Senior Vice President & Chief Financial Officer at IPG Photonics
Thank you. Eugene, and good morning everyone. My comments generally will follow the earnings call presentation which is available on our website. I will start with the financial review on Slide 3. Revenue in the 3rd quarter was $379 million, which increased 19% year-over-year and 2% sequentially. Third quarter GAAP gross margin was 49%, an increase of 100 basis points year-over-year. Compared with the year ago period, the increase in gross margin was driven primarily by lower inventory provisions and a reduction of unabsorbed manufacturing expenses as a percent of sales. GAAP operating income was $102 million, and operating margin was 26.9%. Third quarter net income was $75 million or $1.40 per diluted share. The effective tax rate in the quarter was 26%. As a reminder, last year's results were negatively impacted by a goodwill impairment charge of $45 million. During the quarter, we recognized an after-tax foreign exchange gain of $2 million or $0.04 per diluted share, primarily related to the depreciation of the Euro and Chinese yuan. Exchange rates relative to the US Dollar had been the same as one year ago, we would have expected revenue to be $9 million lower and gross profit to be $6 million lower. Moving to Slide 4, sales of high power CW lasers decreased 4% year-over-year and represented approximately 47% of total revenue. Sales of ultra high power lasers of 6 kW or greater represented 51% of total high-power CW sales. Medium power laser sales increased 109% on growth in cutting, welding, 3D printing, and semiconductor applications. QCW laser sales increased 8% year-over-year on a higher demand for marking, engraving, and drilling applications. Pulse laser sales including high power pulse lasers increased 69% year-over-year with strong growth in foil cutting applications for EV battery manufacturing, solar cell applications as well as higher sales of our infrared lasers for marking and cleaning. System sales increased 56% year-over-year with improved revenues for Genesis and IoT and a ramp up in lightWELD sales. Other product sales increased 58% year-over-year, benefiting from higher sales in medical and beam delivery. Examining our performance by region on Slide 5, revenue in North America increased 55% year-over-year driven by materials processing with growth in welding and increased sales of high-power lasers for cutting applications. We also saw record quarterly revenue in medical, as our products continue to gain acceptance. System sales improved in the 3rd quarter with both laser and non-laser systems posting strong revenue growth. In Europe, revenue increased 50% year-over-year driven by accelerated demand in cutting and welding applications as well as strong growth in marking and additive applications. Our revenue in China decreased 7% year-over-year in the 3rd quarter representing approximately 36% of total sales. Soft sales of high-power lasers in cutting applications more than offset higher demand in welding applications, high power pulse lasers for foil cutting and growth in marking and additive applications. Sales in Japan were up 11% and revenue in the rest of Asia increased 15% year-over-year. Moving to a summary of our balance sheet and cash flow on Slide 6. We ended the quarter with cash, cash equivalents, and short-term investments of $1.5 billion and total debt of $35 million. Strong operational execution resulted in cash provided by operations of $102 million during the quarter. For our cash deployment, capital expenditures were $40 million in the 3rd quarter and we expect capital expenditures to be between 130 million and 150 million for the full year. During the quarter, we repurchased 200,000 shares for $36 million and bought approximately another 135,000 shares so far in the 4th quarter. Commenting on our outlook for the next quarter, 3rd quarter book to bill remained above 1. We expect stable demand in North America and Europe and continue to see growth opportunities in welding and high-power cutting in North America and Europe, foil cutting and welding applications for EV battery production across many geographies as well as opportunities in solar cell manufacturing, medical procedures, and advanced applications. We also see lightWELD sales continue to gain traction. However, sales in China will be down sequentially in the 4th quarter due to soft demand in cutting applications, uncertainty due to supply chain issues and power outages that may impact demand for our products as well as ongoing competitive pressures. For the 4th quarter of 2021, IPG expects revenue of 330 million to 360 million. The Company expects the 4th quarter tax rate to be approximately 25% excluding any discrete items. IPG anticipates delivering earnings per diluted share in the range of $1 to $1.30 with approximately 54 million diluted shares outstanding. I would like to remind you the financial guidance provided this quarter continues to be subject to greater risk and uncertainty given the COVID-19 pandemic and its associated impacts to the global business environment, supply chain, public health requirements, and government mandates. Please refer to the Safe Harbor passage of today's earnings press release for more details on risks and uncertainties associated with our forward-looking statements. And with that, we'll be happy to take your questions.