IPGP - Earnings call transcript Q2 2019 | IPG Photonics Corporation

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Operator

Good morning, and welcome to IPG Photonics' Second Quarter 2019 Conference Call. Today's call is being recorded and webcast. At this time, I would like to turn the call over to James Hillier, IPG's Vice President of Investor Relations, for introductions. Please go ahead sir.

James Hillier

Thank you operator and good morning everyone. IPG and is Dr. today us Photonics' CEO, Chairman With CFO, Vice Valentin Senior and Timothy Gapontsev, and President Mammen. or future during call or expectations that made discuss of Statements the management's the course Company's forward-looking statements. are of this predictions the intentions, and are Company's cause to materially risks results in projected that from could These forward-looking those to such uncertainties statements differ subject the actual forward-looking statements. ended the reports include those Form and the year Photonics' on Commission. detailed XX-K other and with IPG uncertainties December in and XXXX risks Securities These Exchange file XX, for these filings section of Company by may Copies visiting be the of contacting obtained Investors directly. or by IPG's website the

may on You the copies find SEC's also website.

obligation call only or updates publicly to forward-looking made July release any The today, revisions Any such Company's no expectations XXXX. are as on to of or predictions this any XX, statements statements. assumes the Company

additional the to data relations please on earnings Excel-based our posted press website. to For reported financial results, the investor our workbook and refer details release

relations on We will post completion investor remarks these our the website the prepared call. of following

over now With that, the to turn Valentin. I'll call

Valentin Gapontsev

morning. Good

the Our strong. of improving China our high in record and Driven lasers sold during were April power during second trends business May, number by we quarter results a quarter.

both climate range, half remain macroeconomic pricing the traction demonstrating we and the in in the solid of delivered results Although while challenging, guidance environment upper our new products.

our increase for and while introducing costs flexibility manufacturing new to continue component improve by competitive meet productivity that reducing We and substantially challenges products customers.

geopolitical has the few last widely reported, economy over unstable As become months. more and macro softened climate the has the

limited near-term conditions. improving find ourselves in As more a position business a again to result with uncertain visibility we

will and new enhance to the our competitive geopolitical applications we continue invest to in business products Despite volatile and substantially position. environment,

megawatts fiber market lasers clear of leader of the remains capacity. IPG installed hundreds with in

shipped record region. into China, products sequential the reached for During quarter, We power record in able to total shipments meet the growth with laser coming our megawatts level. from strong successfully were a the demand optical second of our

to the strong continue which second see intensified toward power we We China-based growth achieved laser among sequential high the competition, of Nevertheless, end in aggressive pricing quarter. sales.

and other many among We produce and CW products cutting, plug industry these, stability for leading efficiency. processing welding to wall levels, at unique lasers applications laser beam high in have industry. materials that power systems we Chief power the continue and are

X Sales of lasers sales. power ultra-high driven laser in all XX greater XX% for year, over of adoption at power grew of lasers fiber nearly or at XX% by accounted kilowatts or rapid applications. Sales greater year cutting kilowatts high

our products encouraging new customers. power parts. of a drilling feedback differentiated us in These enabling and receiving advantage with piercing cut cutting by solution controlled OEMs, delivers our closer nesting improves speed, We peak cleaner, increases have high more lasers, market. quality, This providing materials shipping reduces unique distinct capability competitive from scrap new started thicker offer a a to of

and seeing adjustable spatter, adjustment improve of applications, cutting are can high our standard products or leading lasers are customer thicknesses wide OEMs lasers In shown interest AMB our new cut power the capability in of our compelling increase by producers. being with evaluated lasers our our using heads. the battery unique edge AMB a power of material range family optical output AMB of to We quality in reliable permits mode is beam. reduce and beam speed that generation welding with market, high

on basis. a processing. areas of to Sales sequential We used pulsed excellent nearly XXX% doubled year year progress lasers efficiency solar cell in outside new over and metal green delivered product improve increased

lasers our We increased sales ultrafast of than year XX% over XXX% more year nearly sequentially. pulsed and

of across batteries applications wide OLED ceramics, and cells. new for range projects working a lasers are film, on solar circuit actively XX We glass, more processing than these boards,

durations, at million now visible newest growing Sales lasers, per our and more ultrafast than quarter include those year-over-year. pulse exceed XX% pulsed ultraviolet $XX and which of and are wavelengths

for our new the over of lasers As we opportunities revenue the many application fiber capitalize on grow products pulsed coming laser and differentiated for years. solutions, our rapidly these portfolio to expand we expect

more welding XX% driven Genesis, in growth year-over-year, by excluding materials sales Systems other applications. systems macro and strong than increased processing for

