IPG Photonics Corporation (NASDAQ: IPGP) today reported financial results for the second quarter ended June 30, 2024.
  Three Months Ended June 30,           Six Months Ended June 30,        
(In millions, except per share data and percentages)   2024       2023       Change       2024       2023       Change  
Revenue $ 257.6     $ 340.0       (24 )%   $ 509.7     $ 687.1       (26 )%
Gross margin   37.3 %     43.4 %             38.0 %     42.9 %        
Operating income $ 12.0     $ 72.1       (83 )%   $ 31.1     $ 147.5       (79 )%
Operating margin   4.7 %     21.2 %             6.1 %     21.5 %        
Net income attributable to IPG Photonics Corporation $ 20.2     $ 62.3       (68 )%   $ 44.3     $ 122.5       (64 )%
Earnings per diluted share $ 0.45     $ 1.31       (66 )%   $ 0.97     $ 2.57       (62 )%

Management Comments

"IPG's second quarter results reflect a challenging demand environment, particularly across industrial and e-mobility markets. Our focus on financial execution allowed the company to generate strong cash flow from operations and significantly reduce inventory, while continuing to work on significant product cost reductions," said Dr. Mark Gitin, IPG Photonics' Chief Executive Officer. "The Company has a very strong innovation pipeline and we are making great progress diversifying our business by focusing on complete solutions to customers in welding, cleaning, medical and other applications, while fortifying our position and strong customer relations in the cutting OEM business. These moves will best position us for improved performance as the global demand environment recovers."

Financial Highlights

Second quarter revenue of $258 million decreased 24% year over year. Changes in foreign exchange rates reduced revenue by approximately $6 million or 2%. By region, sales decreased 2% in North America and were down 34% in China, 27% in Europe and 39% in Japan on a year-over-year basis. While materials processing sales accounted for 88% of total revenue and decreased 28% year over year, other sales increased 24% year over year due to higher revenue in medical and advanced applications. The decline in materials processing was primarily due to lower revenue in cutting and welding applications as a result of soft demand from industrial and e-mobility customers.

Emerging growth products sales accounted for 46% of total revenue, which was an improvement from the prior quarter, driven by higher sales in handheld welding, medical and advanced applications.

Gross margin of 37.3% decreased 610 basis points year over year due to reduced absorption of manufacturing expenses and increased inventory reserves, partially offset by lower tariffs and shipping costs. Earnings per diluted share (EPS) of $0.45 decreased 66% year over year. Foreign exchange transaction loss decreased operating income by $3 million and earnings per share by $0.05 while the gain on sale of assets increased operating income by $1 million and increased diluted EPS by $0.01 in the second quarter. The effective tax rate in the quarter was 19%. During the second quarter, IPG generated $53 million in cash from operations and spent $24 million on capital expenditures and $122 million on share repurchases.

Business Outlook and Financial Guidance

“Our book-to-bill was below one for the second quarter, reversing the sequential improvement we saw in the prior quarter. Uncertainty across all major geographies, which is impacting industrial and e-mobility markets, is likely to weigh on demand through the remainder of the year," concluded Dr. Gitin.

For the third quarter of 2024, IPG expects revenue of $210 million to $240 million, gross margin between 34% and 37%, and operating expenses of $82 million to $84 million. The Company expects the third quarter tax rate to be approximately 25%, including certain discrete items. IPG anticipates delivering earnings per diluted share in the range of $0.00 to $0.30.

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 86, Japanese yen 161 and Chinese yuan 7.13, respectively.

Supplemental Financial Information

Additional supplemental financial information is provided in the unaudited Financial Data Workbook and Second 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, July 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 potential for improved performance as global demand environment recovers, uncertainty weighing on demand through the remainder of the year, revenue, gross margin and operating expenses outlook, tax rate and earnings guidance, and the impact of the U.S. dollar on our guidance for third 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 June 30,   Six Months Ended June 30,
    2024       2023       2024       2023  
  (In thousands, except per share data)
Net sales $ 257,645     $ 339,971     $ 509,654     $ 687,145  
Cost of sales   161,459       192,280       315,932       392,516  
Gross profit   96,186       147,691       193,722       294,629  
Operating expenses:              
Sales and marketing   22,487       20,187       45,485       41,275  
Research and development   27,487       23,512       56,868       46,282  
General and administrative   31,602       29,660       62,760       59,788  
Gain on sale of assets   (674 )     —       (7,450 )     —  
Restructuring charges, net   —       963       —       1,144  
Loss (gain) on foreign exchange   3,244       1,306       4,919       (1,349 )
Total operating expenses   84,146       75,628       162,582       147,140  
Operating income   12,040       72,063       31,140       147,489  
Other income, net:              
Interest income, net   12,778       9,264       26,955       16,797  
Other income, net   194       285       519       616  
Total other income   12,972       9,549       27,474       17,413  
Income before provision of income taxes   25,012       81,612       58,614       164,902  
Provision for income taxes   4,858       19,291       14,361       42,446  
Net income attributable to IPG Photonics Corporation $ 20,154     $ 62,321     $ 44,253     $ 122,456  
Net income attributable to IPG Photonics Corporation per share:              
Basic $ 0.45     $ 1.32     $ 0.97     $ 2.58  
Diluted $ 0.45     $ 1.31     $ 0.97     $ 2.57  
Weighted average common shares outstanding:              
Basic   44,918       47,316       45,439       47,429  
Diluted   45,012       47,453       45,601       47,618  

