IPGP - Earnings call transcript Q4 2019 | IPG Photonics Corporation

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Operator

Good morning, and welcome to IPG Photonics Fourth 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 Hillierb

Thank you, Darrell, and good morning, everyone. IPG and is Dr. today us Photonics’ CEO, Chairman With Officer, Valentin Operating Gapontsev; Chief Dr. Senior CFO, President Scherbakov; Vice Eugene and and Tim Mammen.

Statements These IPG in reports call results Photonics’ XX-Q and materially in the that uncertainties the uncertainties obtained detailed that risks intentions, the course section to XX, of statements are of other differ or These those quarter by cause risks the forward-looking and the forward-looking Securities of such Copies company’s Investors contacting and to are June company be of predictions on Form directly. expectations ended made the projected filings Commission. include or the forward-looking from for future statements. could with those subject may discuss IPG’s statements. during these visiting management’s by and the website, this company’s XXXX, Exchange file actual or

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

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

details financial Investor additional Investor workbook the earnings and press to on Excel-based following the remarks website to Relations call. results, post our release refer the For please our these We’ll Relations the our website. posted prepared data reported on of completion

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

Valentin Gapontsev

on strength landscape challenging. backdrop U.S. remain We fourth macroeconomic in above the delivered guidance quarter in everyone. both morning range and slightly China Good competitive The new revenue market the and global products. our

our products laser new investments core the differentiated industry reductions leveraging largest the launch for laser R&D new and responding products. accessories leading to one However, with are we for markets. are cost and of and systems product Furthermore, in edge we features

greater our productivity flexibility products have about weaker near-term, total in demand of for we industry. introduced market and profile and growth for margin and represent enhance core new and reduced solutions, Also and macroeconomic enhance the new sales, trends that our new geographic lasers which provide end These one-fifth diversification. the features

In kilowatt These high-power X near of and at of greater number type include XXXX, up units. power laser by power XX,XXX sales increasing and [indiscernible] ultrahigh at by X sources with – XX% growth to X-kilowatt and we shipped sales in to a numbers of more by laser of total, record greater XX-kilowatt than lasers, of XX% XX%. of

compensate absolutely in by it’s However, this fiber stimulated growth unfair extremely It’s power have did aggressive the caused different It’s Chinese very not market. – competition. price talk. our impressive artificial losses growth others but of revenue with –

customers eight-fold. IPG Many systems cutting ultra are high-power Multiple sold cutting launching our applications cutting our using with XX-kilowatt new these of new heads. are

capability. adjustable beam In sold power with lasers our addition, we and high mode peak first

deliver twice of converter of products HPP cutting laser, increasing while peak parts. speed the power the and scrap quality, through nesting average energy reducing

Our new AMB the electric the enhancing of and production. enabling welding spatterless range battery vehicle beam permit of tunability, lasers speed broadest

see foil significant lasers our in electric this year. power for we opportunities and ultrahigh lasers high with combined When CW market pulsed for the welding, battery unique vehicle power cutting

lasers power beam increase to industry-leading fiber quality. with Competitors’ operation. highest often Our of reliability, and delivering hundred the along investment struggle power, wall-plug several on hours maintain industry’s after efficiency customer lasers return only by even

competitors. micron laser solutions our thin fiber. in than versus metals versus laser heads enhancing is our end also providing fiber, Augmenting XXX micron key XX% with productivity highest core offers peace user deliver brightness XX differentiator competing productivity. lower optical with more IPG higher through laser the mind lifetime of lasers IPG and a while high-power in a cutting costs, customers diameter our

by In beam and delivery of products growing accessories, these XX%. other heads optical sales of delivered XXXX, we record sales

process monitoring and LDD million-dollar-plus We solution. orders also are in with we shipped production enables patented opportunities welding use pursuing systems, our real-time sales. technology laser-based automated weld LDD this environments, of monitoring our associated product of laser multiple greater volume first and

for XX%, in processing December XXXX, of systems and excluding welding, materials with in we We application and for revenue inspection acquired battery increasing medical which sold device a Genesis, XXXX. systems and number custom production, cleaning growth. manufacturing, record pipe systems vehicle Standard drove

to success. new end total in revenue We sales robotic Genesis’ plan and markets. were product and core transportation, XX% fourth industrial in Product alone. leverage laser IPG processing to innovation unique accelerate quarter aerospace In expertise XXXX, system the within remains of XX% the integration for