In addition, sales had quarter stepper our automotive large a into with customers. record seam several

medical Sales enhancing of laser large surgical quarter, of end into our XX% beam our received this a visibility accessories year-over-year. medical delivery increased Toward growth application, addressing a for strong we solution the the in year. order

total sales grew year-over-year quarter second systems and second newer were laser in products XX% revenue. of of applications into Collectively, emerging and XX% the quarter

ultra continue to that addressable we I that in fiber and expand applications to am lasers in market new traction power demonstrate opportunity. products meaningful pleased high report investing while our

near-term in are developing solutions headwinds for focus business, laser our enhancing the While macro company's and drive our on growth years. will continued our creating factors many differentiated

ability technology reminder, laser fiber is As deliver mission. a this confident our tool remain and I make mission the our in IPG's mass to on in choice production, of

to call With over Tim. the that, I'll turn

Timothy Mammen

Valentin everyone. year-over-year decreased you processing the quarter morning Thank from in applications XX% other from and $XXX declined to Revenue revenue year-over-year materials Revenue XX% good second and applications million. XX%. decreased

sequential region, revenue increased XX% a than driven and welding XX% year-over-year sales decreased by China quarter record second quarter by approximately in and of a China total. applications. On ago, versus the cutting, performance in XX% basis represented more marking a year Examining

in the June weeks believe three US-China we a seen recovery underway now volume July. of of that continued delay the had order likely the trade month has conflict, China. that Following slowdown first is this we Unfortunately, the have been during through to escalation of in the

units the dollar China in remains sold. The pricing affecting of value environment intense,

team These a arising offset will the the weaker and partially quarter. pricing aggressive process. competition, cost cost more Our from manufacturing unit during throughout actions the only further will macroeconomic challenging growth volumes by headwind reductions backdrop focused to third reductions the is on be

decreased XX% primarily and welding. over offset In to in due in cutting partially additive revenue year growth softness Europe, year manufacturing, by

as above historic has of average China, intense been revenue has affecting quarter. While late, the as decrease during prices Europe selling not average in pricing our pressure been the in in in Europe

the of a XXXX. course slowdown in better Within during have we region, the which a market had up seen Italy, held

persistent macroeconomic Looking weakness to in ahead, the believe results region. we Europe is pressure likely throughout the

In by North the XX% over Genesis. driven revenue of acquisition increased America, year year

Genesis, growth in due cutting timing project with more comparisons. in welding America over decreased challenging in sales Excluding to applications X% by strong telecom and year government year declines offset North marking, and and

Korea Sales in and XX% QX though Japan suggest in year-over-year decreased revenue XX% welding pressures marking, given performance, the year-over-year, in bookings and Turkey Sales XX% in improved macroeconomic year-over-year softness in region. on cutting. strong decreased decreased

materials and high applications. CW manufacturing lasers revenue. represented strength lasers product, high revenue partially of power performance by CW of processing XX% power cutting, from welding was applications Turning total and in to sales in Reduced approximately XX% by decreased year-over-year offset other additive

Pulsed with transition year in growth applications. power and Medium solar XX% and due decreased lasers electronics over kilowatt-scale additive on welding sales marking for rapid low fine and sales versus X% year-over-year, processing cutting, softness year manufacturing cutting in fine the lasers sales in to for the consumer declined year-ago in sales cell laser to XX% offset softness while QCW reduced decreased by period.

other Genesis by growth materials XXX% and increased driven XX% macrosystems and excluding Genesis, sales welding in processing for including year-over- applications. year-over-year Systems year

products. and revenue beam with delivery Other than in in accessories offset product more decreased sales growth service X% other declines communications by year-over-year laser and

favorable XXXX. reduced with Compared XXX basis of of XX.X% and the points declined less manufacturing quarter the foreign margin by points. from second margin absorption period, XXX basis gross year-ago Gross expenses exchange

points. pricing lower gross The acquisition product XXX margin gross Genesis basis points by XXX and basis inventory reduced of basis nearly Higher reduced points. margin factors margin and by by gross reduced XXX reserves approximately other

gross laser than renewed and recovery enable increasing to margins XX%. in get believe their quarterly have sales the Holding current in visibility less $XXX at margin core getting and factors gross near-term. constant, business other limited levels, margin above XX% our that gross more are competition, uncertainty Given industry confidence leading. we price we in back in Even us to to million would our the

year-over-year. income X,XXX basis sales, Second XX% of down operating quarter million, $XX was points or

was exchange Excluding operating million, a loss of foreign $X margin XX.X%.

lower and division. points year-over-year investments and engineers, due Brazil a and to: of networks increased Excluding exchange, our percentage sales of operating IT expenses in XXX acquisitions foreign as revenue; Genesis the submarine basis systems; salespeople

per $XX share million Net earnings diluted was income were $X.XX. and

items. $X.XX. reduced rate relative been If Dollar one we exchange ago, $XX the year would gross exchange million by be certain million in higher which rates and had to discrete same have was to EPS profit effective be quarter to the tax U.S. $XX as tax The Foreign XX%, losses included revenue expected higher. the

short-term quarter provided the equivalents, operations cash, billion the and with ended was during and million. debt $XX Cash of of investments $XX total cash million We by quarter. $X.XX

