Prospectus Summary
The summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, including our consolidated financial statements and the related notes included elsewhere in this prospectus.
IPG Photonics Corporation We design, manufacture and sell high performance fiber amplifiers, Raman pump lasers and fiber lasers for telecommunications and industrial applications. Our proprietary technology, materials science expertise and vertically integrated manufacturing operations enable us to produce cost- effective, high and low power fiber amplifiers and lasers with substantial power efficiency, improved signal to noise performance, reliability and quality that operate over a wider range of the usable optical spectrum. Our telecommunications products are used in the long-haul, metropolitan and access segments of optical communications networks. Our telecommunications customers include ADC, Agilent, Alcatel, Calient, Corning, Corvis, Hughes Space and Communications, JDS Uniphase, Lucent, Marconi, MIT Lincoln Labs, Nortel, Optical Crossing, Siemens. and TeraBeam Networks. Our industrial products are used for marking, printing, materials processing, micro-machining, optical sensing and measurement, and laboratory and medical equipment. Our industrial customers include Antares Laser, Baasel Scheel Lasergraphics, DaimlerChrysler Aerospace, GSI Lumonics, L.O.T. Oriel, Molecular OptoElectronics, Purup Escofot and Sunx.
Due to rapidly increasing worldwide levels of data, voice and video traffic, telecommunications service providers are expanding their use of fiber optic technologies and seeking to increase the transmission capacity, or bandwidth, of existing fiber networks. Telecommunications service providers first deployed optical communication technology in the long-haul segment, and are now also deploying new fiber optic technologies in the metropolitan and access segments. In each of these segments, the distance that an optical signal can be transmitted is limited by losses in signal strength, or attenuation, caused by absorption and scattering of light in the fiber, as well as by losses to the signal as it passes through optical components in the network, or insertion loss. Prior to the invention of the fiber amplifier, amplification of optical signals could only be accomplished using relatively expensive and inefficient opto-electronic regenerators. Because fiber amplifiers cost- effectively address attenuation and insertion loss, they have contributed significantly to the deployment of optical communications networks.
Fiber optic amplification is commonly achieved through the use of erbium- doped fiber amplifiers, or EDFAs, and Raman pump lasers. EDFAs contain optical fiber that is mixed, or doped, in the manufacturing process with traces of rare earth elements to improve the amplification properties of the fiber. Ryan, Hankin & Kent, or RHK, a leading market research and consulting firm, estimates that revenue from the sale of erbium gain modules, the component of EDFAs in which amplification is achieved, was $641 million in 1999 and will increase to $4.2 billion in 2004, representing a compound annual growth rate of 45.3%. Raman pump lasers are used to turn the transmission fiber itself into an amplifier, a process known as Raman amplification. By amplifying throughout the transmission fiber rather than boosting the signal at one point, Raman amplification results in greater signal integrity. RHK estimates that sales of Raman gain modules will grow from approximately $18.0 million in 2000 to approximately $1.0 billion in 2004, representing a compound annual growth rate of 173.1%.
Our innovative line of customized high and low power amplifiers is designed to meet the specific needs of our telecommunications customers. These products enable the cost-effective deployment of optical communications systems, reducing bottlenecks and increasing bandwidth within each segment of communications networks. For example:
. In the long-haul segment, our fiber amplifiers provide the high power needed for bandwidth-enhancing technologies, such as dense wavelength division multiplexing, or DWDM, by which multiple wavelengths of optical signals are transmitted simultaneously through the same fiber.
. In the access segment, our high power, multiple output fiber amplifiers enable fiber-to-the-curb applications and hybrid cable television networks with many end users.
. In free-space (wireless) optical networks, a subsegment of the access segment, our high power amplifiers automatically adjust power output over a wide dynamic range to overcome atmospheric limitations, such as fog and rain.
. In the metropolitan segment, our low and medium power fiber amplifiers can be widely deployed because of their cost-effectiveness and high reliability.
In addition to telecommunications products, we also provide high power fiber lasers for a variety of industrial applications. Industrial lasers enable manufacturers to cut, mark and measure without physical contact which, in many applications, allows for higher processing speeds. Most industrial lasers in use today are gas or solid state. Our high power fiber lasers offer several benefits compared to these traditional laser technologies, such as higher beam quality and mobility, increased reliability and efficiency, reduced size, maintenance-free operation and lower operating costs.
