2014 - IPG Photonics

World Leadership in High Power Fiber Lasers
IPG Photonics Corporation
The Fiber Laser Company™
(NASDAQ: IPGP)
2015 Bank of America Merrill Lynch
Global Technology Conference
June 2015
www.ipgphotonics.com
Safe Harbor Statement
The statements in this presentation that relate to future plans, market forecasts,
events or performance are forward-looking statements. These statements involve
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; IPG's ability to
penetrate new applications for fiber lasers and increase market share; the rate of
acceptance and penetration of IPG's products; inability to manage risks associated
with international customers and operations; 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; intellectual property infringement claims and litigation; interruption in
supply of key components; manufacturing risks; government regulations and trade
sanctions; and other risks identified in the Company's SEC filings. Readers are
encouraged to refer to the risk factors described in the Company's Annual Report on
Form 10-K and its periodic 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. The Company
undertakes no obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
2
IPG Overview
 Global leader in industrial fiber lasers
 FY 2014 sales of $770 million; YOY growth of 19%
 $3.79 diluted EPS; up 28% YOY
 Growing acceptance of fiber lasers replacing traditional lasers
 Products are sold to OEMs, systems integrators and end
users for use in many industries
 Global operations with over 3,000 employees
3
Investment Highlights
The technology leader and most profitable
company in the rapidly growing fiber laser market
 Expanding $4.7 billion opportunity for all lasers
 Approximate average annual growth rate of 6%
 Recognized leader in the rapidly growing fiber laser market
 Estimated 15% CAGR from 2015 to 2019
 Significant competitive advantages




First mover advantage
Performance, product range and reliability
Lowest cost (vertically integrated model)
Strong IP position
 Vertical integration and direct sales model drives
industry-leading margins (54.1% GM in FY 2014)
 Broad geographies, end markets and applications
 Asia & Australia 52%, Europe 33%, North & South America 15%
4
Rapidly Taking Share in Large, Existing Laser Markets
(000)
$7,000
$6,300
$6,000
Fiber, 23%
$5,000
2014
$4,670
$4,000
$3,000
$2,200
$2,000
$1,090
$1,000
Fiber,
35%
$All Lasers
Fiber Lasers
2014
All Lasers
Fiber Lasers
2019
2019
Forecast
Forecast
Materials Processing
Advanced Applications
Medical
____________________
Source: Laser Focus World, Industrial Laser Solutions, Strategies Unlimited, Optech Consulting and IPGP estimates.
5
Materials Processing – Diverse End Uses and Customers
Automotive
General
Manufacturing
Heavy Industry
Aerospace
Semi/
Electronics
Consumer
6
Materials Processing Laser Market
Opportunity for Continued Fiber Laser Market
Share Gain is Significant
(US$ mm)
$2,000
$1,850
$1,800
$1,600
$1,420
$1,400
$1,250
$1,200
$1,000
$800
$600
$430
$400
$590
$580
$560
$550
$400
$400
$390
$310
$280
$150 *
$110
$200
$30
$-
2014
2019
High Power
2014
2019
2014
Marking
2019
Fine Processing
All Lasers
Fiber Lasers
2014
2019
Addressable Micro Processing
(Excludes lithography)
*2019 Micro Processing is IPGP estimate
based on fiber laser potential to penetrate
25% of overall market.
____________________
Source: Laser Focus World, Industrial Laser Solutions, Strategies Unlimited, Optech Consulting and IPGP estimates.
7
Fiber Laser Penetration of High Power Applications
$1,600
80%
$1,400
70%
$1,200
60%
$440
$1,000
50%
$800
40%
$710
$600
30%
$970
$400
$160
$160
$410
$200
$280
$140
$2014
2019
Fiber Lasers
10%
0%
2014
Cutting
(US$ mm)
20%
2019
Welding
All Other Lasers
Fiber Market Share
____________________
Source: Laser Focus World, Industrial Laser Solutions, Strategies Unlimited, Optech Consulting and IPGP estimates.
Cutting Applications
Flat Sheet
Cutting
Welding Applications
Power Train
3%
16%
Tube Welding
27%
Tube Cutting
3D Cutting
81%
Car Body Scanner
Welding
Car Body Seam
Welding / Brazing
Other
8
7%
9%
17%
40%
Other Applications Provide Potential Additional Longer
Term Growth Opportunities
(US$ mm)
Displays & Light Shows
$140
$160
$60
$730
Sensors, LIDAR &
Instruments
Mid-IR Spectroscopy
$320
2014
R&D
Defense
$340
Medical
Displays & Light Shows
Sensors, LIDAR &
Instruments
$510
Mid-IR Spectroscopy
$1,120
$210
$100
$340
$440
R&D
2019
Defense
Medical
Fiber participation is relatively low in these other applications. Longer term opportunity will depend
on successful product development and market acceptance of these products.
____________________
Source: Strategies Unlimited, IPG estimate of potentially addressable market
9
A Diverse Mix with Year-over-Year Growth
IPG Sales by Product Lines
($US mm)
$450
$426.0
$400
$344.1
$350
$300
$250
$200
$150
$134.9
$131.4
$114.3
$100
$79.7
$53.3
$50
$29.9
$21.9
$0
Pulsed
High-Power
Medium-Power
2013
2014
YTD 2015
10
$13.8
$34.9
$13.3
$21.5
$10.0
$3.5
Low-Power
QCW
Comparison: Cutting with Fiber & CO2 Lasers
Faster Cutting Speed
+150%
+130%
3 kW Fiber
4 kW CO2
+110%
0.5 mm
1 mm
GALVANIZED STAINLESS
STEEL
2 mm
ZINC
COATED
+50%
3 mm
STEEL
5 mm
COPPER
5 mm
STAINLESS
STEEL
18 mm
STEEL
 Fiber’s higher absorption and
excellent beam quality
enable:
 Faster cutting speed
with less power
 Processing of a wider
variety of materials
Lower Processing Costs
 Improved productivity and
significantly less energy
consumption = lower cost
per part
-55%
3kW Fiber
Energy
Maintenance
____________________
Source: Salvagnini
4kW CO2
Consumables
Compressed Air
Cutting Gas
Laser Gas
11
New Product Introductions
 New spectral ranges (wavelengths) and ultra-short pulse
durations