$XX increase years. receivable in and several million, in by a $XX reduced to outflow meet was continue our Capital to expenditures we quarter. over to were products flow the cash new related demand during next second the the revenue in Operating for as plants equipment invest accounts million

thousand quarter we the for million. During XX repurchased $X shares

share the from expect increase remain repurchases offset of issuance. We XXXX to dilution and equity half to back committed in

Turning regions to largest have three weakened of economies last our guidance, relating over data the points in health manufacturing to months. the

the ratio book-to-bill due environment part one, demand June. remains Furthermore, in recent competitive above but quarter order challenging, the normal to as seasonality was second Our in volumes levels. in below weakened slowdown industry

expect we continue. environment headwinds competitive the related result, a pricing As to to

further core in accessories acceptance systems in solutions the to these partially We and business offset products, complete innovative our expect growth new gain softness market. in our as

third quarter the we revenue $XXX million million. XXXX of on to factors, expect Based for these $XXX

We earnings range to to share expect our We approximately third $X.XX. in anticipate XX%. per delivering of tax $X.XX diluted rate be the quarter

macro had in strengthen Escalation to half we conflict of softness market expected the XXXX. the and trade the further have US-China recovery second reversed of

have tool few largest the geopolitical with next weaker us given Our climate. beyond and expectations macroeconomic provided machine not customers months the OEM

the have the quarter. a result, necessary do provide we to beyond current As outlook conviction not an

ongoing we new laser strength us and will capitalize products demand. enable better the our rebound in market end on enhancements However, in to to portfolio believe core eventual

to, differ of Safe Harbor our including, economic from actual but trade press and order cancellations may due As delays, discussed demand, competition, in tariffs, factors limited today's release, to policies guidance results not earnings passage conditions. general product and the

current our expectations, is press earnings referenced in release, to outlined conditions reports and the SEC. with in market risks guidance Our assumes rates the and exchange subject based is upon company's

happy and to take I will questions. Valentin that, be your With

Operator

[Operator Instructions].

the question with Our Feniger, of America Bank question from line Michael Please Merrill Lynch. proceed of your comes first

Michael Feniger

question. for guys my thanks Yes taking

expectations how pricing the there? in what I sounds it you the June, Tim, ago, in a you like pricing understand stabilizing I pricing year, just somewhat I are as of XXXX conference sequentially now XX%, did comments. much see things and us of does for XXXX how mentioned it’s Just was months like how believe your much so rest think us we X% can to typically we think fall now help two changed remind that every fall at it think

Timothy Mammen

that No pricing from see typically XX% issue as basis on aggressively. you or try look XX% pricing really product is The even within or average and as More the market certain competitors decreasing X% to a increase go share the become weakens recently a than if power by the has macro pricing been you’ll from slightly lines. on to environment down hold year-over-year historically. that soon has higher

So its very tied. closely

environment the that. We the are demand to the seeing way with changes that and competitors respond

pricing we're sort a continues about to a going very the is certainly the of by these how more challenge. about We've that, lot said Having IPG reaction at had respond selective competition. discussions be to and removed being to internally of it strategic

demand believe, should that a advantages reactionary rapid market that where really really better specifications leverage technology, bottom And this for. demand and product of in that in some coming service they're be the environment, those chase to way particularly volatile drives be improvements sort not which to in OEMs reliability value example, do in not and our different even And terms a we're at have for to we responding way looking productivity. are just a are improvements warranty. in going those applications just we significantly of you've in electrical efficiency to view tremendous it's we growth is quality the of that pricing paying people to productivity the from demanding this everyone's this both seen support for that's really if because believe There and in

and applications excluding at where competition some doesn't really some that traction welding in looking the monitoring in amount an very the product the lasers. lot So, capability add advanced of it's in incremental value around margin where also of some profile applications world areas and within have like for these accessories, we the titanium, well, the that's are nice IPG have we certainly or we're newer we're example can there's that. welding a capability building welding, a challenging environment, real of applications the is a areas of there and of are but time systems see The capability, copper expertise starting how depth tremendous to where where as

Michael Feniger

And type of us, the understand Tim, help can limited replacement some come be you right visibility seeing through. but could I now, just is we demand

systems are seven old. XX think I years to

You years baseline curious, seen over you replacement growth occur? guys level to some the if demand have few strong maybe now. seeing just I'm that last are has

you start And then I'm Thank if share some of the there lot size maybe the well? I on plateau, to just any movement as can any secondly can just of on market on but you. give with us investments, color traditional of type EV color that, new we're you'd also a hoping that you CapEx know auto there's seeing more

Timothy Mammen

for the and that or old. So other some know to of of kilowatts you XX. is laser got more lasers, you know face increase the XX fiber certainly are part we that lasers in XX years the start scale fiber you've The question, scale issue first volume probably kilowatt quantity real or now of

