2014 - IPG Photonics Corporation

World Leadership in High Power Fiber Lasers
IPG Photonics Corporation
The Fiber Laser Company™
(NASDAQ: IPGP)
Investor Presentation
Needham & Co. Growth Conference
January 12th, 2016
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
 YTD 2015 (thru Q3) sales of $678 million; YOY growth of 20%
 $3.40 diluted EPS; up 25% 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%
$All Lasers
Fiber Lasers
2014
All Lasers
Fiber Lasers
2019
2019
Forecast
Forecast
Materials Processing
Advanced Applications
Medical
____________________
Source: Laser Focus World, Industrial Laser Solutions, Strategies Unlimited, Optech Consulting and IPGP estimates.
5
Materials Processing – Diverse End Uses and Customers
Automotive
General Manufacturing
Heavy Industry
Oil & Gas
Shipbuilding
Nuclear
Construction
Aerospace
Shipbuilding
Semi/
Electronics
Displays
Consumer
6
Materials Processing Laser Market
Opportunity for Continued Fiber Laser Market
Share Gain is Significant
(US$ 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%
Welding
Opportunity potentially
much more
significant
Transitions in Welding – Medium and Long Term
FUTURE
CURRENT
Limited Materials
Niche Welding
Applications
Diverse Materials
Diverse Industries
Automotive
Aerospace
Construction
Heavy
Equipment
Railways
Shipbuilding
Transportation
& Storage
High Strength
Steel
Aluminum
Titanium
Alloys
Thick
Materials
Diverse Products
Aircraft
Autos
Bridges
Buildings
Pipelines
Rails
Railcars
Ships
Storage Tanks
Trucks
In many instances strength of the laser weld > welded material
Decreasing cost of laser welding, new laser welding technologies, know-how,
software & algorithms
9
A Diverse Mix with Year-over-Year Growth
IPG Sales by Product Lines
($US mm)
$450
$426.0
$400
$381.5
$344.1
$350
$300
$250
$200
$150
$100
$134.9
$131.4
$97.0
$79.7 $75.5
$53.3
$50
$13.8
$34.9 $45.6
$13.3 $10.2
$21.5
$0
Pulsed
High-Power
Medium-Power
2013
2014
YTD 2015
10
Low-Power
QCW
Acceptance Drives High-Power Growth
2010 – 2014 Total Units Sold CAGR: 15%
2010 – 2014 KW Power Sold CAGR: 58%
30,000
24,800
25,000
Units Sold
20,900
20,000
15,000
21,100
17,700
14,000
10,100
10,000
7,300
3,500
5,000
1,600
4,900
KW
KW
KW
KW
0
KW
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
11
2014
KW Power Sold
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
 2015 – total chip production was > 5 million units
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)
12
2014
Annual cost decrease %
% Change in Packaged Diode Cost
4,500,000
Recent & New Product Introductions
 Expand addressable market and enhance future growth opportunities by
addressing new application and customer specific requirements
CURRENT
 Marking &
Engraving
 Cutting
 Welding
 Fine
Processing
 Additive
Manufacturing
FUTURE
 Brazing
 Drilling
 Welding of Alloys and Specialty
Materials
 Cladding & Deposition
 Ablation
 Display & Imaging
 3D-Cinema
 Entertainment and Projection




Micro-processing
Medical Devices
Bio-Medical
Sensing & LIDAR
13
Recent & New Product Introductions - Beam Delivery Products
BEAM
SWITCHES
Shutter
Coupler
CUTTING HEADS
High-Power
Welding
Heads
Advance
Welding
Modules
SCANNING
HEADS
Manual &
Motorized
Cutting
Heads
Highest Power Handling > 100kW
Fast Switch Time < 50usec
Energy or Time Share Options
•
•
Highest Power Handling > 100kW
Plug and Play with all IPG Lasers
•
•
Highest Power Handling > 50kW
Modules for Advanced Welding:
Multi-Channel
HIGH-POWER
COLLIMATORS
WELDING
HEADS
•
•
•
Micro-Cutting
Heads
Seam Tracking, Wobble, Dual Spot, etc.
Zoom
Collimator
•
•
•
High-Power
•
Scanning
Integrated
Marker
Mid-Power
Scanning
Highest Power Handling > 12kW
Advance Modules for Cutting
Integrated Solutions
Range of applications from lowpower marking to very high-power
welding
 Expands total available market, simplifies customer supply chain & improves
customer experience & results
14
Recent & New Product Introductions – Trifocal Laser
Brazing
OBJECTIVES
 Reliable brazing process
Laser
Spot
 Increased brazing speed
 High quality seam
appearance
 Multi-spot technology
Laser
Spot
 Inline cleaning process
ADVANTAGES
Laser
Spot
 Cleaning and joining in one step
 Reduction of manual cleaning effort, automated process
 Improved reproducibility
 Maximum joint strength
 Increased brazing speed
 Improved joint appearance: straight seam borders,
smooth surface, no spatter, control of brazing temperature
 Minimized heat effects on the assembly
 Minimized cost
15
Recent & New Product Introductions – In-Field Rotational
Welding System for Large Diameter Pipes & Oil Well Casing
10-KW Fiber
Laser
Power Supply
Rotational Welding Head
Chiller LC340
16
Systems
 New system platforms offering specific laser and beam delivery tailored
to specific applications
 Small format cutting system, multi purpose welding system and
micromachining systems
Small format cutting
machine
Standard platform system
for welding, cutting & drilling
17
Micromachining systems
with micron accuracy
Recent & New Product Introductions - Other Macro-Systems
2D Cutting
Welding cells for thick section
Aluminum & Titanium alloys
Pipe Cutting
Hybrid Welding systems for
thick section metal alloys
18
5D Cutting
Laser cladding cells
Recent & New Product Introductions –
5-Axis Pipe Welding System
 Multi-axis high power
fiber laser pipe
welding system
 First system will be
delivered in Q1 2016
 Large application area
with zero penetration
by lasers today
19
New Product Introductions - Picosecond
 Ready for introduction
 >$130M annual industrial picosecond IR laser
market opportunity

