Q2 2020 IPG Photonics Corp Earnings Call
[music].
Good morning, and walk up to I.P.G. Photonics second quarter 2020 conference call.
Today's call is being recorded webcast.
Hi, I would like to turn the call over to James Hillier I P. Genies Vice President head of Investor Relations for introduction. Please go ahead Sir.
Thank you Steve good morning, everyone.
With us today, I'd be chief accounting, Chairman and CEO Dr. balancing.
Chief operating officer, Dr. Eugene Tropichop their.
Yeah No tomorrow.
Statements made during the course this call that management or the company's attention.
Patient predictions of future.
Statements. These forward looking statements are subject to risks and uncertainties that could cost the company's actually results differ materially from those projected in such forward looking statements.
These risks and uncertainties with the impact at night.
And those detailed night Canexus form 10-K for the period ended December 31, 2019. Other reports on file with the Securities Exchange Commission.
Copies of these pilots may be obtained by visiting investors section, if I could use website or by contacting the company directly meals copied on the Fccs website.
Any forward looking statements made on this call.
Do you still predictions only as of today August four 2020 companies seems no obligation publicly released any updates or revisions to any such statements.
For additional details on a reported results. Please refer to the earnings press release, and Excel based financial data workbook posted to our Investor Relations website.
Most of these prepared remarks on our Investor Relations website following the completion of the call.
Well now turn the call.
Good morning, everybody one.
Despite the continued shouldn't inches so why would be isn't as put on the quite a nice chin.
We do with second quarter is well above our guidance range.
Oh, it's truly a couple months one driving by went to then expected deployments in China and trends in you put all that.
Before discussing the wages trends in our music I.
I want to go to lie to you we sent up indeed.
Oh boy in airports would yield we squeeze night and day.
There would be no problem with people.
Our customers and how.
It remains our highest priority.
Well continue to money prayer Chin Saturday is I would tell you what's going in all regions.
Maybe an employee Ted you know just considering the convenience and <unk> and where do you feel occasion and use infection, but she just.
Well I put a wide you know employees, we smarts to where you know course usage.
With the state to Massachusetts, it's not going to freeze city. It won't you said you opinion when it's Chris so while the top two but in reduced snow employees, but don't into our quick Walker.
What would it starts in the way all.
In the U.S. there'll be more commercial agreed to with our cross synergies in Germany, Russia.
Our commitment and support the war for health and safety extends to acquire Tonight in the sports airport in the local communities what would the white.
In addition to the nation in China, Russia, and the Europe, we've ever done May two two essential part useful placemark door entry each board.
No one knows I won't go kind of cheap cost.
Oh, so we've got what isn't the way it a sizeable financial contribution to sort of what's going to education do well.
To put cesca could own books.
No I know you occasional programs these well.
I did just can meet you talked about can you can.
And Paul.
And they weren't city airport.
In our local communities.
Then.
We believe would that come to wage and old today, where <unk> includes you're walking vitamin.
Once the Zip.
The coach and you would show.
You should expect help ensure our but all would send success in that market ways.
Yes. The goal we're not a problem the type your Gee, how will we be if one wants to create a company. They have to what did you do pride in our industry and quite a day to day operation were committed to improving our.
Communities and our source Ritchie as Oh.
Since it is it time.
<unk> threed shoot the commitment to what state culture, which in and presented in a couch old way.
Well, our greatest say GPS antenna wage [laughter] comfort on the day when its collaboration.
Gideon skews and been good I wouldn't.
Our people.
I need to go out what is how we continue to win if you don't signs as well for him docks. There would you mind couldn't comedy in select <unk>.
Most notably China.
But you called out demand for high powered she double your parts ways hopeful catching then we have to do you purchased an application remain at all but.
Probably away no demand trends remain where do you I'm, saying jeez.
And we have seen kind of continued <unk> NGL ways, it's still works well with Jim and she's done, but also in Western Europe, North America, and I was impossible wage.
Since I'm said she continues to where you put a cost in our business So Betty Chen didn't fit.
In the near to medium term.
We continue to believe that though Oh watch they were starting to one it's much easier pin completion technology platform, but if you shouldn't I didn't do you more no and well.
As well, what's going wrong, but when speed and a pretty cash from old, but our wiped out mpos exhibit didn't used to respond to business disruption and you may have.
I don't see pandemic into their own good compared to what you position.
Oh, so they did your mind tend to widen my opinion Wainscott makes you.
We are you must reach in a good progress in our quarter market.
Same store with technology, and you hit integration and the low cost production capabilities.
In the catching the market, we didn't hear what they're going to commit to show good always imports Y O Y amounted to 1.4, Kim I walked away is that's where they probably.
Well, you're market and our ultra high power ways, that's what did you niche kaczynski's.