XX% cell and than improve XX efficiency, Sales solar solar applications range than pulsed ceramics, film, Sales these XX% base, than new used cells. across year-over-year green boards, off of OLED lasers increased small more more increased for XXXX. wide projects more of a batteries by lasers lasers in with glass, circuit processing of to a pulsed ultrafast

to pulsed products we meaningful these we rapidly expect coming portfolio ultraviolet lasers, sales. and a energy ultrafast become And the enhance for expand the green, more revenue pulse total of years and and of over grow we percentage new the

XXXX, laser lasers the Sales solution XX% approvals in thulium increased in as U.S. of our and received medical China

and expect ramp tissue base. applications to We urology low a other over years off soft into the sales coming

stream that increases. Our installed the as of fibers laser model continuing business includes benefits medical and consumable number systems revenue

laser more luminaire RGB than our cinema system increased for XXX% applications in XXXX. of Sales

including new spectroscopy, single and high-power transformative aerospace new areas products lasers mode medical new sensing invest and lasers and application in inspection well, ultra defense. as to for mid-infrared continue treatments, applications, We for within

include and company. core applications. high-power of in and of strong to markets new scientific These We long-term with will solutions optimize flow initiatives our on investment cash along differentiated critical mix features initiatives lasers, strengths in greater strategic success rely the a and the to

areas, IPG flow. to faster for grow deliver in strong revenue these product new growth enabling expect We to cash and

hard thank during I for want to talented challenging work a our their employees year.

of technology in remain confident to our fiber IPG’s tool choice mission I production. during our execute period the delivering our – ever, ability make this As in on mass to laser

in Eugene calls. to Finally, Operating Scherbakov, earnings our ask Dr. I’ll IPG’s participate Officer, Chief

able Eugene IPG’s additional you of and know, member long-serving operational of operational you with of performance be will business. to knowledge provide quarter. many leadership a is into this with executive He team extensive during As IPG’s our insights technical

With that, call to turn the I’ll Eugene. over

Eugene Scherbakov

and I’m everyone. leader you, the calls to joining trends our fiber morning, lasers today future pleased hundreds in the good megawatts on discuss be business. to operational Thank market in you and of capacity. Valentin, remains clear with of installed IPG

In optical megawatts shipped XXXX, year-over-year. increasing power, total XX we XX% of

units China-based toward for Since We that price the rapidly reduce to competition, impact dollar stable. last has more see And our of price among of aggressive has pricing continue second to in the ability reductions. the decline limited the average sold, intensified the year, been but per end has kilowatt year. gross costs margin the affected quarter which pricing time, these value from

up is laser of account cost reductions X further sold. solutions team from manufacturing our our focused significantly for X majority Our throughout units kilowatts, process the the cost believe which high-power on the that by we reduce to will high-power of

cash the of second-half XXXX, undertook and sustain actions measures When in profile we us industry-leading we combined with believe cost of the the our margin benefit full these returns. will that help

to margin of to manage We gross the up environment, targeting will XX%. XX% to structure our business cost continue

by third We at mostly levels. due costs controlling were quarter. we more inventory a This executed expenses, this offset reduction fourth well inventory decreasing absorbed during Excluding quarter. from manufacturing bottom by benefit the than into range in lower was to the in the provisions, them of XX% production

China value in However, cash provisions. reduction decreased as inventory the revenue on by XX% Examining greater XX% to the our us this was enabled and performance generate approximately region, hand from inventory year-over-year represented sales. in total of inventory of than

by impacted environment as was in in price The U.S.-China Europe, demand performance Europe trade very expected, and weaker macroeconomic to decreased In XX% revenue the than average remains had demand we capital conflict, region. the investment As weak indicators slowdown in year-over-year. remain challenging, key due greater declines.

acquisition year-over-year, of North in Genesis. America increased Revenue XX% by driven

XX% Genesis, in year-over-year, sales America increased applications. strong in growth Excluding and communications with surgical welding, North

growth laser advanced North and products. was of beam portfolio diversified testament laser delivery in is our by our Our complete where growth America applications, accessories adoption communications in augmented a solutions and medical increasing strategy, to

Similar welding in Turkey decreased X% in region. in welding cutting region. the battery and remains a in Sales XX% the XX% on on year-over-year increased Sales pressures macro year-over-year, given Korea business in Europe, in however, decreased weak; to to projects in sales Japan work strength number the year-over-year. laser substantial affecting we continue Japan economy of macroeconomic

With quarter. that, Tim turn the I’ll to the to over highlights call discuss in financial