I quote replacement is early issues cycle say lasers or the you pull relatively fiber. the competitors some face believe time, of the components better opportunity needs tensions that quickly, cycle. you're what's geopolitical would COX those of tens an of the XX,XXX is has to other of a than of that get industry replacement the That COX very That of that out will to installed investment said large bit around challenge and there certainly in there's visibility we require that on. that rebound in though replacing macro still everyone's What perhaps replacement. one supplies it down, you COX world, lasers more pretty is our base has with as when of in there's I with a the that of So and of that lasers into will get part happening do some thousands cycle slowed one towards replacing is, are sort replacement over climate that require improvement

analysis that to think, perhaps obviously out back and into shows I that relatively a investment automotive is, market at and automotive have The peaked. out different there But moment cycles that there's are lot of low supply just mentioned applications notwithstanding our the automotive that zone had we Seam we largest for supply that, in just OEM major stepper going we QX, the purchase order Europe. the

in be that's investment actually and from hoping benefits change uneven the So will and invested multi-year is a that outlook a monitoring can we market is from even of that the project relatively long strong well cycle. real U.S. was we're it driven, flow, a overall technologies time order the investment of generate demonstrated then for again EV capability working and remains There's the by the It business very cycle quarter-to-quarter. and the we're when in in low. driven technology automotive pipeline change being have strong some

there are the longer the of term, be within automotive term. different we believe will business drivers certainly investment for that certainly and But that over medium the for our areas

Operator

Our next question question. proceed Berenberg. Andrew comes Please with DeGasperi, from your

Andrew DeGasperi

Thanks, up. one and good I follow morning. guess taking for maybe my Thanks question. a

to the laser I guess XX%. get you to mentioned the On all of the core XXX business first million –

or Just the XX%? midpoint this for of clarification, over gross was XX% was XX% this margin, to the just

Timothy Mammen

see you've level about. rates pick getting we’ve so the up. and started of this Previously absorption would No talked target over XX% back be on our your to call, that

million, provisions at the it some in XX% relatively being some challenge. of than different business we're is it QX is obviously, look think a to XXX able comfort quarter, get which where up us it below does give just but guiding inventory is one I we do the large were back the we��re XXX to has the at to thing scaled there,

Andrew DeGasperi

kilowatt a seeing of competition or to because are you seeing the competition in Right. X end competition, And is and lower on tranche then XX pricing pressure that's and some pricing lasers? at that just not of

Timothy Mammen

and think products price at looks there is kilowatt if sell competition of the the premium any very levels, line level, Numerous have price we that. even product. a per get to that a laser and entire degree, trying announced they're is a certain you at like the an issue customer that them. higher selling good at across blows can't to The kilowatt less at of certain margin you the and per to on through faces that product a there's competitors how on average a gross about But ASP

Andrew DeGasperi

you. Thank it. Got

Valentin Gapontsev

not more for difficult knowledge or that image the more way power power to the they're care, more very serial we just problem often compete have serious you with they The with -- even competition, did walk sales lifetime information, our but and in they have we high with with more to very know to them it’s more practical powered with the it’s repay real them. not because a able from claim

Operator

Wittine, from question with next Our Joseph comes your Research. question. Please Edgewater proceed

Joseph Wittine

Yes, Joe. It's hey guys.

what you year high HPP-QCW realistically if our you're the over you're cutting on shipping all off, then adopt portion peak in First may say you any said or geographies QCW, estimates next let's base now so? wondering and of rough power have the offering if

Timothy Mammen

that quarter able traction early or. to expect of definitive the ongoing, to we more be lot probably that see quarters moment work of it's end evaluation information resolve Joe, offering throughout what from give it's there's high transition of that about if But a power to peak a We're at will say this the market the using early lower still the to of laser. world the too proportion to not two

would HPP. or four X low what end using start kilowatt of of a an the example, kilowatt X the market percentage For HPP

Joseph Wittine

know of early. I can't quarter sense, any little got quantify in fourth Jim, it stay event are and that of somewhat quo, with then today similar I wherever up as would makes to perfect kind say kind a Okay, let's the else you they but headlines being? quarter ends that equal typical seasonality off the base, status expect third the all you bit

Timothy Mammen

Do quantify. you I asking that to know you're am. but can't Yes I me quantify,

Joseph Wittine

am. guess, I I

Timothy Mammen

expecting we're one be driven kind just in through need medical China know that spending extraordinary through. to water a will there's whether demand you the to we ultimately some come are to we a quarter see advance We see business budget be ultimately shipments, of work you material. take some out some to up from around in the not times order those see in and where up, where ends it's flow projects by China. trade QX need would of mean, ends going bit spend be situation up, need the get I There of that where flow don't. ends where whether place QX in that certainly still there's very war But stabilize that the that's the pickup budget in of and just

with biggest the the the being mean, to want Economic weeks. now UK you It's eight uncertain you see got European the over with time. I pretty what XX happens next Prime to the there. new You in Zone an aggressive around Minister Brexit

you of can qualifying drawn would around like So, – able at done. color quantify to the have But we we that's point be time, been give it. if getting into in I'm this kind I

Joseph Wittine

basis? on guide? us from a remind year-over-year And Understood. what you the All driving me. there And do within what's last outsized quarter you assume third inventory then the Thanks. right. on provisions Could

