IPG Photonics Reports 37 Percent Revenue Growth for Second Quarter 2007

IPG Photonics Corporation (Nasdaq: IPGP), the global leader in high-performance fiber lasers and amplifiers for diverse applications, today reported that revenues for the second quarter of 2007 increased by 37% to $44.0 million, up from $32.2 million for the second quarter of 2006. For the first six months of 2007, revenues increased 32% to $85.7 million from $64.9 million in the first six months of 2006. Results were driven primarily by continued strong sales of the Companys fiber lasers used for materials processing applications, which increased by 47% over the second quarter of 2006 to $33.9 million.

Operating income increased 35% to $10.1 million for the second quarter of 2007, up from $7.5 million for the same period in 2006. Net income for the second quarter of 2007 increased 33% to $6.4 million from $4.8 million, and earnings per diluted share increased 17% to $0.14 from $0.12. Operating expenses for the second quarter of 2007 increased by $4.4 million to $10.2 million, or 23% of revenue, compared with 18% in 2006, as a result of the growth in the Companys scale and expenses associated with being a public company.

For the first six months of 2007, operating income increased 41% to $21.2 million, up from $15.0 million for the same period in 2006. Net income increased 67% to $13.0 million from $7.8 million, and earnings per diluted share increased 53% to $0.29 from $0.19.

Three Months EndedSix Months Ended
June 30,June 30,
(In millions, except per share data)20072006% Change20072006% Change
Revenue $ 44.0 $ 32.2 37% $ 85.7 $ 64.9 32%
Gross Margin 46.2% 41.5% 46.3% 39.7%
Operating Income $ 10.1 $ 7.5 35% $ 21.2 $ 15.0 41%
Operating Margin 23.0% 23.3% 24.7% 23.1%

Net Income

$ 6.4 $ 4.8 33% $ 13.0 $ 7.8 67%
Earnings per diluted share $ 0.14 $ 0.12 17% $ 0.29 $ 0.19 53%

There were no adjustments to net income and earnings per share in the second quarter of 2007. For the second quarter of 2006, adjusted net income was $5.1 million and adjusted earnings per diluted share were $0.13. Adjusted net income and adjusted earnings per share for the second quarter of 2006 are non-GAAP measures. Adjusted net income for the second quarter of 2006 excludes a $0.3 million charge related to the change in the fair value of the Companys previously outstanding series B warrants, and adjusted earnings per diluted share excludes additional amounts of $0.5 million in accretion related to preferred stock and $0.6 million related to income attributable to preferred stock. Please refer to the exhibit to this press release for a reconciliation of adjusted net income and adjusted earnings per share to net income and earnings per share, respectively, for 2006.

Cash and cash equivalents were $46.7 million on June 30, 2007, compared to $75.7 million on December 31, 2006, mainly as a result of the repayment of $18.2 million of term debt and capital expenditures of $17.8 million.

Comments on the Second Quarter

IPG continued to displace conventional laser technologies in a growing number of applications and industries, said Dr. Valentin Gapontsev, IPG Photonics Chief Executive Officer. Once again, our operating model delivered improved quarterly financial results. Second quarter growth continued to be driven by increased sales of our high-power fiber lasers in the materials processing market. Our pulsed lasers used for marking applications and our line of low-powered lasers used in medical systems also experienced strong sales gains.

IPG reported good sales growth in China this quarter after we opened our new sales and service center in April," continued Dr. Gapontsev. "Operationally, we continued to build our infrastructure to strengthen our position as the only vertically integrated manufacturer of fiber lasers. Our state-of-the-art, 30,000 square foot semiconductor plant in Massachusetts is now complete and houses the first of several high volume multi-wafer molecular beam epitaxy reactors. We also fully commissioned our new specialty optical fiber plant in Germany, which increases our fiber production capacity and provides us with a new generation of higher performance fibers.

Business Outlook

We are pleased that the marketplace has recognized and responded to the superiority of our fiber laser products. We plan to capitalize on this demand, concluded Dr. Gapontsev.

For the third quarter of 2007, IPG Photonics expects revenues in the range of $44 million to $49 million. The Company anticipates earnings per diluted share in the range of $0.14 to $0.18 based on 45,631,000 common shares, which includes 42,974,000 basic common shares outstanding and 2,657,000 potentially dilutive options at June 30, 2007.