Our state-of-the-art products are based on our innovative proprietary technology platform. This platform is supported by a team of more than 30 Ph.D.'s over a wide range of disciplines. We have developed a fiber amplification technology that allows us to efficiently use a greater number of diodes in our fiber amplifiers, thereby producing higher output power than achievable through traditional techniques. A key element of this technology is our ability to pump our proprietary single mode fibers with multimode diodes. Our expertise in materials science is the basis for our manufacturing expertise of the specialty fibers we use in our fiber amplifiers and fiber lasers. We believe these proprietary fibers allow us to create fiber amplifiers that can operate over a broader range of the usable optical spectrum than those offered by our competitors. In addition, our simplified product design decreases the number of components used, allowing for a more flexible and cost-effective manufacturing platform.
Our vertically integrated manufacturing operations allow us to better meet the needs of our telecommunications and industrial customers. We design and manufacture a significant majority of the critical specialty components used in our products. We also test and qualify all of our components and assemblies, as well as our finished products, to assure reliability and performance. Our vertical integration enables us to quickly scale our production and maintain high product quality and reliability. We perform our manufacturing, assembly and testing at our facilities in the United States, Germany and Italy, as well as at our affiliate in Russia, and are currently expanding our manufacturing capacity significantly.
Our objective is to be the leading supplier of fiber amplifiers, Raman pump lasers and fiber lasers to developers of optical communications and industrial laser systems. Key elements of our strategy include:
. extending our existing technology leadership;
. expanding and enhancing our existing line of products;
. expanding our manufacturing capacity and reducing costs;
. expanding our sales and marketing efforts;
. providing our customers with a high degree of technical and engineering support for customization; and . acquiring strategic businesses and technologies consistent with our growth strategies.
Corporate Information Our main office is located at 660 Main Street, Sturbridge, Massachusetts 01566 and our telephone number is (508) 347-6800.
The Offering
Common stock offered by IPG Photonics.......... shares Common stock to be outstanding after this offering............... shares Use of proceeds......... For expansion of manufacturing facilities, marketing and distribution activities, research and development activities and repayment of a portion of outstanding indebtedness, working capital and other general corporate purposes, including acquisitions.
Proposed Nasdaq National Market symbol.......... IPGP The number of shares that will be outstanding after this offering is based on the number of shares outstanding as of September 30, 2000 and excludes:
. 2,377,766 shares of common stock issuable upon exercise of options outstanding at September 30, 2000 under our 2000 stock incentive plan, with a weighted-average exercise price of $1.14 per share, 1,352,000 shares issuable upon exercise of options granted subsequent to September 30, 2000 with a weighted-average exercise price of $4.14 per share;
. 100,000 shares of common stock issuable upon exercise of non-plan stock options outstanding at September 30, 2000 with a weighted- average exercise price of $1.00;
. 500,000 shares of restricted common stock issued under our 2000 stock incentive plan subsequent to September 30, 2000, at a price of $1.00 per share;
. 2,939,300 shares reserved for issuance under our 2000 stock incentive plan as of November 30, 2000; and
. shares of common stock issuable upon exercise of warrants
outstanding at September 30, 2000 held by owners of our Series B
convertible redeemable preferred stock, assuming an exercise price of
$ .
Summary Combined Consolidated Financial Data You should read the following Summary Combined Consolidated Financial Data in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined consolidated financial statements and the related notes included elsewhere in this prospectus.
The following table sets forth our summary financial and operating data for the periods indicated on the basis described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere herein. Our combined consolidated financial statements include the accounts of NTO IRE-POLUS, IPG Laser GmbH and IPG Fibertech S.r.l. The summary combined consolidated financial data for each of the three years in the period ended December 31, 1999 are derived from our combined consolidated financial statements included elsewhere in this prospectus, which have been audited by independent auditors. The summary combined consolidated financial data as of September 30, 2000 and for the nine months ended September 30, 1999 and 2000 are derived from our unaudited combined consolidated financial statements included elsewhere in this prospectus. The data for pro forma net income per share treats our outstanding preferred stock as though it were common stock from the date of original issuance. Our results of operations for the nine month period ended September 30, 2000 are not necessarily indicative of our results for the full fiscal year ended December 31, 2000. For purposes of presentation of our summary combined consolidated financial statements for the years ended December 31, 1997 and 1998, NTO IRE-POLUS, IPG Laser and IPG Laser's 80% owned subsidiary, IPG Fibertech, are referred to as the Predecessor.