Timothy Mammen

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

CW strength was materials decreased approximately from Sales and year-over-year partially other of in revenue revenue. high-power XX% by total lasers XX% Reduced processing applications. of lasers in high-power and welding cutting CW offset represented

in including growth and and ultraviolet with System offset lasers marking lower processing fine of sales sales Pulsed lasers, Genesis XX% XX% year-over-year, lasers Genesis. decreased pulse increased sales and pulse applications. year-over-year, excluding XX% year-over-year, green for increased by

power XX% softness accessories scale sales product beam lasers the X% sales and driven in and transition Medium to by revenue. service manufacturing growth QCW laser year-over-year. kilowatt in Other decreased increased cutting, in additive increased sales XX% while on year-over-year, delivery

constant points year-over-year. margin XX% For QX XX% X,XXX GAAP the was currency basis declined full-year on basis. an revenue which year-over-year gross organic XXXX, XX.X%, and declined

full have been normalizing reserves, would would Excluding XX.X%. gross a accrual, higher and inventory QX margin bonus XX.X% for margin gross been have

gross points, reserves by basis absorption inventory less higher the basis manufacturing margin of points. XXX reduced basis by of period, year-ago margin margin by the reduced gross XXX to Genesis Compared reduced and points gross acquisition expenses favorable XXX

operating income was operating GAAP quarter Fourth $XXX,XXX X.X%. was margin and

reserves, have impairment and XX.X%. a XX.X% related operating margin would Excluding foreign operating normalizing full inventory been restructuring, exchange been asset have to would charges accrual, QX bonus higher margin and and for

to expenses bonuses an XXXX because As employee a fourth our of for include budget. quarter not underperformance accrual did relative reminder,

you For sales modeling $X $X in approximately of and operating quarterly expenses bonus in expense purposes, of cost should XXXX. million million assume

EPS or Higher $X.XX was share. to diluted assets and per reserves by and long-lived loss goodwill other million, related impairment reduced $X Net charges restructuring. of and $X.XX. inventory

In well. tax addition, EPS foreign losses by EPS exchange as benefited further $X.XX a and discrete $X.XX by items reduced

quarter. dollar been have expected and one effective by quarter higher. non-deductible impairment million revenue goodwill the we relative The of long-lived $X higher the and to in to was to decreased discrete rates The charges U.S. restructuring benefits ago, and by $X effective increased Exchange profit same million rate as has other related to and gross the assets rate in would was the be be year XXX%. certain tax tax

with fourth tax of cash rate non balance approximately short-term We of a the GAAP in basis, effects, debt billion cash excluding quarter quarter and of in U.S., total XX% with million. On $XX most XX%. $X.XX Germany. ended More remaining than these underlying the is held and our equivalents the the cash, cash was of investments

million in resulted million million Effective quarter during than in operational revised quarter. execution of our and expenditures operations $XX $XXX the versus by $XXX year target of cash were the the million. Capital for less $XXX provided

During repurchased for the XXX,XXX we quarter, shares million. $XX

repurchased stock For current $XX our of million full-year $XX we on and have remaining the worth XXXX, buyback million authorization.

the book-to-bill year-over-year. Fourth of of ended XX% line with including year-over-year $XXX normal down frame million, We X% one, backlog, total year shippable backlog, seasonality. million down $XXX and with agreements quarter was in

guidance. portfolio we our and Turning processing, products fine believe in to and batteries opportunities We laser long-term the welding, solutions. significant processing, and growth beam addressing of medical opportunities systems delivery new have micro electric vehicle

holiday, extended with for India January. softness business government Asia, North America emerging demand in such with order in solutions Lunar were in firming, Japan. picked was and laser New remains macro our Current Europe as offset ongoing having China by regions, and in strength leading to Year up signs mix edge that Southeast flow Prior the there and and December

markets continue outbreak However, in a coronavirus novel China important market the and related with situation the to the our very business monitor impact disruption this business makes makes ongoing we for our for challenging China repercussions other is – at on IPG, forecasting global and point. closely. demand large to and

$X.XX, delivering with be The For common in $XXX $XXX diluted and of outstanding. outstanding XX%. diluted the XXXX, earnings million IPG million range anticipates company share tax of shares basic rate the to of common XX.X XX.X quarter IPG million $X.XX approximately quarter to per the expects expects first shares revenue to million. first

guidance coronavirus this approximately the and revenue million This EPS assumes we based This time. from $X.XX upon novel have lower estimate and business $XX is understandings disruption to facts the reduced outbreak. at in related

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

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

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

Operator

time, questions from with this the Our Marchetti your session. [Operator Instructions] John line be a conducting question. question-and-answer of proceed Stifel. we first At Please will of come