Conference Call Reminder

The Company will hold a conference call to review its financial results and business highlights today, Tuesday, August 7 at 10:00 a.m. ET. You can listen to the live webcast by going to the Companys website at www.ipgphotonics.com prior to the events broadcast. Interested parties unable to listen to the live call may access an archived version of the webcast on IPGs website. To participate, please dial (719) 457-2654 or (888) 208-1812 five minutes prior to the start of the call.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this press release contains non-GAAP financial measures of adjusted net income and adjusted earnings per share for 2006, in each case excluding the impact of the fair value adjustment to the series B warrants and preferred stock accretion. The Company believes that the inclusion of these non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of growth in the Company's core operating results and future prospects, and can also help investors who wish to make comparisons between IPG Photonics and other companies. IPG Photonics management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring its core operating performance and comparing such performance to that of prior periods and to the performance of the Companys competitors. These measures also are used by management in its financial and operating decision-making.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release may be different from, and therefore may not be comparable to, similar measures used by other companies. Although non-GAAP financial measures used in this release exclude the accounting treatment of the fair value adjustment to the series B warrants and preferred stock accretion, these non-GAAP measures should not be relied upon independently, as they do not reflect the impact that these items have on the Companys operating results. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the exhibit to this press release.

About IPG Photonics Corporation

IPG Photonics is a leading global manufacturer of high-performance fiber lasers and amplifiers for diverse applications in numerous markets, such as materials processing, communications, medical, and scientific and research. Founded in 1990, IPG Photonics pioneered the development and commercialization of optical fiber-based lasers, a new generation of lasers that combine the advantages of semiconductor diodes with the high amplification and precise beam qualities of specialty optical fibers. Fiber lasers deliver superior performance, reliability and usability at a lower total cost of ownership compared with conventional lasers, allowing end-users to increase productivity and lower operating costs. For more information on IPG Photonics, please visit www.ipgphotonics.com.

Safe Harbor Statement

Information and statements provided by the Company 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, but not limited to, those relating to increasing demand for the Companys products, growth rates, and displacing existing laser technologies, achieving strong performance in 2007, and the Companys revenue and EPS guidance for the third quarter of 2007. Factors that could cause actual results to differ materially include risks and uncertainties, including risks associated with the Companys ability to penetrate new applications for fiber lasers and increase market share, the rate of acceptance and penetration of IPGs products, effective management of growth, level of fixed costs from its vertical integration, intellectual property infringement claims and litigation, interruption in supply of key components, contract cancellations, manufacturing risks, competitive factors including declining average selling prices, building and expanding field service and support operations, uncertainties pertaining to customer orders, demand for products and services, development of markets for the Company's products and services 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 (filed with the SEC on March 27, 2007) 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 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.

IPGP-G

IPG PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,Six Months Ended June 30,
2007200620072006
(in thousands, except per share data)
NET SALES $ 43,952 $ 32,184 $ 85,705 $ 64,927
COST OF SALES 23,633 18,841 46,055 39,119
GROSS PROFIT 20,319 13,343 39,650 25,808
OPERATING EXPENSES:
Sales and marketing 2,836 1,263 4,745 2,343
Research and development 2,388 1,387 4,517 2,622
General and administrative 4,989 3,154 9,230 5,813
Total operating expenses 10,213 5,804 18,492 10,778
OPERATING INCOME 10,106 7,539 21,158 15,030
OTHER INCOME (EXPENSE), Net:
Interest income (expense), net 117 (354 ) 513 (709 )
Fair value adjustment to Series B Warrants - (357 ) - (2,219 )
Other income (expense), net (8 ) 4 36 12
Total other income (expense) 109 (707 ) 549 (2,916 )
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 10,215 6,832 21,707 12,114
PROVISION FOR INCOME TAXES (3,611 ) (1,939 ) (8,118 ) (3,866 )
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES (216 ) (110 ) (588 ) (398 )
NET INCOME $ 6,388 $ 4,783 $ 13,001 $ 7,850
NET INCOME PER SHARE:
Basic $ 0.15 $ 0.13 $ 0.30 $ 0.22
Diluted $ 0.14 $ 0.12 $ 0.29 $ 0.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 42,974 27,074 42,942 26,923
Diluted 45,631 31,156 45,616 30,908

ADJUSTED EARNINGS PER SHARE*

$ 0.14 $ 0.13 $ 0.29 $ 0.27

ADJUSTED SHARES OUTSTANDING*

45,631 38,663 45,616 38,415

*Please refer to the exhibit to this press release for a reconciliation of adjusted earnings per share to earnings per share, respectively.

