IPG Photonics (NASDAQ:IPGP) Beats Q4 Sales Targets But Quarterly Guidance Underwhelms

Radek Strnad /
2023/02/14 8:04 am EST

Fiber laser manufacturer IPG Photonics (NASDAQ:IPGP) reported Q4 FY2022 results that beat analyst expectations, with revenue down 8.49% year on year to $333.5 million. However, guidance for the next quarter was less impressive, coming in at $325 million at the midpoint, being 4.14% below analyst estimates. IPG Photonics made a GAAP loss of $92.9 million, down on its profit of $65.3 million, in the same quarter last year.

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IPG Photonics (IPGP) Q4 FY2022 Highlights:

  • Revenue: $333.5 million vs analyst estimates of $317.8 million (4.95% beat)
  • EPS: -$1.91 vs analyst estimates of $0.90 (-$2.81 miss)
  • Adjusted EPS: $1.08 vs analyst estimates of $0.93 (considers inventory related charges and impairment of long-lived assets in Russia)
  • Revenue guidance for Q1 2023 is $325 million at the midpoint, below analyst estimates of $339 million
  • Free cash flow was negative $69.4 million, down from positive free cash flow of $51.2 million in previous quarter
  • Inventory Days Outstanding: 170, down from 255 previous quarter
  • Gross Margin (GAAP): 18.2%, down from 45.5% same quarter last year

Both a designer and manufacturer of most of its products, IPG Photonics (NASDAQ:IPGP) is a provider of high-performance fiber lasers that are used for cutting, welding and processing raw materials.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

IPG Photonics's revenue growth over the last three years has been unimpressive, averaging 4.21% annually. Last year the quarterly revenue declined from $364.5 million to $333.5 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

IPG Photonics Total Revenue

Despite IPG Photonics revenues beating analyst estimates, this was still a slow quarter with a 8.49% revenue decline.

IPG Photonics's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 12.2% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 0.87%.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

IPG Photonics Inventory Days Outstanding

This quarter, IPG Photonics’s inventory days came in at 170, 40 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from IPG Photonics's Q4 Results

With a market capitalization of $5.48 billion IPG Photonics is among smaller companies, but its more than $1.18 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by the strong improvements in IPG Photonics’s inventory levels. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was less good to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from IPG Photonics. The company is flat on the results and currently trades at $112.6 per share.

IPG Photonics may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.