Timothy Mammen

last got on buildup relatively just level high a lower of revenue inventory year. We

inventory that got it's not a It's significant. terms a -- becomes total impact. massive not of bit still It's just in not older. So you massively

annual two we year a a them little three the the for expect material up more But don't that have of to a through some in speaking relatively quarters I or as go elevated bit remain related build impact So I inventory lapping to ago. expect them. to much happened

Joseph Wittine

you. Thank

Timothy Mammen

look two regular that Joe, you constant that, basis value basis know as We're take at rather than to manage realizable having provision. years a a it to much on trying the every and to inventory at way. provisions tried suddenly We manage a larger on and looking

Operator

Our next with David question Please question. at Susquehanna. comes Ryzhik proceed from your

David Ryzhik

as much fee that taking a elaborate you Hi. the for on Thanks in a pressures in follow-up. so question. Is declines maybe base Europe increasing function had well? Then competitive my of Europe. I Tim, can

Timothy Mammen

product on in get of lasers got Europe Europe. pulse in Some of are claiming much traction regard it. to Debates the trying how they've There's some ability the the given success support to are been to their certainly they've quality, Chinese product introduce they're been in that trying on. selling They there.

to of in them aware transitions Some OEMs world. the geographies for Often Europe the happened of the just because what's of JVs example in some pricing in through have other they're around China.

very So what pricing. of they're aware to happens

be a ability pricing The we different is product, differentiate world some standard we to happened if and have or accessories people the price differentiating is amount across capability pricing of lasers, factor the technical some is So enable. key degree product pricing going believe to understand the regions just other world's regions to the monitoring ability some HPP five differentiate specification and that and unless selling more around you've what's that to three, value totally laser, to on a in you're difficult. But of that very AMB on a around kilowatt a So We're to capability to premium straight pricing which four that it. some lasers migrates right? are able going strategy the product add got with important, of tremendous selling

David Ryzhik

guide. the guide, assumptions get And to quarter then embedded third from your just increased XX% nicely Thanks. product in XX% for XQ category Understood. to in new the your It regarding QX. love would

quarter? what wondering for you third expect Just the

Timothy Mammen

elements around third in quarter. the revenue guidance streams specific give different of don't the We

shipments, strength expect cinema laser We ultrafast green lasers, of business. in continued lasers, the pick of applications around the in some some the good traction the systems to continue up the

numbers from newer QX medium from and the applications. business just around growth for we're those but looking we're to QX forward drive areas. in and the guidance looking term growth So We those not specific those don't for give

well upon be of pick as medical the that we in got. up a There'll order shipments the some based

edge we some at So on of want, generate not business. and When got products. we're we a now continue in in revenue we some they've got all we're XX these diverse to time executing this of pleased diversification if nice much level they've with the And coming starting they're worked can them new the areas leading actually XX revenue within traction these with have long from you month to business a for look but going more to period.

David Ryzhik

Okay. Thanks, Tim.

Operator

Our next question is from Jim Ricchiuti, Needham question. & Company. Please proceed with your

Jim Ricchiuti

wondering All up where like right. China. better, regions morning. where Where weakness Good where holding are seeing geographic some in slowing Thank seeing of other held regions areas perhaps and you. you I'm are bookings up seeing are signs you're any the it's – better? in if bookings sounds it's a July have in you somewhat clearly there some been

Timothy Mammen

in their take but from China, lot DMV a for relatively Korea in applications, some that welding newer bookings the guidance that of some product now, though with and of welding going of introductions a business there the uncertainty DMV in some orders applications some the But far demand to strong – that of macro actually is good. new the of in about flow been ultra they've those lot Korea quarter. but being Korea so of lot was So, specifically, people on the were actually weaker. of of Jim, date strong strong. development doing out yet work example whether for It's UV, -- that even there's the are isn't again Order the revenue just that's very

expecting that Japan into is to order to hold a great, resilient US business macro. U.S. flow the the The You've from was but medical a diverse, well, be business. area right? is in a that up emerging continuing more pickup more Japan reasonably they're got not in the so revenue bit QX. Also continues

in You've of revenue kilowatt lot XX a bit was We've on for of couple business was projects got order last a laser wise weeks there's weak, the out U.S. different advanced that. of a got which being an the worked the but

Valentin Gapontsev

orders. Two

Timothy Mammen

orders Two kilowatts. XX with

Valentin Gapontsev

Yes.