John Marchetti

points of year? a much. ex-China book, in that as obviously But January a the spots may into could we going talked out bright minute you. very couple geographically, some some commentary strength? maybe seeing the Thanks the very some about that’s of that’s, just bit I and recognizing be minutes strength look some we as of seeing was were the a looking talking air order the spend given little around spend that on where of of you out everything in up through go could And where China, hoping maybe Thank you of about on XXXX, now in then much risk see there. and that December hoping we further right you just some likely you the you

Timothy Mammen

I a and December, of think OEMs in the book-to-bill one. applications. Year disruptions, in January helped New order flow coronavirus in demand order the in the been really that equal the cutting in China positive pickup in China a general before pretty then that saw for certainly across in bit. terms We have And Lunar little flow

start look detail. the certainly at coming or we’ve that bit four better detail seen of the We’ve that year have pass over good for was I a than was a in was we’d to number, and looked to so haven’t showing really through the it at previous from months. the total significantly more chance a But tone had five where yet.

the underlying in largely to the strength that year you perhaps is stream, continues In referenced the economies grow to which hold we’ve And isn’t of U.S. macroeconomic the at diverse strong new the quite expected opportunities of very terms Sentiment ago, by of well. in got same as regions, geographic the the strength rest mean, cinema that but are much more was on look of would. the continue data and to a I strongly. as we we up driven a in local US, with line coming also it product benefit some medical see applications the

with So U.S. that is we’d I like see of think business a diversification. to where reflection the whole the globally

Starting example, them medical – some sell India we’re in in of China. of medical the also Some will selling the lasers, for China. and to

bit So a of that be a there. benefit should

the the I’d lot reasonable. flow looks to lot looking to of interesting so a will say a least globally, export-driven more at They at add Europe obviously was Europe Europe beginning it be in a order been has where it’s not of weeks more industries, of going stable I of is the year to key. and see is moment, in of first which whether some if six quarter. see at China, of really some bit offset impact uncertain in the to the the stabilization, been quite Europe, pleased strength flow even have European the a order was

was there. were weak, orders remains reasonable January Japan reasonable. Korea in but

area Japan weak macroeconomic-wise, the think is the at I moment. other

John Marchetti

you. Thank

Operator

from Our come Please Diffely next D.A. of the questions. proceed Davidson. with Tom of questions your line

Tom Diffely

Yes. Good morning.

was the orders a curious that picked filling is Have new in those pushed I out lack early the up or sensing December So and void? just orders January. cancelled, orders you it or of on

Timothy Mammen

two last weeks relation We over to Tom, in haven’t shutdown, in the had, mean, the I China.

Tom Diffely

Yes.

Timothy Mammen

just offices Monday. going back we don’t to our or whether indication be changing with later. any It’s a just in and and have situation fluid only of no, out So taken on pushed very major delayed they’re people

because for in year. a the whether permanent lead demand we big to recovers it or out whether a to know don’t push So QX, is it’s pickup going

question, canceled. not Manager the work open that general the keen any the also right? to of theory, one to orders are We I happen China people And comments or from mean, incurring, our whether an they’re have is not losses that, General to can had in back offset is get

bit around today changing situation way certainly, the having they’re diagnosing very This an a on is overnight. Europe. impact market more that’s the and a There’s and virus even U.S. the negativity

It’s really to you of changeable a So it’s not as possible such definitive we’ve today give the anything more just made estimates than situation.

Tom Diffely

follow-up, more, maybe size you do What helpful. the think of Okay. a market battery what view? That’s – just And the are of point used is type or auto then And market. little space? on bit battery prospects in a the long-term laser a from that

Timothy Mammen

There’s about this. a wide variety battery in of lasers lot processes. Scherbakov knows Dr. a used

So he’ll cover that. some of

Eugene Scherbakov

for applications a Battery is There of the welding kind is different applications. one Yes. battery. of

applications, lasers. second And The also battery. customers of case – kind our one, for these weldings different using for it’s

existing should result and mode diameter. options, we these to lasers And potential ABB, result. options, supply beam last good some demonstrates MBB first our very adjustable the the But customer, a

demonstrates for first good results. experiments from very of a Just good we future point view, see our of high-power all. And lasers, this

Valentin Gapontsev

when growing But are production required, I very growing business demand where meet I business production also, also special cutting, you system can will high-speed for cutting, but laser this so we’re market. the we the were major players would products X now, battery us, say, For in would of Tier specified our of use automation super is this batteries green they foreseen requirement. with talking and and some for say, it’s

Eugene Scherbakov

of especially our interest applications monitor, for production. see in big with kind auto lasers. battery received also different now customers. such a the very monitor, are in such online using we important And, by LDD. that that orders – we automotive welding And important kind battery And enough mean of combinations. produced and very for online monitor lasers, for And this big case, our also example, it’s together I for

Tom Diffely

for Thank you the Okay. color.