Two significant players

Nine or more niche/scientific players
 Applications: Sapphire scribing (LED)/cutting (watch glass),
high strength glass cutting (smartphone/tablet), thin film
ablation (display/electronics), drilling & dark marking
 Glass welding for hermetic flat panel display is a high
potential growth area
 Market Drivers: High Pulse Energy, High Repetition Rate at Low Acquisition and
Low Maintenance Cost
 “Six Figure” prices and high service costs suppress market growth
 High (>50W) Power IR sources command between $1.5K - $3K per Watt
 Trend is to compact (<10W) entrants sell in $70K range
20
New Product Introductions – UV Lasers & Marking Module
 Low power UV Lasers ready for introduction
 > $110 million estimated market opportunity
 UV Marking for white plastics and cabling
 Laser marking module with 2-axis scanning integrated with
IPG UV laser
 IPG’s Complete UV Marking Module Provides Ease-ofIntegration, Performance and Reliability to Integrators and OEMs
21
Other Applications Provide Potential Additional Longer
Term Growth Opportunities
(US$ 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 fiber laser products.
22
____________________
Source: Strategies Unlimited, IPGP estimate of potentially addressable market.
Laser Luminaire Project
 Major players in cinema industry have embarked on upgrading cinema
image quality and overall moviegoers experience
 Emerging transition of cinema projectors from Xenon Bulb to laser
luminaires presents IPG with an opportunity to enter market with ~$200M
annualized revenue potential
 Unique $/W merit figure for IPG high power fiber lasers matches the
projected “top down” laser adoption scenario
 IPG high power lasers platform and Red and Green laser technologies
enable leveraging IPG platform commonality to minimize IPG initial
investments required to enter this market
 Significant interest from leaders in cinema projectors and high end movie
theater operators
23
Cinema Image Quality: Current Status & Trends
Xenon Bulb Limitations
Laser Advantages
Up to 100k:1 dynamic
range vs. current 2k:1
Dynamic Range
>4X Brighter 3D image
(in 35mm format)
Brightness in 3D
Xe Bulb & Film
Wider color gamut
(life-like colors)
Color Gamut
High resolution
(same for Xenon bulb and
laser)
Resolution
24
Cinema Market Segmentation: $2.4B IPG Aggregate TAM Potential
(over 8-10 Years)
Projected Top-Down Laser Luminaire
Market Adoption
Large Screens
Primarily 2D, some
3D capable
Fiber Lasers or
diodes
Very Large
Screens 2D
and 3D
Potential Laser Strength
Segments
3D Ultra
Premium
Screen
Count
TAM over 810 years
Ultra-Premium
IMAX, Dolby, etc.
Mostly 3D
2,000
$200M$400M
Very Large Screens
2D and 3D
5,000
$250M$450M
Large Screens
10,000
$300M$600M
Medium Screens
38,000
$425M$950M
Small and Very
Small Screens
80,000
N/A
~135,000*
$1.2B to
$2.4B**
Segment
Medium Screens, Mostly 2D
Small and Very Small Screens
(“mom and pop” cinema shops, most in
emerging markets)
Early laser projectors since 2000s; niche markets  flight
simulators, planetariums, museums. First commercial laser
cinema projectors entered market in H2 ‘14. Bulk of transition is
projected from 2016 through 2025.
25
**Revenue opportunity is exclusive of service
New Platforms for Laser Medicine Based on IPG’s Fiber, Hybrid
Fiber Laser and Diode Sources