IPG PHOTONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,December 31,
20072006
ASSETS(in thousands, except share data)
CURRENT ASSETS:
Cash and cash equivalents $ 46,709 $ 75,667
Accounts receivable, net 26,726 22,353
Inventories, net 52,691 42,162
Income taxes receivable 5,881 80
Prepaid expenses and other current assets 7,914 6,586
Deferred income taxes 8,717 9,591
Total current assets 148,638 156,439
DEFERRED INCOME TAXES 3,506 3,801
PROPERTY, PLANT, AND EQUIPMENT, Net 81,483 67,153
OTHER ASSETS 6,498 5,099
TOTAL $ 240,125 $ 232,492
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Revolving line-of-credit facilities $ 10,732 $ 2,603
Current portion of long-term debt 8,299
Accounts payable 10,788 7,640
Accrued expenses and other liabilities 14,380 13,940
Income taxes payable 1,930 8,289
Total current liabilities 37,830 40,771
DEFERRED INCOME TAXES 4,955 232
LONG-TERM DEBT 20,000 30,068
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS 3,415 2,827
STOCKHOLDERS EQUITY:
Common stock 4 4
Additional paid-in capital 272,326 271,122
Notes receivable from stockholders (23 )
Accumulated deficit (107,391 ) (120,392 )
Accumulated other comprehensive income 8,986 7,883
Total stockholders equity 173,925 158,594
TOTAL $ 240,125 $ 232,492
GAAP TO NON-GAAP RECONCILIATION-NET INCOME AND EARNINGS PER SHARE
June 30,June 30,
RECONCILIATION OF BASIC EPS TO ADJUSTED EPS - FOR THREE MONTHS ENDED2007EPS2006EPS
(in thousands, except for per share data)
Reconciliation of shares used to calculate adjusted EPS
Weighted average basic shares outstanding 42,97427,074
Total common shares issued upon conversion of preferred stock - 9,296
Potentially dilutive options 2,6572,293
Adjusted common equivalent shares outstanding45,63138,663
Net income allocable to common stockholders and basic EPS $ 6,388 $ 0.15 $ 3,637 $ 0.13
Dilutive effect of additional shares on basic EPS (0.01 ) (0.04 )
Accretion of preferred stock - - 518 0.01
Income attributable to preferred stock --6280.02
Net income $ 6,388 $ 0.14 $ 4,783 $ 0.12

Fair value adjustment to series B warrants

--3570.01
Adjusted net income$6,388$0.14$5,140$0.13
June 30,June 30,
RECONCILIATION OF BASIC EPS TO ADJUSTED EPS - FOR SIX MONTHS ENDED2007EPS2006EPS
(in thousands, except for per share data)
Reconciliation of shares used to calculate adjusted EPS
Weighted average basic shares outstanding 42,94226,923
Total common shares issued upon conversion of preferred stock - 9,296
Potentially dilutive options 2,6742,196
Adjusted common equivalent shares outstanding45,61638,415
Net income allocable to common stockholders and basic EPS $ 13,001 $ 0.30 $ 5,811 $ 0.22
Dilutive effect of additional shares on basic EPS $ (0.01 ) $ (0.07 )
Accretion of preferred stock - - 1,036 $ 0.03
Income attributable to preferred stock --1,003$0.03
Net income $ 13,001 $ 0.29 $ 7,850 $ 0.21

Fair value adjustment to series B warrants

--2,219$0.06
Adjusted net income$13,001$0.29$10,069$0.27

Contacts:

IPG Photonics Corporation
Tim Mammen, 508-373-1100
Chief Financial Officer
or
Sharon Merrill Associates, Inc.
David Calusdian, 617-542-5300
Executive Vice President

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