We'll go watch will follow a new old better outcome part why and I haven't done you will see area. So maybe that it's PDG is once again raising the bottom or did you an age woman.
Let's see how do you have William Cutchin [laughter].
Gee why couldn't Dod industry, you can't see essentially extended talk to go performance. This more what size into why was to bleed into the industry.
First time for the for their intro devices, it's <unk> cryptic kit the game so humidity penetration.
Delivered in a much bigger four month in Oh, <unk> compact form factor.
We said hair cut to power <unk> William ratio.
<unk>.
Do you feel you into the market, we expect the benefit from just stopped and show increase you know order volumes, well, Oh, Gee kilowatts somebody that and Oprah <unk> Pablo Oh go ahead.
This way so not only enable keep keep too crowded, but since the plastic catching speeds than 15 came aboard you I see it but I kept people of course isn't much either would with 20 to 50, mainly me central sickness.
So you wouldn't great.
This improvement in both the TV Gn flexibility is driving the placement and twist dime plasma catching machines.
<unk> <unk> and more power in ways that solutions, but you can do that really is in my shouldn't folks in construction industries.
More out when the somebody is it's probably <unk> she appears to be im quite or I mean, there's an aircraft won't work if you shouldn't see it into unique.
<unk> idea why you did did she did a the coal marks or power solutions. It leach.
I used to PD already dyno Nobel last month the war our customers.
I would just to go more Jim Amazing continued to gain traction and see where would you industry most notably in the adapted it would be a cold wet anywhere we didnt.
Our <unk> product, but I'd use your p. at its peak in the where we're going to cheap I woke up pitching it solution since two but will discover interim deemed usability did she may Bose.
Afterwards, well would you.
During the quarter, we're getting old double what they were told Highpower. None that second thought somebody is a useful for you got Jim and I was elected to go vehicle, but that he works, it's an application and we do expect throwing a good always in Ses application.
To continue during the second half what did the year.
Well the can away shouldn't I didn't wait is core to I.P.G. success.
During second quarter, you might have shouldn't put all that and applications sales were a one quarter well thought out whatever new increases in yeah, we need to when she puts them sequentially. Despite.
Softer demand trends in say, whatever let's say what I would you put all the catch a good is due to the quoted 19 <unk>.
Stay with so many companies the increased more than founded 50% year over year as we continue to fill our goal now Oh, what did you wont stand up to limb ways that underpin I'm concerned mobile private school.
Well at all and treating the opposite so you shoot application.
And the ones implication that revenue increased more than once you put spend year over year in Q2 did I even in Q2 did I even by students in government semiconductor and Z, but it's I'm sure no sitting in my perception system.
[music].
Unfortunately, we recorded.
They chin funding mix limited our ability to wake father broken that when our Gideon open or why you are with an open up fast bulk somebody says into imagine might get a product in the application.
Given the say they predicted.
Yeah, well and food I wonder of customer sites and application of lips.
During the quarter.
We continue to target more than 50, new probably easier when you could order was he somebody's as it could also bite differential publication cross it seemed to Colorado sit or I mean comp upsized much you deal with no matter Whats could you just don't sit keep the boards or do you feel but.
That is and solar cells.
We're continuing on the last month in a number of next generation solution. Let's we went to lunch I wouldn't the next six to 12 month with significant just dropped but then show. This is simply with our new with outstanding [laughter] <unk> <unk> and that are wind the can fill it up.
It's a new with good order book, where do you Uh huh.
What did it should it's mark had a chance.
Oh Gee I know she quit juicy w. embodies that's what's what where would you know application and Kim Award scale, both ways, that's well ablation and Clint Endopredict case.
<unk> as well at this time my when she came aboard dual deal and good evening.
But we.
Do you want to my Chito export season, So we continue to do away with appeal soft tissue.
Did you go to determine Mitt informatics delays as well well there could be a multi solution.
My decoder molecular data endeavor.
He said uth skin on the widespread totals could be inspection sensitive and by a major coded. So what's your application new high speed transceiver, <unk> well they tend to accommodate a coal markets as well with new.
With that Okay. Palestinian go mode, amazed that and you find it for you ramp up application.
I want to conclude my remarks, yeah, right and keeping our people put this thrown execution, our or one of your most kids engine.
<unk> priority on the in outcome, hoping you skew study.
He made important feed into that I would technology and manufacturing leadership will enable us to work spend eight little to how well the funding and deliver on our mission 2 million Coa try but with the technology ZIP tool of choice in March production.
With that I would tend to go how would how are you avoid you ginger.
I'll begin my remarks somebody discussions there [laughter] quoting lines, just on or out of production.
All three of our amazement production facility in Germany, the United States and that offer remain open.
We have increased production at our facility in Massachusetts has the states continue to progress on its pretty open.
