," said Dr. Eugene Scherbakov, IPG Photonics' Chief Executive Officer. "We are seeing further adoption of laser welding technology and introduced products to explore new applications for our lasers, such as cleaning and drying, in order to unlock additional growth opportunities for IPG. Our gross margin continues to improve, despite lower revenue, as we focused on reducing costs, managing inventory and improving manufacturing efficiency."

Financial Highlights

Third quarter revenue of $301 million decreased 14% year over year. Changes in foreign exchange rates reduced revenue by approximately $6 million or 2%. Materials processing sales accounted for 88% of total revenue and decreased 15% year over year. The decline was due to lower revenue in cutting, welding and marking applications in China, partially offset by growth in 3D printing applications and higher handheld welder sales. Emerging growth products sales accounted for 42% of total revenue and were negatively impacted by lower sales to e-mobility applications in China and lower demand in solar cell manufacturing applications. Other applications sales decreased 1% year over year due to lower revenue in advanced and telecom applications.

Revenue in high power continuous wave (CW) lasers declined 22% year over year due to competition and lower demand in flat sheet cutting and reduced demand in welding applications due to the timing of projects. Sales of pulsed lasers declined 25% compared with the prior year due to lower demand in marking and solar cell manufacturing applications. By region, sales decreased 28% in China and 13% in North America, but increased 3% in Europe and 41% in Japan on a year-over-year basis.

Gross margin of 44.1% increased 100 basis points year over year. Earnings per diluted share (EPS) of $1.16 decreased 21% year over year. The gain on sale of the telecom business increased operating income by $22 million and benefited diluted EPS by $0.32 in the third quarter of 2022. Foreign exchange transaction gains increased operating income by $0.4 million and earnings per share by $0.01 in the third quarter. The effective tax rate in the quarter was 19%, benefiting from certain discrete items. During the third quarter, IPG generated $86 million in cash from operations and spent $26 million on capital expenditures and $46 million on share repurchases.

Business Outlook and Financial Guidance

“Third quarter book-to-bill was below one due to continued economic uncertainty which is impacting industrial demand in China and Europe; European customer activity and sentiment softened during the third quarter. General industrial demand in North America has held up better than expected, but many customers continue to predict a slowdown and are delaying purchase decisions, so our visibility is limited. At the same time, we remain optimistic that sales in China should recover with an increase in investment in EV battery capacity in 2024 and sales in the U.S. are likely to benefit from government investment and onshoring initiatives in the next several years," concluded Dr. Scherbakov.

For the fourth quarter of 2023, IPG expects revenue of $270 million to $300 million. The Company expects the fourth quarter tax rate to be approximately 20%, including certain discrete items. IPG anticipates delivering earnings per diluted share in the range of $0.80 to $1.10.

As discussed in more detail in the "Safe Harbor" passage of this news release, actual results may differ from this guidance due to various factors including, but not limited to, trade policy changes and trade restrictions, the COVID-19 pandemic, product demand, order cancellations and delays, competition, tariffs, currency fluctuations and general economic conditions. This guidance is based upon current market conditions and expectations, and is subject to the risks outlined in the Company's reports filed with the SEC, and assumes exchange rates relative to the U.S. dollar of euro 0.95, Russian ruble 97, Japanese yen 149 and Chinese yuan 7.18, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Financial Data Workbook and Third Quarter 2023 Earnings Call Presentation available on the investor relations section of the Company's website at investor.ipgphotonics.com.

Conference Call Reminder

The Company will hold a conference call today, October 31, 2023 at 10:00 am ET. To access the call, please dial 877-407-6184 in the US or 201-389-0877 internationally. A live webcast of the call will also be available and archived on the investor relations section of the Company's website at investor.ipgphotonics.com.