U.V. & higher power Green

Nano, Pico & Femto-Second Lasers at different wavelengths with high peak powers

Mid Infra-Red
 Improved reliability
 Improved electrical efficiency

Eco Laser for material processing with electrical efficiency greater than 40%
 New optical delivery systems

Welding & Cutting Heads

Compact Switches

Couplers

Collimators
 Macro-systems Materials Processing
Opens up new applications and revenue streams starting for 2014 and longer term
12
Adoption of High Strength Steel
1000
170
800
157
Kt of Steel
146
135
600
120
107
99
92
85
China & Korea
70
North America
400
200
415
477
525
577
635
Europe
0
2012
2013
2014
2015
2016
Copyright Arcelor Mittal 24.01.2011

Adoption of HSS drives laser sales for cutting and welding application due to productivity
gains and process improvement
 HSS wears out traditional machine tool dies used in traditional stamping processes
 Weld quality and strength is improved with fiber laser as compared to traditional
welding technologies
13
Additive Manufacturing (3D Printing)
Total Plastics & Metals
3D Printer Forecast
($ in billions)
$12
$10
CAGR: ~23%
$8
Airbus A-380 3D printed
pneumatic manifold
$6
$4
$2
$0
2013
2015
2017
2019
2020
Source: Wohler’s Report

Selective Laser Melting or Sintering (SLM/SLS) of metals and metallic alloys are the fastest
growth segments in additive manufacturing (AM) industry

Previous growth in this market has come from plastics whereas metal processes are starting to gain significant traction

Fiber lasers are a critical component of SLS/SLM additive manufacturing equipment with IPG
having achieved strong market position for metal processes