Timothy Mammen

switched So as and that that China, an and weak when demand but a I when right. it volatile, Europe application. underlying gets off Other is There its exist business the getting pretty for – declines it some would uncertainty advanced comes in is business back areas uncertainty is be China whole environment. research some business as switched and there's mean, confidence on in either off

for So moment. I no China, with. And demand that the there volatile say at in the it ladies just is that's dealing wouldn't challenge we're

Jim Ricchiuti

clarifying. for Thanks

Valentin Gapontsev

We have tariff from China. three growth minimum But business new increase still ordered of month of value China times. fast quantity in after drop immediately of the

two by XX but with per each Now will one that, same remain even But XX, before or pieces. the units orders XX customers hundred our order instead quantity be quantity of they five, is or now hundred fifty day. per now one order practically of order will only

now practical they purchase, but volume they problem need quantity on So order, [Indiscernible] waiting to purchase. [Indiscernible] later in but happened hold what what they they all pull

Jim Ricchiuti

That's helpful.

system a environment. surprise Are small growth in kind just and macro and have it the x showing you're is holding of up that showing applications you going you're is after? On I'm you of because relatively new it's have side you're -- business been this if Genesis, the the of you kind business the business that

Timothy Mammen

to benefit investment quarter business As U.S. think It's another is into better capital total have a right, the cutting that going order is you The the potentially cycle in up device also of have terms from flow -- holds manufacturing a is U.S. terms up. of ILC macro which some Their quarter the it's equipment the the machine age in being in shipping small form if held economy in also medical QX. in stronger. the QX. which shipments industry outside going is sold U.S. to good of multi had stronger. There is had so old in relatively does primarily and relatively the systems the axis

system And did welding or power that a one There's will to come batteries through for are deliver a these was systems. UK, quite delivered be batteries consumer then welding another that higher we QX. in of delivered on will for product was specialized fairly the lot There revenue system some of specialized -- Jim.

more sold So the lasers specialized then that welding those order some for for in battery result good application of was system for for get example off. flow the battery some could in revenue systems, is we future. some the actually And the going to welding

So, Genesis X lasers business well. for yes, performed pretty the systems

Jim Ricchiuti

Okay. Thank you.

Operator

from is Patrick Please next Our question Stifel. proceed your question. with Ho,

Patrick Ho

already industry. Thank end, cost your cutting cost a of just on extract you first these you on off manufacturing given color little more very the additional cuts Are you cost additional about you're some the details Can the maybe Jim, of you side give much. in where how chain? talked can supply and the supplier lowest savings? additional efforts coming cost

Timothy Mammen

increase heat sink that optical components It right? obviously to us rapidly the the are is cost The come about modules that at of So that there. quality aluminum these a we use. block, to we're and there in continues you power some components one used some in sinks an those of where level individual the to improve out the for from talk are fiber design that size we that designs Increasing remove lot heat power the looking modules, can higher we're going will more some that mechanical to of of changes, enable are to even enable heat produce to we're core the get example, going of -- reliability.

grew broad the accessories out example price. relative based. term that and we're get accessories you've added near for that as materials, of thinking the pulse that and material cost where taking green adding year-over-year. ramp it's continuing newer cost of The But newer months. a to more There's an we a would ultrafast that the of It's to a going then lateral some into There's think the XX% a and cinema value we're at of trying of improving more. looking about margin an at bit for about of there lot value the the demand example, produce And to the down something around for that accessory we pretty the lasers the building look of products That's you'll well. something the to bills a medium few around way products products the bit got a to which where see isn't the of a we in roll to be cost it. selling

-- always As DNA part is just the not the it said, part IPG's technology. I of of strongest

Valentin Gapontsev

before that ago. diode also beginning very And product introduced important of market at we couple in powerful year had and watt much which cheaper [Indiscernible] only introduced more very months per a this the new

with much diode expect from next year So this the work market return diodes. from this would year we the these be return

Patrick Ho

Maybe helpful. That's my its up question. Great. follow

how do this guess as regions? And think How How has its basis? of very a other overall into base? expanding I forward Genesis core North from mentioned, its see held up in you environment. kind I that going at American you you Jim look opportunities well do Genesis expand on

Valentin Gapontsev

This have Genesis market, don't opportunity work American before work they they have opportunity, an on the to worldwide.

activity we extent worldwide. have Now the

many we or produce way always and Japan only Korea, expect for second example, system market Europe, quantity and also the small for even we in become using and now So quality. they worldwide very redesign before the that [Indiscernible] products the -- others Asia

new Now and so some redesign the laser its to time now based take most on. product technology

very who It practical products very be products much serious, also we and to sold now and customers much reach our in now, that the discuss is all market. components integrated Genesis, very system. some is we're excited some would internal very they They integrated and very have have with part [Indiscernible] problem. other serious we laser the major in whom and here now working final of and with country, in prepare [Indiscernible] that U.S., much So and

Patrick Ho

you Thank very. Great.

Valentin Gapontsev

not line. unique starting production out we'll now, still now time part like accessories production them of to core new [Indiscernible] from which this [Indiscernible] very of take produce make will even able It were some Before. sale

core technology production It’s to could we provide and we going line. with new wise are solution portfolio [Indiscernible] and in time technology provide they in business. Now are absolutely new approach, new full successful take very new going company, now but this production to full Genesis IPG solution provide some change where product,

Patrick Ho

you. Thank

Operator

comes Diffely, question your Please next Our Davidson. from question. Tom proceed with D.A.