Timothy Mammen

be the is – a transition decade to volumes long the in was, is vehicles – Tom, that is of your going the Long decades, to investment continues question a other really everyone long electric perhaps. cycle to is decades this happen expecting. part

XX% If that’s billion laser-based investment get probably required XX% or to $X you’re over know, of of as you over going XX-year period. to vehicles, a

still at all that this hasn’t changed time. point So at in

Tom Diffely

Okay. Thank Tim. you,

Operator

questions Ricchiuti question. with your line & of next proceed the Jim of come Needham Our Company. Please from

James Ricchiuti

you. Good Thank morning.

So one high-power seeing was of kind the strength segment things by the the of the quarter the that in you’re struck market. in ultra I was of

to does just to accelerating within in what pace China at ultra an so demand that And this shift reflect, move high-power?

Eugene Scherbakov

in customer, this in course, Of in are countries. all, China, some other trends, flexible of there first to China more much the because comparison

these applications. They XX-kilowatt for much some machines. for special it’s already cutting on produce example, for interesting, these lasers. we’re laser high-power And very customers not used we lasers, for also supplying optical our, the [indiscernible] of supplying our But us, are because

there to in combination, can produced XX-kilowatt And saw such some ask kind applications. But for start generate also some Japan delay is with laser this we also Europe. and of trends customers in And fiber, also cutting now good revenue. special a also in about we

James Ricchiuti

just I Got near-term? it. about anyway guidance, in if underutilization Tim, QX. the Is to to to going margins headwind impacting from there gross assume And be with margins I gross QX think there’s in considerable may, the respect a

Timothy Mammen

is I one of unfortunately, most will this probably since mean, the Yes. have quarter XXXX. that had difficult quarters we

margin that guidance in factoring the that XX%. below So we’re gross is

be in higher We’re of a expenses that $XX the QX sort million. using they million than $XX operating to in were will bit

at slightly XX%. to If exclude the reduction top-end have QX gross been the of related have range, the the for it would have the And the to margin range, been below at about XX%. in closer bottom-end would you of demand impact been would the XX%, China,

going a So the coronavirus, impact you back QX, us. of be difficult even for in quarter there’s add to obviously if

into we’ve if have based transition flow. QX trends expected the seen on order upon held that, would order what really to a had stronger We up

more had of QX, and as probably it we’ve one context. said, in difficult a So the years I for difficult is quarters that last XX the

James Ricchiuti

contributed anything of is Got that me just there of to growth? to terms it. And unusual pieces last respect U.S. the question for with business ex-Genesis, business, larger in that was

Timothy Mammen

QX, can into LDD, automotive That projects that had – welding U.S. largest similar was generally about Eugene that that we that you order talked with that we battery nice had way order I some It was a entity. similar are custom benefit Those in European mentioned. ultimate single the was – see reference. right? will So went There a pickup into a took. before. probably That a it we the was

You on. had in going pickup from but some carry a benefit medical, coming that’s to

actually laser for got January that significant two large already U.S. in can the medical shift. was one ultra in year. of. January. ship ship the the for are business ultra a Those talking the other by by didn’t high-power, the that order things the think XXX-kilowatt about the overall And benefits, – kilowatt in had order We way, way, booked to was is this of We’ve going I high-power the in the XXX did the Germany,

ultra numbers the high-power well. of some benefited that as So

James Ricchiuti

Got it. it. Thank a appreciate Thanks lot. you. I

Timothy Mammen

Jim. problem, No

Operator

with questions America next of of the Lynch. Feniger line from Michael question. of Merrill The come your proceed Bank Please

Michael Feniger

thanks guys, taking for Hey, my question.

forecast Just you on – difficult talked – just just Could Tim. and is it’s first flows help order in about that I sequentially to something January? us, just you know, picking that see? you off, Obviously, December I’m up

help that you feel trends, Can – understand gave or firming. markets just than the to typically curious, you reassuring business more – given that I’m comfortability that? were like just depressed seasonality, you know flows pickup seasonally actually some the that there is we I like how order is before did how there what us it’s was

Timothy Mammen

an equation. flow, month It’s weak order January a years. Normally, last for interesting is in two the