IPG Medical develops and manufactures lasers and laser-based medical systems:

FDA registered manufacturer (2016)

ISO 13485 (2016)
Main advantages:

High efficacy and safety of treatment due to optimum wavelengths and power parameters

Compact and ultrareliable package

Low cost of equipment and service
Dentistry:


New super pulse lasers for existing and new dental applications in collaboration with one
of the leaders in the market
Urology:

New super pulse fiber laser for endoscopic fragmentation of urethral, ureteral, bladder and
renal calculi, fragmentation of kidney calculi and surgery of benign prostatic hyperplasia
26
IPG’s Defensible Laser Position
Vertical
Integrated
Business
Model
Strong IP
Portfolio
Manufacturing
Scale
27
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
28
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
29
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
30
Vertical Integration Drives Significant Benefits
31
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
32
World Leadership in High Power Fiber Lasers
Financial Overview
www.ipgphotonics.com
Financial Highlights
Investment Highlights
 YTD 2014 – YTD 2015 Revenue growth ~20%
 27% CAGR from 2010 to 2014
 Highly diversified revenue stream and business model
 Customers, powers, geographies, applications
 Vertically integrated model driving gross margin
 High return on R&D and SG&A drives strong operating margins
 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
34
Sales and Gross Margin Growth
Gross Margin(1)
(%)
Sales ($ mm)
$900
$700
$600
70.0%
$769.8
$800
54.2%
48.9%
$677.6
$648.0
54.2%
$562.5
54.1%
60.0%
54.6%
52.5%
50.0%
$474.5
$500
40.0%
$400
30.0%
$299.3
$300
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 $3.9mm for
2010, 2011, 2012, 2013, 2014 and YTD 2015, respectively.
35
YTD 2015
Gross Margin
Operating Leverage Improvement
Operating Margin(1)
(%)
Sales & Operating
Income(1) ($mm)
$900
$769.8
$800
$700
37.1%
$600
37.0%
38.2%
(2)40.0%
36.9%
33.7%
30.0%
26.9%
$299.3
$283.8
$300
$175.5
$200
$100
$677.6
$648.0
$562.5
$474.5
$500
$400
50.0%
$208.9
$218.1
20.0%
$259.0
10.0%
$80.4
$0
0.0%
2010
2011
2012
Revenue ($mm)
2013
2014
Operating Income ($mm)
____________________
(1) Operating income includes stock-based compensation of $3.2mm, $8.0mm, $8.6mm, $11.7mm, $15.2mm and $13.9mm for
2010, 2011, 2012, 2013, 2014 and YTD 2015, respectively.
(2) YTD 2015 operating margin includes FX gains of $0.5mm .
36
YTD 2015
Operating Margin
Strong Cash and Liquidity Position
($ in thousands)
As of December 31, 2014
As of September 30, 2015
$522,150
$651,220
$1,210,887
$1,408,206
$2,631
$248
$33,000
$20,167
$1,046,561
$1,214,658
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
37
Investment Highlights
The technology leader and most profitable
company in the rapidly growing fiber laser market
 Expanding $4.7 billion opportunity for all lasers
 Approximate average annual growth rate of 6%
 Recognized leader in the rapidly growing fiber laser market
 27% CAGR from 2010 to 2014
 19% growth from 2013 to 2014
 Significant competitive advantages




First mover advantage
Performance, product range and reliability
Lowest cost (vertically integrated model)
Strong IP position
 Vertical integration and direct sales model drives
industry-leading margins (54.1% GM in FY 2014)
 Broad geographies, end markets and applications
 Asia & Australia 52%, Europe 33%, North & South America 15%
38
World Leadership in High Power Fiber Lasers
Appendix
www.ipgphotonics.com
Comparison: Cutting with Fiber & CO2 Lasers
Faster Cutting Speed
+150%
+130%
3 kW Fiber
4 kW CO2
+110%
0.5 mm
1 mm
GALVANIZED STAINLESS
STEEL
2 mm
ZINC
COATED
+50%
3 mm
STEEL
5 mm
COPPER
5 mm
STAINLESS
STEEL
18 mm
STEEL
 Fiber’s higher absorption and
excellent beam quality
enable:
 Faster cutting speed
with less power
 Processing of a wider
variety of materials
Lower Processing Costs
 Improved productivity and
significantly less energy
consumption = lower cost
per part
-55%
3kW Fiber
Energy
Maintenance
____________________
Source: Salvagnini
4kW CO2
Consumables
Compressed Air
Cutting Gas
Laser Gas
40
Additive Manufacturing (3D Printing)
Total Plastics & Metals
3D Printer Forecast
($ 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
41
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 > $800
million per year (2015 Air Force LCMC)

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
42