New cost-effective IPG high power green lasers address shortcomings of current processes
(surface roughness, parts tolerances) critical for aerospace and other industries

Move towards higher powers – up to 10-kilowatts – will drive market size
14
Laser Ablation for Paint Stripping and Cleaning
Environmental Benefits:
Solid waste (lb.) generated
Per 1 lb. on paint stripped
Plus 165 lbs of Liquid Waste
10

Ablates paint from the surface

Vacuum removes 99.9% of residue

Does not require chemicals which produce toxic sludge or
plastic beads

Manual paint stripping requires:
5
0
Media Blast*
Solvent*
Laser
Ablation**

F-16 4 people

16 to 18 people for a C-130

Dept. of Defense current paint stripping costs > $1.2
billion per year (2010 DOD data)

Many applications outside of aerospace:
Paint Stripping Method


Cleaning of molds, casts, tanks, pipes & other
surfaces
New generation of Nano-Second Pulsed laser with
average power up to 4 kilowatt

Pulsed product limits thermal damage to cleaned
surface
Sources:
*Potential alternative report for the portable handheld laser small area
supplemental coating removal system, prepared for USAF by SAIC, Feb. 2001
** Penn State Applied Research laboratory, Automated Rotor Blade Stripping
System (ARBSS) study for the USN, 2005
Source: AirforceTimes
15
IPG’s Defensible Laser Position
Vertical
Integrated
Business
Model
Strong IP
Portfolio
Manufacturing
Scale
16
Diode Production a Significant Advantage
High volume production levels of pump diodes, proprietary processes
and use of unique chip and package designs allows IPG to increase
yields, lower component costs and assure high quality
Decrease in Packaged Diode Cost/Watt
Consistently Averages 20%
120%
Tested Chips Produced
4,000,000
100%
3,500,000
80%
3,000,000
60%
2,500,000
40%
2,000,000
20%
1,500,000
0%
1,000,000
-20%
500,000
-
-40%
2009
Tested Chip Production
____________________
Source: IPGP estimates.
2010
2011
2012
2013
Cost/watt % decrease (base yr 2009)
17
2014
Annual cost decrease %
% Change in Packaged Diode Cost
4,500,000
Global Sales and Production Capabilities
HQ, R&D, Mfg.
Sales & Service
R&D, Mfg.,
Sales & Service
Sales & Support
200
Sales and Marketing Headcount
10
Application
Centers
worldwide
150
100
50
0
2009
2010
2011
2012
____________________
Please note: IPG has 4 offices in China and 2 offices in Japan. Map excludes all rep offices
18
2013
2014
Leveraged Sales Model Maximizes Market Reach
Direct Sales
End User
End User
End User
OEM
End User
End User
Direct Sales
End User
OEM
End User
Factory 1
Large Manuf.
Factory 2
Factory 3
Direct Sales
Integrator
End User
Representatives
End User
Three Distribution Channels
OEMs/Integrators
Direct Sales
19
Representatives
Unique Technology Driving Market Adoption
Fiber Laser
Diodes
High Power Fiber Laser Assembly
Fiber
Couplers Active Fibers Bragg Gratings Laser
Output
Scalable kilowatt
laser modules
Modular
Scalable
Efficient
Compact
Proprietary Design and Components
20
Vertical Integration Drives Significant Benefits
21
Vertical Integration
Semiconductor Wafer Growth
Laser diode
Packaging
Diode Processing, Chip Mounting
& Burn-In
Up to 120-watts of
power
Fab Operations
Optical Preform
Silica based glass
Optical Delivery
Systems: Welding
& Cutting Heads,
Scanners, process
fibers
MCVD method
Dope with rare earth ions
Deep in technology
Deep in experience
Fiber Draw
Draw towers
Final Assembly
Components
Coupling
Modules
Final burn in