– So of sorry, to coming XXXX, the depressed beginning XXXX. XXXX, a depressed the a off beginning off coming of end

to the order end quite other had strong in when China strength and year, business the the of obviously last also the in which areas. you in overall June. drove tailed got then January That first-half of We off flow in

halfway QX and But you was a on want to Obviously, to those saw weeks first into we the on I this in general to the of bit latching want to want more are obviously similar a you’re good. last – or year. strength, see positive, through to year not a trends want want little on. than this we think, slowdown even positivity half year. this if few pretty carry – to the maintain you QX trends We a bit through those – we see momentum. overall see and wouldn’t carry We tone So

Michael Feniger

helpful. That’s

Valentin Gapontsev

have a [indiscernible] flow fourth quarter what order in we stop was [indiscernible] than other practical total. record much any absolutely But higher a before.

expect January We would be but… that any platform compared big way to order years, other

Michael Feniger

That’s savings our margin QX If just business inventory understand just revenue all cost savings we now, if a the the own gross we type have that’s on managing see you’re with try through to million the range think how helpful. you’re of trying and $XXX And can is at of revenue I Tim, forecasts number? that to the with about difficult, a the can maybe achieve? cost occurring macro, but how base we’re with charges, just we

Timothy Mammen

I’m of XX% comfortable midpoint back So into $XXX being million of the to XX%.

would moment. If around to be margins back million, the so operating then, It’s And way seems think. that XX%. closer and probably off long the a around trending you to operating $XX at can a bit up slightly expenses which I level quarter, a above get XX%, XX% $XXX to should like at million

with with that. this So at time in we’re point comfortable –

got rolling is, long in we’ve two as next big a that some so there model business cost the we pricing, reductions the think caveat again, isn’t I to quarters continue massive or so. into the over around make that change

Michael Feniger

just in inventories. That’s on great. If squeeze more could one I

with of should basis macro, mentioned, are crystal Are do gross position you million, the no inventories. your now? on like where ball think how I through – hit those you, was or quarter, believe there’s are the on margins for think inventory XXX over to how you you we’re you points right but we some $XXX Obviously, Tim, I now? it with feeling charges? And

Timothy Mammen

we just through elevated but of QX, have we normal. even normal and I Yes. we’d in we’ll went quarter. dealt slow in in inventory, we’ve We detailed – QX you’ve being a range moving X.X% with the of QX to review that provisions and believe more – targeting seen really be compared per excess a identified, and X% items provisions not potentially to items certainly that

have demand stand $XXX statement to $XXX course, it very be million where $XXX was. come But comfortable in inventory. caveat back, you’re with demand where Of million if to if like relative to $XXX – that million doesn’t getting we to to or on back you revenue, million I’d with

just was around the inventory There the inventory good groups good execution really down. provisions that the took The other wasn’t it manufacturing world. thing by was,

that we from So the was which generated $XX thing actually inventory cash great million a of see. quarter, to in

Michael Feniger

Appreciate it. Thank you.

Operator

from comes proceed question. question with of Edgewater. Wittine Please next Our your Joe

Joe Wittine

Thank you. right. All

of tailwind at of to Just it’s levels et questions the be highest end how trying rising finally you’re me, coming ultra cetera. It XXs extension understand some the then And for coming. high-power, kind to like XXs, product while the been power much in continued a are China, could XXXX? in sounds in a market West, if wondering a seeing

Timothy Mammen

– question shift The shift… about the continuing

Joe Wittine

Yes.

Timothy Mammen

a much be? can benefit how …and it

Eugene Scherbakov

– such I already it’s the kind cutting applications. but material for for no applications of also kind the about of – of competition Benefit all, for in And applications, applications, benefit lasers, if also. economic and definitely end, different for there Yes. welding And are powered first us. welding also talked high- special clear.

lasers. much As possible, trend high- high they will applications, on. kind give And as use only high-power It’s efficiency benefits. from us additional different power so definitely of and

Joe Wittine

on high-peak And you. then power�� Okay. Thank

Valentin Gapontsev

received me year year, use, – much whom [indiscernible] for. the working, before time advanced better growth expect applications. high-power potential different introduction practical in we it customer with we’re – working serious high-power this They solutions went have more tell high to much budget are use you, Let than for when demand we budget for this the volume

Joe Wittine

elaborate macro you Could applications? advanced those are what cutting And and still? Are within welding further? those

Valentin Gapontsev

it’s application. our no, no, No,

Timothy Mammen

material special A process.