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
  June 30,   December 31,
    2024       2023  
  (In thousands, except share andper share data)
ASSETS
Current assets:      
Cash and cash equivalents $ 720,540     $ 514,674  
Short-term investments   343,363       662,807  
Accounts receivable, net   176,153       219,053  
Inventories   400,839       453,874  
Prepaid income taxes   30,208       26,038  
Prepaid expenses and other current assets   46,849       38,208  
Total current assets   1,717,952       1,914,654  
Deferred income taxes, net   88,865       88,788  
Goodwill   38,278       38,540  
Intangible assets, net   23,423       26,234  
Property, plant and equipment, net   593,136       602,257  
Other assets   33,777       28,425  
Total assets $ 2,495,431     $ 2,698,898  
LIABILITIES AND EQUITY
Current liabilities:      
Accounts payable $ 26,232     $ 28,618  
Accrued expenses and other current liabilities   161,229       181,350  
Income taxes payable   3,022       4,893  
Total current liabilities   190,483       214,861  
Other long-term liabilities and deferred income taxes   51,578       68,652  
Total liabilities   242,061       283,513  
Commitments and contingencies      
IPG Photonics Corporation equity:      
Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,584,223 and 44,225,282 shares issued and outstanding, respectively, at June 30, 2024; 56,317,438 and 46,320,671 shares issued and outstanding, respectively, at December 31, 2023.   6       6  
Treasury stock, at cost, 12,358,941 and 9,996,767 shares held at June 30, 2024 and December 31, 2023, respectively.   (1,373,525 )     (1,161,505 )
Additional paid-in capital   1,014,094       994,020  
Retained earnings   2,839,647       2,795,394  
Accumulated other comprehensive loss   (226,852 )     (212,530 )
Total IPG Photonics Corporation equity   2,253,370       2,415,385  
Total liabilities and equity $ 2,495,431     $ 2,698,898  

IPG PHOTONICS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
  Six Months Ended June 30,
    2024       2023  
  (In thousands)
Cash flows from operating activities:      
Net income $ 44,253     $ 122,456  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization   31,506       35,343  
Provisions for inventory, warranty & bad debt   30,365       31,846  
Other   (8 )     13,615  
Changes in assets and liabilities that provided (used) cash, net of acquisitions:      
Accounts receivable and accounts payable   39,736       (31,348 )
Inventories   17,041       (12,103 )
Other   (54,839 )     (55,863 )
Net cash provided by operating activities   108,054       103,946  
Cash flows from investing activities:      
Purchases of and deposits on property, plant and equipment   (52,270 )     (59,139 )
Proceeds from sales of property, plant and equipment   28,274       1,740  
Purchases of short-term investments   (301,541 )     (583,347 )
Proceeds from short-term investments   633,993       549,879  
Other   188       326  
Net cash provided by (used in) investing activities   308,644       (90,541 )
Cash flows from financing activities:      
Principal payments on long-term borrowings   —       (16,031 )
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   1,792       (731 )
Purchase of treasury stock, at cost   (212,020 )     (113,031 )
Net cash used in financing activities   (210,228 )     (129,793 )
Effect of changes in exchange rates on cash and cash equivalents   (604 )     (8,750 )
Net increase (decrease) in cash and cash equivalents   205,866       (125,138 )
Cash and cash equivalents — Beginning of period   514,674       698,209  
Cash and cash equivalents — End of period   720,540       573,071  
Supplemental disclosures of cash flow information:      
Cash paid for interest $ 94     $ 947  
Cash paid for income taxes $ 34,165     $ 58,178  

IPG PHOTONICS CORPORATIONSUPPLEMENTAL SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS (UNAUDITED)
 
  Three Months Ended June 30,   Six Months Ended June 30,
    2024       2023       2024       2023  
  (In thousands)
Amortization of intangible assets:              
Cost of sales $ 440     $ 564     $ 928     $ 1,128  
Sales and marketing   937       1,457       1,874       2,914  
Total amortization of intangible assets $ 1,377     $ 2,021     $ 2,802     $ 4,042  

IPG PHOTONICS CORPORATIONSUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION (UNAUDITED)
 
  Three Months Ended June 30,   Six Months Ended June 30,
    2024       2023       2024       2023  
  (In thousands)
Cost of sales $ 2,191     $ 2,515     $ 4,266     $ 5,161  
Sales and marketing   1,455       1,390       2,957       2,683  
Research and development   2,451       2,045       5,082       3,841  
General and administrative   2,473       3,757       5,997       7,633  
Total stock-based compensation   8,570       9,707       18,302       19,318  
Tax effect of stock-based compensation   (1,847 )     (2,148 )     (3,987 )     (4,244 )
Net stock-based compensation $ 6,723     $ 7,559     $ 14,315     $ 15,074  
  Three Months Ended June 30,   Six Months Ended June 30,
    2024       2023       2024       2023  
  (In thousands)
Excess tax (detriment) benefit on stock-based compensation $ (244 )   $ 22     $ (3,893 )   $ (1,686 )
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