Optical IPO: Highlights from IPG Photonics' S-1 Filing

by: Evelyn Rubin

Highlights from high performance laser and amplifier developer IPG Photonics' IPO filing. All excerpts are taken from the company's S-1 filing. Note that the company filed for an IPO in December 2000, and withdrew its filing in June of 2001. At the time, the company was focused almost entirely on the communications market, and has subsequently recreated itself to be a more general supplier of lasers.

Proposed Ticker: (NASDAQ:IPGP)

Underwriters: Merrill Lynch, Lehman Brothers, Needham, Jefferies, Thomas Weisel

Maximum Offering:
$130 million

Business Overview:

We are the leading developer and manufacturer of a broad line of high-performance fiber lasers and amplifiers for diverse applications in numerous markets. Since our founding in 1990, we have pioneered the development and commercialization of optical fiber-based lasers. Fiber lasers are a new generation of lasers that combine the advantages of semiconductor diodes, such as their long life and high efficiency, with the high amplification and precise beam qualities of specialty optical fibers to deliver superior performance, reliability and usability at a lower total cost of ownership compared to conventional lasers. Our products are displacing traditional lasers in many current applications and enabling new applications for lasers. Our vertically integrated operations allow us to rapidly develop and integrate advanced products, protect our proprietary technology and ensure access to critical components while reducing manufacturing costs.

Financial Highlights: The bulk of the company's sales are from fiber lasers and amplifiers, with additional revenues from diode lasers, communications systems and complementary products.Net sales grew from 2002 to 2005 at a CAGR of 63% from $22.2 million to $96.4 million. For the first six month of the year, net sales grew 56% over 2005 to $64.9 million. Gross margins have grown from (14.4)% in 2003 to 30.4% in 2004 and 35.2% in 2005. In 2003, the company recorded a net loss of $28 million; for 2004, net income was $2 million and 2005 $7.4 million. For the first six months of the year, net income grew from $2.1 million in 2005 to $6.1 million in 2006.

As of the end of June, the company had $11 million in the bank, and $24.3 million of long term debt.

Use of Proceeds: $22 million to repurchase Series B warrants, approximately $16 million to repay various series of debt and the remainder for general corporate purposes, including building out manufacturing capacity.

Competition: The company lists competitors in two main categories:

  • Communications Market: high-power fiber amplifiers and DWDM systems including Avanex Corporation (AVNX), Bookham (BKHM), the Scientific-Atlanta division of Cisco (NASDAQ:CSCO), Emcore (NASDAQ:EMKR), JDS Uniphase (JDSU).
  • Materials Processing Market: Manufacturers of high-power conventional CO2 and solid-state lasers including Lasag, Rofin-Sinar Technologies (NASDAQ:RSTI), and Trumpf Inc.; makers of mid and low-power conventional CO2 and solid-state lasers including Coherent (NASDAQ:COHR), GSI Group (GSIG) and Newport Corporation (NASDAQ:NEWP); fiber laser makers including Keopsys (Denmark) and Mitsubishi Cable Industries.
  • Management: A father and son team manage the company as CEO and VP R&D:

    Valentin P. Gapontsev, Ph.D., founded IPG in 1990 and has been our Chief Executive Officer and Chairman of our Board of Directors since our inception. Prior to that time, he served as senior scientist in laser material physics and head of the laboratory at the Soviet Academy of Science’s Institute of Radio Engineering and Electronics in Moscow. He has over thirty years of academic research experience in the fields of solid state laser materials, laser spectroscopy and non-radiative energy transfer between rare earth ions and is the author of many scientific publications and several international patents. Dr. Gapontsev holds a Ph.D. in Physics from the Moscow Institute of Physics and Technology. In 2006, he was awarded the Ernst & Young® Entrepreneur of the Year Award for Industrial Products and Services in New England. He is the father of Denis Gapontsev.

    In 2005, the CEO took home, on top of his $383k salary, a bonus in the order of $600k including a one-time $369k 'loyalty bonus'.

    Ownership: CEO V. Gapontsev currently holds 62.6% of the company directly; his son Dennis holds an additional 5.3%. JDSU holds 5.5% of the company.