Valentin Gapontsev

mainly application, material as a processing. Aerospace, not

Joe Wittine

to still Understand. high you said are power then the CW, think calls switching underway, assume Thanks. And there, and I one. you shipped peak would gears I the

insights So acceptance. I’m you more have into some assuming the market

in that great? half product expecting as cutting throughout could kind would So the business? future out the penetration sort product is sales I or commercialized, cutting there are fully be of more what of help any be mean, broad Thanks. that less, rolled once of fully you your

Timothy Mammen

a still think up their unclear continued cutting on HPP, applications. I So be relatively it product customers evaluating end that to being, It’s can as sales different are there number percentage the Joe. total of what of within to

have we’ll that go and we incorporating through feature year think clarity customers this more product within that start as introduce I to it. on

more the very AMB so. the over welding of bit said, splatter a a there’s clarity particularly there, reduced would given strong of for AMB, We’ve acceptance applications, There’s improvement performer be in a and quality I’d where that. lot welding, say, on always

Joe Wittine

great. And Okay, finally… then

Valentin Gapontsev

In the an don’t to It’s with performance China, so nobody of mid-power want similar. laser level from nothing to absolute we in competing HPP competition, say option. families to up, current quarter, existing the new second new compare introduced our laser

to because drop margin of the to HPP with but for they very us price. of lasers mid- including grow very will more, still So spite performance was high will And and increase way HPP mid-powered with generation of return which new essentially gross the also to in option. – power option HPP new for fast. a It’s deal much also [indiscernible] [indiscernible] the exist new in a allow quality lasers, very profitability, the also that

Joe Wittine

Interesting.

you to holiday the on especially year the Have mid of your to the piece. the for on indication the received me portion related fine quarantine? consumer smartphones and for of welding Finally, any electronics business, part prior orders

of perspective to models assume of the in to production prudent year years? stronger a it an uptick believes in think a be part to those I given, for from chain, supply I’m is going coming quiet it’s everyone investments for a trying off that smartphone assess few unit our how

Timothy Mammen

general likely a view is catalyst to we massive orders. be is was on indication Yes. driver a biannual, huge in yet terms to any going The some there should but laser not from have it supply don’t side be in probably it’s a the going as be XXXX. No, not typical of pickup,

repurpose of phones. existing even For newer example, into production for some they lines the to lasers continue

like as QCW this doubling like it’s So drive sales not those going Joe. that year, anything of to or

Joe Wittine

Tim. Okay. Thanks, Super helpful.

Operator

question. proceed question your ext the line Mark The Our Miller Please from Benchmark next of comes of with Company.

Mark Miller

Thank you for taking my question.

agreement went framing color and provide down. on but that? backlog up the at looking orders year-over-year, – at were look to some Can wanted you Just

Timothy Mammen

was No, frame down the Mark, backlog, I X%, including think total agreements.

a being bit still a uncertain. the to but start to points it year, So reasonable little

we lot think shippable on side. a the I focus

still frame put, that get and a of demand frame example, there’s have high ultra underlying for power-licenses. There’s now So terms been in to higher-power agreements. lot particularly the agreements some of

requires still some side So to I lasers, there’s you’ll on see biggest that, macro for in That would on clearly clearly with that’s – on would more resolution, licenses if frame it But go it. but ultra the economy be through the high-power in demand stabilize, not and the certainty biggest increase. that which the China. the require those the of read come resolution cycle stability I is situation the out think, agreement of that trend current relation

were what more where the think the rather focused were we I than QX was on X. bookings in the closing backlog, book-to-bill

reasonable, was that at that our slightly So a were range. we given above guidance

January week and in of excluding positive the first bookings, week Our been we’ve the February, seen though, trends first real China, even obviously. in focus of February – have on on

Mark Miller

of a to is the similar of terms higher-margin in mix you’ve this backlog, of what from the some or terms we can margins? too, backlog In terms in mix, seen? expect the And improvements

Timothy Mammen

in as To market in impact the frame stable QX XX, a some ultra saw, that and you lasers would cutting that well by think been That’s backlog relatively towards driven in benefit. of referenced referenced, QX in us, moving the actually, China all margin licenses will balances. of I be for the agreement higher as low-end margin a the us. QX, got Valentin potentially and this high-power XX getting XX, I remain even to have

you So, other coming of you margin some a ultra from at advanced some has then see high-power that orders benefit. these in high-power, applications ultra see recovery a

We’re selling application, more AMD welding a lasers benefit. into the battery has that

We’re combining benefit. a for welding the LDD the that has with

as the to but lasers, fast for key then company. ultra moment, backlog have They as of high And them. technology year everything, which at of the growth driving those also target of a during volumes extremely be on is significant those green growth business margin well the in and wouldn’t