Up to 2000 Watts
Bragg Gratings
Isolators
Shipment
Couplers
Fiber Block
22
World Leadership in High Power Fiber Lasers
Financial Overview
www.ipgphotonics.com
Financial Highlights
 2013 – 2014 Revenue growth ~19%
Investment Highlights
 27% CAGR from 2010 to 2014
 Highly diversified revenue stream and business model
 Customers, powers, geographies, applications
 Vertically integrated model driving gross margin
 Significant operating leverage
 Strategically focused and efficient R&D that creates value
 Track record of profitability and financial discipline
 Strong return on invested capital (excluding cash)
 39% in 2014
24
Sales and Gross Margin Growth
Gross Margin
(%)(1)
Sales ($ mm)
70.0%
$769.8
$800
60.0%
$700
54.2%
54.2%
$648.0
48.9%
52.5%
$562.5
$600
54.1% 54.2%
50.0%
$474.5
$500
40.0%
$400
30.0%
$299.3
$300
$199.0
20.0%
$200
10.0%
$100
$0
0.0%
2010
2011
2012
2013
2014
Revenue ($mm)
____________________
(1) Gross margin includes stock-based compensation of $0.7mm, $1.7mm, $2.2mm, $3.2mm, $4.2mm and $1.2mm for
2010, 2011, 2012, 2013, 2014 and YTD 2015, respectively.
25
YTD 2015
Gross Margin
Operating Leverage Improvement
Operating Margin(1)
(%)
Sales & Operating
Income(1) ($mm)
45.0%
$769.8
$800
41.2%(2)
$700
37.0%
37.1%
$648.0
$562.5
$600
36.9%
(36.8% excluding
FX gains)
35.0%
33.7%
30.0%
$474.5
$500
25.0%
26.9%
$400
20.0%
$299.3
$283.8
$300
$175.5
$200
$100
40.0%
15.0%
$218.1
$208.9
$199.0
10.0%
$82.0
$80.4
$0
5.0%
0.0%
2010
2011
2012
2013
2014
Revenue ($mm)
Operating Income ($mm)
____________________
(1) Operating income includes stock-based compensation of $3.2mm, $8.0mm, $8.6mm, $11.7mm, $15.2mm and $4.1mm for
2010, 2011, 2012, 2013, 2014 and YTD 2015, respectively.
(2) YTD 2015 operating margin includes FX gains of $8.7mm
26
YTD 2015
Operating Margin
Acceptance Drives High-Power Growth
2010 – 2014 Total Units Sold CAGR: 15%
2010 – 2014 KW Power Sold CAGR: 58%
30,000
24,847
25,000
Units Sold
20,938
20,000
15,000
21,106
17,686
13,998
10,138
10,000
7,278
3,467
5,000
4,935
1,636
0
2010
____________________
2011
2012
Note: KiloWatt of power sold only represents medium, QCW and high-power sales.
Units excludes telecom components and component PLDs
2013
Total Units Sold
27
2014
KW Power Sold
Strong Cash and Liquidity Position
($ in thousands)
As of December 31, 2014
As of March 31, 2015
$522,150
$541,474
$1,210,887
$1,249,260
$2,631
$523
$33,000
$32,167
$1,046,561
$1,080,519
Cash and cash equivalents
Total assets
Revolving line-of-credit facilities
Long-term debt, including current portion
Stockholders' equity
 Long-term CapEx target <10% of revenue
 Investments in product and manufacturing technology development,
capacity expansion and sales and service infrastructure
28
Investment Highlights
The technology leader and most profitable
company in the rapidly growing fiber laser market
 Expanding $4.7 billion opportunity for all lasers
 Approximate average annual growth rate of 6%
 Recognized leader in the rapidly growing fiber laser market
 27% CAGR from 2010 to 2014
 19% growth from 2013 to 2014
 Significant competitive advantages




First mover advantage
Performance, product range and reliability
Lowest cost (vertically integrated model)
Strong IP position
 Vertical integration and direct sales model drives
industry-leading margins (54.1% GM in FY 2014)
 Broad geographies, end markets and applications
 Asia & Australia 52%, Europe 33%, North & South America 15%
29