IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the first quarter ended March 31, 2024.
    Three Months Ended March 31,      
(In millions, except per share data and percentages)     2024       2023     Change
Revenue   $ 252.0     $ 347.2     (27 )%
Gross margin     38.7 %     42.3 %      
Operating income   $ 19.1     $ 75.4     (75 )%
Operating margin     7.6 %     21.7 %      
Net income attributable to IPG Photonics Corporation   $ 24.1     $ 60.1     (60 )%
Earnings per diluted share   $ 0.52     $ 1.26     (59 )%
                       

Management Comments

"In the first quarter, we continued to generate strong cash flow from operations, reduce inventory and control manufacturing expenses, in spite of the challenging conditions. We also remained focused on our strategy to unlock additional growth opportunities for fiber lasers such as welding, cleaning, heating and medical, which would allow us to diversify our revenue away from highly competitive markets," said Dr. Eugene Scherbakov, IPG Photonics' Chief Executive Officer. "While delayed investments in electric battery capacity worldwide, soft industrial demand across most of our major geographies, and inventory management by some large OEM customers impacted first quarter results, we believe that our strong technology differentiation helps us continue to displace other laser and non-laser tools across a growing range of applications, positioning our business for growth in the future."

Financial Highlights

First quarter revenue of $252 million decreased 27% year over year. Changes in foreign exchange rates reduced revenue growth by approximately $8 million or 2%. By region, sales decreased across all major geographies and were down 38% in China, 16% in North America, 21% in Europe and 23% in Japan on a year-over-year basis. Materials processing sales accounted for 90% of total revenue and decreased 28% year over year. The decline was due to lower revenue in most applications, except for growth in 3D printing and heating, and flat sales in parts and services. Other applications sales decreased 25% year over year due to lower revenue in medical and advanced applications.

Emerging growth products sales accounted for 45% of total revenue and were negatively impacted by lower demand in e-mobility and solar cell manufacturing applications, lower sales in handheld welding applications and inventory adjustment by a large medical customer.

Gross margin of 38.7% decreased 360 basis points year over year due to reduced absorption of manufacturing expenses and increased inventory reserves, partially offset by lower product and shipping costs. Earnings per diluted share (EPS) of $0.52 decreased 59% year over year. The gain on sale of assets increased operating income by $7 million and increased diluted EPS by $0.11. Foreign exchange transaction loss decreased operating income by $2 million and earnings per share by $0.03 in the first quarter. The effective tax rate in the quarter was 28%. During the first quarter, IPG generated $55 million in cash from operations and spent $28 million on capital expenditures and $90 million on share repurchases.

Business Outlook and Financial Guidance

“Despite a challenging first quarter, our book-to-bill was slightly above one for the first time since the first quarter last year, which may indicate that industrial demand is stabilizing and could start to improve modestly later in the year," concluded Dr. Scherbakov.

For the second quarter of 2024, IPG expects revenue of $240 million to $270 million. The Company expects the second quarter tax rate to be approximately 25%, including certain discrete items. IPG anticipates delivering earnings per diluted share in the range of $0.30 to $0.60.

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 0.93, Russian ruble 92, Japanese yen 151 and Chinese yuan 7.10, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Financial Data Workbook and First 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, April 30, 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 FedotoffSenior Director, Investor Relations IPG Photonics Corporation 508-597-4713efedotoff@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 indications of stabilizing industrial demand and improvements later in the year, revenue outlook, tax rate and earnings guidance, and the impact of the U.S. dollar on our guidance for second 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.

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
     
    Three Months Ended March 31,
      2024       2023  
    (In thousands, except per share data)
Net sales   $ 252,009     $ 347,174  
Cost of sales     154,473       200,236  
Gross profit     97,536       146,938  
Operating expenses:        
Sales and marketing     22,998       21,088  
Research and development     29,381       22,770  
General and administrative     31,158       30,128  
Gain on sale of assets     (6,776 )     —  
Restructuring charges, net     —       181  
Loss (gain) on foreign exchange     1,675       (2,655 )
Total operating expenses     78,436       71,512  
Operating income     19,100       75,426  
Other income, net:        
Interest income, net     14,177       7,533  
Other income, net     325       331  
Total other income     14,502       7,864  
Income before provision of income taxes     33,602       83,290  
Provision for income taxes     9,503       23,155  
Net income attributable to IPG Photonics Corporation   $ 24,099     $ 60,135  
Net income attributable to IPG Photonics Corporation per share:        
Basic   $ 0.52     $ 1.26  
Diluted   $ 0.52     $ 1.26  
Weighted average common shares outstanding:        
Basic     45,960       47,542  
Diluted     46,175       47,776  