Tom Diffely

Good morning. Yes.

pricing the question on better side. follow kind holding that a Does out market? fiber systems that up mean the is laser Jim's core on on systems versus of Just

Timothy Mammen

how a adding of is you're value cost it versus cost where technology adding and Tom, a delivering competition In different parts much more market the lower. The complete is of a lot the some and depends are there's price dynamic. It’s you're you lot relative processes. of price to strong. where relative

manufacturing But of some medical in doing the for not well for where example the as software really systems comes price has completeness the of it because pricing as it the manufacturing application the some and within what technology, selling you're that those the down we're offering. example, we're delivering of the the market. in seeing of solution depends core some device applications, areas being other really the these growth, and solution way delivering traceability to Certainly of the it impacted upon So average process. in parts technology you're that is you're is

Tom Diffely

And in what quarter Okay. most driving as effects you region natural synthetic as place do at now? far or of in what That's helpful. that hedges then, Tim, you is impact the have look impact? when right the And

Timothy Mammen

So, the Tom? question, what the last part of was

Tom Diffely

of place hedges might for hedges synthetic kind or natural in have you What operations FX? through

Timothy Mammen

QX a We Euro. in losses were natural renminbi FX dollar the much to primarily transaction versus little extent a -- the the same. and lesser driven, pretty try are So, the bit hedges on

in you're direction, the euro, work. as renminbi rates same for a go and work weakening don't just those weakening Sometimes don't natural not if exchange a effectively so hedges hedges

the a exposures smoothing to of you the the be, renminbi you cost euro I work losses. weakening better. a some have hedging just with If skeptical particular strengthening of continue natural and end about those whether up renminbi hedges

to FX using So that. go forward contracts we tend not the into for

you revenue back have If from On renminbi seven. go over year on moved ago. QX the to last exchange at on is it XXX are the look other a that high impact of again depreciated the biggest basis, almost, approaching you of year the side if two the a translation rates a It touched lows

exposure a ago an currencies the that's traded the last XX is properly is and be which a X.XX and in XX by. year also And anywhere between depreciation over is Euro and affected those we The would range X.XX, year. So main were and the X.XX. have XX% that probably is the ruble of three X.XX

Tom Diffely

you. Thank Okay.

Operator

proceed comes Our Nick Longbow next question. Please question Todorov, your with from [ph] Research.

Unidentified Analyst

Thank you. Good morning guys.

So, just to go back on the pricing headwind comment.

are manufacturers America? China, America? obviously as become we customer, discounts the if commentary some just about more picked wondering supply if know in what North North you and of you're or any in Europe tools from your most So, aggressive headwinds well but cutting OEM some and in seeing centered that up guys talk chain We aggressive seeing have can from in so just not anything they're Europe you're the in

Timothy Mammen

inevitably you Yes. cost said around is I'd per the from in that goes that second knowledge manufacturers that kilowatt. about pricing for think what I on a of one in regions different about mean in world, in changes the is the to price equipment tend isolate China the And there region can people so another. thing cutting terms

go as an tends regions they in that so get the one to see tend upon-- also you power manufacturers higher productivity. advantage the And decreases region less if if to levels extent. a equipment to you it to because terms competition depends to there's So, be in it or migrate of lesser less cutting the greater other

right. go higher at have not it's important electrical at you that laser competing XX% efficiency IPG or power as electrical become efficiency of has one XX% electrical kilowatts. certainly A XX efficiency the benefits kilowatt, Some or its to against efficiency higher perhaps you at and XX have more more that electoral levels important an when laser operates as XX XX% – and

are in the you matched what world China. understand OEMs joint just that performance about the ground around in the migrate So, kilowatt is. up because but eight a by of or power people certain have They've four, two, as China. ventures one, there's Several of advantages competition, pricing on happened in got you see go laser that intelligence cost the XX mentioned I not what's IPG delivers six, the

Unidentified Analyst

Okay.

Valentin Gapontsev

is forget, but expert, with for Don't only in XX% Asia of Europe to Europe, not example China. and user XX% inside mainly like

China look in So mainly. they as

change, it didn't China [Indiscernible] immediately [Indiscernible]. if So

Timothy Mammen

its probably Euro XX, you is [Indiscernible] just with change about depreciated XX% at this having the a X% or that translation looked XX% depreciated average selling having well, of total FX in I addressed first just on to renminbi previous the the X%. the basis of question prices, related all, and

strengthen those that. of start some be you If saw recovery currencies dollar the there'll to and weaken some against

are if may rates So weaken there's a the by view moved dollar the tomorrow. down Fed interest that

Unidentified Analyst

the getting get to you're demand being pricing And volatile about changes the being May we Is the Yes. weaker June? you kind China Got on seeing been of have headlines. or related of prices or same also it. demand in get then the we talked into kind as strictly front in volatile into very as – progressively it and

Timothy Mammen

the to particularly the volatility, that at beginning right, volatility that said the drive competition. I tends from the price demand of call

to they're three any I the more the pricing strategic to to markets deliver. trying moment from be short or demand drives looking because just of bottom to it's being more has get. lasers response for and and around because But selective this volatility that our very one a about the think learn view selective. of become at the particularly just industry value we're and in why less looking pricing revenue rush to going the the two certainly reactionary a competitors, That's be unfortunately they and and reasons to can opinion to the to a reactionary term strategic on we're the have fight the