Eugene Fedotoff
Senior Director, Investor Relations
IPG Photonics Corporation

About IPG Photonics Corporation

IPG Photonics Corporation is the leader in high-power fiber lasers and amplifiers used primarily in materials processing and other diverse applications. The Company’s mission is to develop innovative laser solutions making the world a better place. IPG accomplishes this mission by delivering superior performance, reliability and usability at a lower total cost of ownership compared with other types of lasers and non-laser tools, allowing end users to increase productivity and decrease costs. IPG is headquartered in Marlborough, Massachusetts and has more than 30 facilities worldwide. For more information, visit www.ipgphotonics.com

Safe Harbor Statement

Information and statements provided by IPG and its employees, including statements in this press release, that relate to future plans, events or performance are forward-looking statements. These statements involve risks and uncertainties. Any statements in this press release that are not statements of historical fact are forward-looking statements, including, but not limited to sales in China should recover with an increase in investment in EV battery capacity in 2024 and sales in U.S. are likely to benefit from government investment and onshoring initiatives in the next several years, revenue outlook, tax rate and earnings guidance, and the impact of the U.S. dollar on our guidance for fourth quarter of 2023. Factors that could cause actual results to differ materially include risks and uncertainties, including risks associated with the strength or weakness of the business conditions in industries and geographic markets that IPG serves, particularly the effect of downturns in the markets IPG serves; uncertainties and adverse changes in the general economic conditions of markets; inability to manage risks associated with international customers and operations; changes in trade controls and trade policies; IPG's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; foreign currency fluctuations; high levels of fixed costs from IPG's vertical integration; the appropriateness of IPG's manufacturing capacity for the level of demand; competitive factors, including declining average selling prices; the effect of acquisitions and investments; inventory write-downs; asset impairment charges; intellectual property infringement claims and litigation; interruption in supply of key components; manufacturing risks; government regulations and trade sanctions; and other risks identified in IPG's SEC filings. Readers are encouraged to refer to the risk factors described in IPG's Annual Report on Form 10-K (filed with the SEC on February 27, 2023) and IPG's reports filed with the SEC, as applicable. Actual results, events and performance may differ materially. Readers are cautioned not to rely on the forward-looking statements, which speak only as of the date hereof. IPG undertakes no obligation to update the forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
  (In thousands, except per share data)
Net sales $301,401  $349,006  $988,546  $1,096,008 
Cost of sales  168,499   198,582   561,015   601,419 
Gross profit  132,902   150,424   427,531   494,589 
Operating expenses:        
Sales and marketing  22,243   19,383   63,518   58,767 
Research and development  24,708   25,436   70,990   89,494 
General and administrative  30,958   33,813   90,746   97,888 
Gain on divestiture     (21,748)     (21,748)
Impairment of long-lived assets  1,237   919   1,237   919 
Restructuring charges (recoveries), net  (1,501)     (357)   
(Gain) loss on foreign exchange  (449)  (541)  (1,798)  11,289 
Total operating expenses  77,196   57,262   224,336   236,609 
Operating income  55,706   93,162   203,195   257,980 
Other income, net:        
Interest income, net  11,569   3,625   28,366   4,732 
Other income, net  545   301   1,161   683 
Total other income  12,114   3,926   29,527   5,415 
Income before provision of income taxes  67,820   97,088   232,722   263,395 
Provision for income taxes  12,826   20,390   55,272   59,738 
Net income  54,994   76,698   177,450   203,657 
Less: net income attributable to non-controlling interests     434      853 
Net income attributable to IPG Photonics Corporation $54,994  $76,264  $177,450  $202,804 
Net income attributable to IPG Photonics Corporation per share:        
Basic $1.16  $1.48  $3.75  $3.94 
Diluted $1.16  $1.47  $3.73  $3.93 
Weighted average shares outstanding:        
Basic  47,237   51,629   47,364   51,449 
Diluted  47,388   51,737   47,536   51,626 