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
         
    March 31,   December 31,
      2024       2023  
    (In thousands, except share and per share data)
ASSETS
Current assets:        
Cash and cash equivalents   $ 496,452     $ 514,674  
Short-term investments     643,655       662,807  
Accounts receivable, net     184,012       219,053  
Inventories     431,899       453,874  
Prepaid income taxes     24,530       26,038  
Prepaid expenses and other current assets     49,071       38,208  
Total current assets     1,829,619       1,914,654  
Deferred income taxes, net     84,452       88,788  
Goodwill     38,351       38,540  
Intangible assets, net     24,802       26,234  
Property, plant and equipment, net     585,751       602,257  
Other assets     35,461       28,425  
Total assets   $ 2,598,436     $ 2,698,898  
LIABILITIES AND EQUITY
Current liabilities:        
Accounts payable   $ 26,675     $ 28,618  
Accrued expenses and other current liabilities     163,011       181,350  
Income taxes payable     2,441       4,893  
Total current liabilities     192,127       214,861  
Other long-term liabilities and deferred income taxes     65,589       68,652  
Total liabilities     257,716       283,513  
Commitments and contingencies        
IPG Photonics Corporation equity:        
Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,521,438 and 45,566,746 shares issued and outstanding, respectively, at March 31, 2024; 56,317,438 and 46,320,671 shares issued and outstanding, respectively, at December 31, 2023.     6       6  
Treasury stock, at cost, 10,954,692 and 9,996,767 shares held at March 31, 2024 and December 31, 2023, respectively.     (1,251,121 )     (1,161,505 )
Additional paid-in capital     1,002,600       994,020  
Retained earnings     2,819,493       2,795,394  
Accumulated other comprehensive loss     (230,258 )     (212,530 )
Total IPG Photonics Corporation equity     2,340,720       2,415,385  
Total liabilities and equity   $ 2,598,436     $ 2,698,898  

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
     
    Three Months Ended March 31,
      2024       2023  
    (In thousands)
Cash flows from operating activities:        
Net income   $ 24,099     $ 60,135  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization     16,214       17,889  
Provisions for inventory, warranty & bad debt     14,761       17,214  
Other     143       19,561  
Changes in assets and liabilities that provided (used) cash, net of acquisitions:        
Accounts receivable and accounts payable     32,579       (29,242 )
Inventories     1,498       (8,989 )
Other     (34,698 )     (39,288 )
Net cash provided by operating activities     54,596       37,280  
Cash flows from investing activities:        
Purchases of and deposits on property, plant and equipment     (28,052 )     (33,404 )
Proceeds from sales of property, plant and equipment     25,262       1,600  
Purchases of short-term investments     (226,521 )     (343,820 )
Proceeds from short-term investments     252,890       279,499  
Other     157       107  
Net cash provided by (used in) investing activities     23,736       (96,018 )
Cash flows from financing activities:        
Principal payments on long-term borrowings     —       (298 )
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     (1,158 )     (3,844 )
Purchase of treasury stock, at cost     (89,616 )     (113,094 )
Net cash used in financing activities     (90,774 )     (117,236 )
Effect of changes in exchange rates on cash and cash equivalents     (5,780 )     (1,098 )
Net decrease in cash and cash equivalents     (18,222 )     (177,072 )
Cash and cash equivalents — Beginning of period     514,674       698,209  
Cash and cash equivalents — End of period     496,452       521,137  
Supplemental disclosures of cash flow information:        
Cash paid for interest   $ 4     $ 525  
Cash paid for income taxes   $ 8,005     $ 19,203  

IPG PHOTONICS CORPORATIONSUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED)
 
    Three Months Ended March 31,
    2024   2023
    (In thousands)
Amortization of intangible assets:        
Cost of sales   $ 488   $ 564
Sales and marketing     937     1,457
Total amortization of intangible assets   $ 1,425   $ 2,021

IPG PHOTONICS CORPORATIONSUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION (UNAUDITED)
 
    Three Months Ended March 31,
      2024       2023  
    (In thousands)
Cost of sales   $ 2,075     $ 2,646  
Sales and marketing     1,502       1,293  
Research and development     2,631       1,796  
General and administrative     3,524       3,876  
Total stock-based compensation     9,732       9,611  
Tax effect of stock-based compensation     (2,140 )     (2,096 )
Net stock-based compensation   $ 7,592     $ 7,515  
    Three Months Ended March 31,
      2024       2023  
    (In thousands)
Excess tax benefit (detriment) on stock-based compensation   $ (3,649 )   $ (1,708 )
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