Unidentified Analyst

some didn't probably else? quarters give something that some question and Can demand of me. about some in you end us Got in anything hear last think talked in update this advanced I defense. just aerospace temporary then, mentioned And there drop maybe quarter. products. you is couple I related strength or Is and in you Last in And volatility it. and from that market to

Timothy Mammen

still the defense much. they're only very developing applications, right. is some side but commercialized There's On

kilowatt the restart, lasers stronger demand We is we're uneven be they flow it in got utilizing people will expected commercially year. lasers of of be tends one revenue lasers we that and in on two the be because referenced There's lot second single bought. it. to developed was very business the and remember are for to the the A and very application first so question half the be expecting the part you'll of be quarters mode a So have driven to the lower that's increase in uneven strong going been order working where then in see project orders second will that I half some power XX year. at that lower to just couple and can

Unidentified Analyst

No.

I answered it. think you

answered think correctly. I it you

Valentin Gapontsev

we're same and and laser, but even It It market. about absolutely this the approach for the more sell cannot be much poor so a now production system application for so and going and on different to its We're for market this energy is mainly solution, market. and for very going high the oil example, one gas pull complete on. successful aerospace going to unique for It's for process. same, valuable

We have developed that process.

we materialize in Now system. full the

potential, market, going but large business. its But process very successful difficult some can in order easy products not very to but years some on. so application, [Indiscernible] and extremely on. platform system take we're and this for so Some very introduce it going But huge

Unidentified Analyst

Thank Good you, guys. helpful. That's it. luck. Got

Operator

Our Hayes, Northcoast next with proceed Please your question. Tom from Research. question is

Tom Hayes

as morning. the taking kind for other of up it you Good color it and within power China down move to scale? your brief. Tim, relates be to in to any sales try mix I'll I my just may question. Thanks as relates if wonder provide

Timothy Mammen

little I greater than kilowatts high a May. power very bit. That in rebounded We ultra would the and performed strongly provide in Yes. mean April XX the and well had the quarter.

level some high reasonably of power of There's applications as welding the strong. bit relatively in the the high of -- power. in units was performed really that's lower So a terms a the stuff China that market in mean The were well. benefit. of at high was I some well end

Tom Hayes

Great. the Thanks for color.

Operator

with Benchmark The Please question. your Miller, proceed Mark Company. from is question next Our

-Mark Miller

programmability, of question. for applications? a the laser you Thank programmable growth seen wondering just part in bigger for that I'm You've about the becoming demand is sales?

Timothy Mammen

of cut a the talked there's in area mode the Programmable, we're a of and example with you important In also welding, of the in the world. substantial welding can material. different that adjustable but it's for of about it then programmability customers marketing both around you varying on materials cutting applications. lot mark-up, with reduction splatter It's companies an mean working terms by in thicknesses

Our is ability cutting it enhancement applications actually probably applications. of for program necessarily for the welding is going an is thick that be view to on more enhancing

of dominant particularly cut. type what the be to in to niche people thickness quality perception cutting are have processing. some applications just as to Power materials of Higher when materials quality It's sometimes going mean cut If of our the the cutting is getting two-inch quality with welding. going that's of you're Some cuts. you is not it's example of about don't the head one, laser quality sold achieving adequate an overall require for That you programmability, that's jigsaw for

Valentin Gapontsev

very thin You're talk processing on also provide When laser much thicker much fiber material. COX millimeters we starting so then sheet can people about like application. and one, metal example thicker for two

people because laser only and on. about so one forget provide centimeter Now it fiber

it. with not watt Now also specific, with nobody cut this – cut have to high cutting, quality process very nobody It's centimeter it it's technology, have the we up only this, and so have five still only priority. technology so also to and

But kilowatt. [Indiscernible] deliver also because centimeters more speed, process, it with it's a this process market, market. [Indiscernible] to on. its cutting little far cannot know that compete to produce to [Indiscernible] a nobody so quality develop special way, make today everything it be even try provide nobody and XX example, and technology three kilowatts, power high can to the also optical it’s kilowatt the so this how with provide would they so for cutting to also solutions still. process now can XX Now this the nobody and And with it XX In We cutting today not one. how. power business to so best thickness so cut high on, so It six very

[Indiscernible]. this have We

-Mark Miller

Thank you.

Valentin Gapontsev

example make provide don't this when for [Indiscernible] for like very copper copper example on with for to [Indiscernible] And generator Indiscernible] so high also, problem I also and cutting people discuss but even provide and for powerful them excellent very

-Mark Miller

you. Thank

Operator

time At back remarks. call Hillier you. I Thank James will for the to this closing turn

James Hillier

next and Thank Have coming a the you continued in joining for interest to you us call. our day, for quarter's We morning this your over IPG. speaking look great everyone. with forward weeks in

Operator

concludes This conference. today's

disconnect time. You at you this may Thank lines your for participation.

IPG Photonics (IPGP) 30 Jul 192019 Q2 Earnings call transcript