For the nine
For the year ended months ended
December 31, September 30,
1997 1998 1999 1999 2000 (in thousands, except per share data)
Predecessor Statement of Operations Data: Net sales.......................... $3,124 $8,289 $18,637 $14,831 $32,512 Cost of sales (1).................. 2,065 5,327 9,307 6,795 11,055 Gross profit (1)................... 1,059 2,962 9,330 8,036 21,457 Operating expenses: Sales and marketing (2)........... 219 374 677 619 1,049 Research and development (3)...... 312 840 1,695 1,190 1,610 General, administrative and other (4).............................. 322 1,040 2,766 2,046 4,066 Equity-based compensation......... -- -- -- -- 8,719 Total operating expenses......... 853 2,254 5,138 3,855 15,444 Operating income................... 206 708 4,192 4,181 6,013 Interest income (expense), net..... (118) (208) (303) (231) (77) Other income (expense), net........ (14) 38 126 (42) 401 Income before provision for income taxes and minority interests............ 74 538 4,015 3,908 6,337 Provision for income taxes......... 31 234 2,206 2,232 4,639 Minority interests in (income) loss of less than 100% owned companies......................... (19) (77) 69 113 (242) Net income......................... 24 227 1,878 1,789 1,456 Accretion of preferred stock....... -- -- -- -- (169) Net income available to common shareholders...................... $ 24 $ 227 $ 1,878 $ 1,789 1,287 Net income per share: (5) Basic ............................ -- -- $ 0.05 $ 0.05 $ 0.04 Diluted .......................... -- -- $ 0.05 $ 0.05 $ 0.04 Pro forma net income per share: (5) Basic............................. -- -- -- -- $0.04 Diluted........................... -- -- -- -- $0.04
(1) Excludes $677 of equity-based compensation for the nine months ended September 30, 2000. (2) Excludes $166 of equity-based compensation for the nine months ended September 30, 2000. (3) Excludes $184 of equity-based compensation for the nine months ended September 30, 2000. (4) Excludes $7,692 of equity-based compensation for the nine months ended September 30, 2000. (5) The calculation of net income per share and pro forma basic and diluted net income per share is described in Note 3 to the combined consolidated financial statements.
September 30, 2000 Pro Forma Actual Pro Forma (6) As Adjusted (7) (in thousands)
Balance Sheet Data: Cash and cash equivalents............... $65,814 $ 85,814 Working capital......................... 71,779 91,779 Total assets............................ 103,446 123,446 Long-term debt, including current portion................................ 7,299 7,299 Series B preferred stock................ 62,389 -- Series A preferred stock................ 4,954 -- Stockholders' equity.................... 20,171 102,514
(6) The pro forma amounts give effect to (i) the issuance of an additional 800,000 shares of Series B preferred stock at $25.00 per share subsequent to September 30, 2000, (ii) the issuance of 1,403,000 shares of our common stock in connection with the acquisition of the remaining ownership of IPG Laser in October 2000, (iii) the issuance subsequent to September 30, 2000 of 500,000 common shares for a note receivable for $500,000 and options to purchase 1,000,000 common shares at a price of $3.00, reflecting a compensation charge of $12.0 million and deferred compensation charge of $22.0 million, (iv) the issuance of options to purchase 352,000 common shares at a weighted-average exercise price of $7.39 per share to employees and members of the Board of Directors, reflecting a deferred compensation charge of $6.2 million, (v) conversion of all outstanding shares of Series A preferred stock into 500,000 shares of common stock and (vi) conversion of all outstanding shares of Series B preferred stock into 3,800,000 shares of common stock. (7) The pro forma as adjusted amounts reflect pro forma amounts, as adjusted to reflect (i) the payment of a portion of outstanding indebtedness from the proceeds of this offering, and (ii) to reflect the sale of shares of our common stock in this offering, at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses, and our receipt of the net proceeds. For more information, see "Use of Proceeds" and "Capitalization."