Mark Miller

you. Thank

Operator

Our Research. with Please line Todorov the next Nick your of questions come question. proceed from Longbow with

Nick Todorov

or welding. I’m more with that? – AMB Can assuming lasers? you. about guys. welding? we highlighted you and I’m you morning, within Maybe us Can the Thank systems give lasers. mix on it it’s mix sorry Good color is in But talk strength Tim, any

Timothy Mammen

for wasn’t that as was well-monitoring order, That on heads but welding there AMB, U.S. real-time the the supplied mentioned, processing but significant also benefit systems, actually the There’s was that welding. in some battery I well. order and benefited it the was with LDD,

have other benefited stuff. welding-based QX, as exclusively, systems, welding of welding largely fourth as recognized that was but the some There of lot performance. that goes Genesis some that there have though systems well though is In stuff is application, as A some would obviously applications a on the the of outside would not in driver, revenue welding-faced pickup through well, been been quarter, in some QCW which

Valentin Gapontsev

Agriculture.

Nick Todorov

more core the like you see what Okay. take seems America but particularly and from outlook I little understand forecast, Europe in hit to stable. other markets that on North it’s to the in markets difficult cutting a Are willing China, bit can is for North XXXX? a America, you

Timothy Mammen

reasonable I the the in to on robust and and targeting that advanced U.S. even reasonably these, focused referenced just different like but business, then not newer acquired applications, of example, the significant the applications, organic environment, and technologies, of high-power but outside deposition welding, – such applications, see cutting semiconductor, applications, the earlier across cladding is some applications demand of business business. largely U.S. cutting numerous we’re the systems across as well medical, the think this as just systems for the growth across not call core a for continue we all the year in I

introduced. which medical being for stent market dynamics The a enhances year. example, cutting, last system The very well. devices, in that’s as performed our think we There’s new that competitive well

of lot here in to that macro compared rest So diversity a the be environment the of the world. a U.S. helped by business would stronger

Valentin Gapontsev

great last end a And year, of year, now second-half last until drop. made

of a plays many – the technology serious of implementation welding cooperation to Now in Tier long-term aerospace very and X with big signed very with agreement laser transportation. we now in go welding the level new into segment of We industry.

development, full more new And the the long-term welding of but not the market. the It’s kind material and segment – process of sell so of to in for Then the large the like and partner joint system only automation of before welding the X a we in market such each ways ready them with corresponding new in development become long-term mainly for production Tier provide – in cooperation parts including for so them, ways full solution, processes, on. complete providing lines. special in and identifying more real

In a so open and also In in players work U.S., processing metal not welding, It’s processing – material and on. opportunity. in the It’s with in the in the sales but partnership cooperation, just the material where us also biggest of long-term other -- you material, on one. material only not Europe, the for the retail in market. see [indiscernible] to this

Nick Todorov

Understood. Thanks, guys. Good luck.

Operator

final the Sankar comes question. from proceed your with Company. question Krish of Our line and of Cowen Please

Krish Sankar

gross today impact Tim, your under on margin, questions. One to for the Hi. my from I question. commentary Thanks taking absorption. margin is, on is had quick two understand biggest Yes. gross I

$XXX service assumption of is million basis, you were revenues of Is $XXX revenue systems inherent that that XX% similar when XX%. margins look total on quarterly range million today? to is to it the gross percentage up So a at a the

the the Thank on you. welding And side? mainly quick for then opportunity EV follow-up a Dr. Scherbakov. Is

Timothy Mammen

in margin, perhaps laser than million very million, you’re growth systems, to – proportion XXX we’re the of a in business even In terms to though quickly recovery you’d bit gross more in growth recover actually targeting or strong $XXX terms systems. of of expect

top-end on a be before. basis little compared equivalent to where of to were a systems would the relative a be like the of margin an there’ll but So drag benefit, bit we still that range,

excluded above XX%. above you XX% systems, you’d be the – slightly If

Eugene Scherbakov

Well, Okay. cutting view, vehicle. a for from [indiscernible]. welding Also welding point use connected laser welding are our or very this to opportunity your some see to high-power also course, there of for big perspective wide for lasers. we only exists good or not applications battery body And of our and

Krish Sankar

you Thank folks. Great. much, very

Operator

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

James Hillier

IPG. interest you continued Thank your us morning and for in for joining this

the speaking great a to forward weeks looking with day, over next quarter’s everyone. you our call. We’re Have and few next

Operator

This Thank you concludes today’s for participation. lines may disconnect at conference, this your you and time. your

IPG Photonics (IPGP) 13 Feb 202019 Q4 Earnings call transcript