  September 30, December 31,
   2023   2022 
  (In thousands, except share and
per share data)
Current assets:    
Cash and cash equivalents $528,284  $698,209 
Short-term investments  605,207   479,374 
Accounts receivable, net  229,597   211,347 
Inventories  479,829   509,363 
Prepaid income taxes  32,538   40,934 
Prepaid expenses and other current assets  45,005   47,047 
Total current assets  1,920,460   1,986,274 
Deferred income taxes, net  79,583   75,152 
Goodwill  38,265   38,325 
Intangible assets, net  28,056   34,120 
Property, plant and equipment, net  581,970   580,561 
Other assets  24,530   28,848 
Total assets $2,672,864  $2,743,280 
Current liabilities:    
Current portion of long-term debt $  $16,031 
Accounts payable  33,126   46,233 
Accrued expenses and other current liabilities  174,517   202,764 
Income taxes payable  12,066   9,618 
Total current liabilities  219,709   274,646 
Other long-term liabilities and deferred income taxes  69,204   83,274 
Total liabilities  288,913   357,920 
Commitments and contingencies    
IPG Photonics Corporation equity:    
Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,249,626 and 46,921,754 shares issued and outstanding, respectively, at September 30, 2023; 56,017,672 and 48,138,257 shares issued and outstanding, respectively, at December 31, 2022.  6   6 
Treasury stock, at cost, 9,327,872 and 7,879,415 shares held at September 30, 2023 and December 31, 2022, respectively.  (1,097,537)  (938,009)
Additional paid-in capital  978,331   951,371 
Retained earnings  2,753,966   2,576,516 
Accumulated other comprehensive loss  (250,815)  (204,524)
Total IPG Photonics Corporation equity  2,383,951   2,385,360 
Total liabilities and equity $2,672,864  $2,743,280 

  Nine Months Ended September 30,
   2023   2022 
  (In thousands)
Cash flows from operating activities:    
Net income $177,450  $203,657 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation and amortization  52,678   69,852 
Impairment of long-lived assets and restructuring charges (recoveries), net  (486)  919 
Provisions for inventory, warranty & bad debt  43,889   58,990 
Gain on divestiture     (21,748)
Other  5,238   20,201 
Changes in assets and liabilities that (used) provided cash, net of acquisitions:    
Accounts receivable and accounts payable  (35,257)  39,680 
Inventories  (20,736)  (148,959)
Other  (32,852)  (51,566)
Net cash provided by operating activities  189,924   171,026 
Cash flows from investing activities:    
Purchases of and deposits on property, plant and equipment  (85,256)  (84,552)
Proceeds from sales of property, plant and equipment  30,425   837 
Purchases of short-term investments  (898,455)  (914,598)
Proceeds from short-term investments  789,844   1,355,883 
Acquisitions of businesses, net of cash acquired     (2,000)
Proceeds from divestiture, net of cash sold     52,141 
Other  446   (246)
Net cash (used in) provided by investing activities  (162,996)  407,465 
Cash flows from financing activities:    
Principal payments on long-term borrowings  (16,031)  (17,829)
Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards  (432)  2,353 
Purchase of treasury stock, at cost  (159,528)  (382,885)
Purchase of non-controlling interests     (2,500)
Net cash used in financing activities  (175,991)  (400,861)
Effect of changes in exchange rates on cash and cash equivalents  (20,862)  (17,461)
Net (decrease) increase in cash and cash equivalents  (169,925)  160,169 
Cash and cash equivalents — Beginning of period  698,209   709,105 
Cash and cash equivalents — End of period  528,284   869,274 
Supplemental disclosures of cash flow information:    
Cash paid for interest $1,110  $2,766 
Cash paid for income taxes $55,001  $83,771 

  Three Months Ended September 30, Nine Months Ended September 30,
   2023  2022  2023  2022
  (In thousands)
Amortization of intangible assets:        
Cost of sales $564 $796 $1,692 $3,024
Sales and marketing  1,456  1,651  4,370  5,353
Total amortization of intangible assets $2,020 $2,447 $6,062 $8,377

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
  (In thousands)
Cost of sales $1,503  $2,961  $6,664  $9,234 
Sales and marketing  1,362   1,191   4,045   3,709 
Research and development  2,330   986   6,171   5,889 
General and administrative  2,949   3,640   10,582   10,370 
Total stock-based compensation  8,144   8,778   27,462   29,202 
Tax effect of stock-based compensation  (1,772)  (1,894)  (6,016)  (6,279)
Net stock-based compensation $6,372  $6,884  $21,446  $22,923 

  Three Months Ended September 30, Nine Months Ended September 30,
   2023   2022   2023   2022 
  (In thousands)
Excess tax benefit (detriment) on stock-based compensation $(55) $(114) $(1,741) $(2,254)