Oh, Fortunately in Germany in Russia, or operation on lot of the normalized basis, albeit is a social disposal and I'm house cleaning and filtration <unk> in place.
I want to reiterate that thanks to our employers they frameless out a business partners can you answer remain our highest but in order to.
They continue to benefit from out of ethical integrated product model, which enable a key technology and cost advantages or what are the competing so while me minimizing supply chain disruptions.
The kind of go strain on our business, primarily stickiness on parallel the effect of our sales and application development efforts.
As well as our straight month of fraud at all the war.
Shipping cost, where again anyway did this quarter Wow, if you see the so the late yeah and push out.
In the project based work <unk> line on that.
However, we continue to be too early.
Okay. That's it for me.
The near Palivizumab before our product.
They continue to bring if you put all the cost reduction that acts axles. They undertook the second crop I mean tonight.
The total body picture operating expenses increased approximately 2 million sequentially, while revenue increased four to seven nearly one quarter over quarter.
Yes, I mean, it all performance, but Asia anything here in China decreased 11% year or youre, but more than doubled sequentially data presented at <unk>, 49% out of football sales.
We benefited from strong successfully brought in sales.
Gotcha welding and battery processing.
Then by Picop, and all that activity in March and April the continuous it was all either <unk> or Q2.
Albeit at more moderate pace.
They continue to France aggressive competition, there's good reason, but they continue to maintain share that's the key accounts, while I anticipate it and so that all mix of laser 10 kilowatt, what a great. Though is the second powerful thing to director.
In Europe revenue decreased 24% year over year.
<unk> like it or mainly competence galmed assumes that angel.
Yeah, It anything new in North America decreased 16% year over year. This phone calls and medical lasers and lots of applications more than offset by declines and lays on system sales for material processing.
Sales in Japan decreased 60% year over year.
While quite as much of its actually that he's on the whole other quantify the country has spoken and stuff and what kind of economic opportunity.
The main insignificant browser is all the building and gotten businesses that either.
Built into it.
Deeper South Korea.
As economic opportunities remain subdued.
And sell in talk yeah decreased more than 70%.
Generally you have a quite 19.
I want to be affected the cuts in sales and regional.
Does that I will talk a cool so overall the team to discuss financial highlights in the quarter.
Thank you Eugene and good morning, everyone.
Revenue in the second quarter was $296 million.
Just declined 19% year over year, but increased 19% quarter over quarter.
Revenue from materials processing applications.
Decreased 21% year over year.
Revenue from other applications increased 36%.
Sales of Highpower, CW lasers decreased 26% year over year.
And represented approximately 53% of total revenue.
Sales of Ultra high power lasers at six kilowatt so greater.
Represented more than 50% or total highpower CW laser sales.
Pulse laser sales increased 4% year over year.
With growth in high power pulse lasers.
Partially offset by lower sales of lower power pulsed lasers.
Marking applications.
Systems sales decreased 37% year over year.
As growth in systems for medical device manufacturing.
Was offset by lower sales of other I.P.G. laser systems.
And Genesis non laser systems.
[noise] medium power lasers sales decreased 31%.
On continued softness in additive manufacturing.
And the transition to kilowatt scale lasers in catching.
Well Q CW laser sales decreased 14% year over year.
But increased 39% quarter over quarter.
From sequential improvement in consumer electronics applications.
Other product sales increased 21% year over year.
Driven by growth in medical laser sales.
Q2 gross margin was 46%.
Which declined 350 basis points year over year.
Compared with a year ago period, the declining gross margin was driven primarily by less favorable absorption of fixed manufacturing expenses.
In addition increased shipping costs were partially offset by lower inventory provisions compared with the years I agree.
Second quarter GAAP operating income was $47 million.
And operating margin was 16%.
During the quarter, we recognized a foreign exchange loss of $13 million.
Primarily related to revaluation of U.S. dollar cash and other assets in Russia, given the appreciation of the ruble.
First is the U.S. dollar.
In addition, we incurred a charge of $1 million, which includes noncash write off.
Machinery as well as other charges for severance and lease termination relating to our strategic decision to exit the submarine networking business.
Foreign exchange loss and other charges.
Reduced Q2 operating margin by approximately 470 basis points.
Q2, net income was $38 million or 71 cents per diluted share.
The previously referenced foreign exchange loss.
And charges for restructuring and asset impairment.
Reduced EPS by 20 cents.
[noise] effective tax rates in the quarter was 23%.
If exchange rates relative to the U.S. dollar had been the Spain as one year ago.
We would have expected revenue to be $8 million higher.
And gross profit to be $4 million higher.
We ended the quarter with cash cash equivalents and short term investments of $1.2 billion.
And total debt of $14 million.
Strong operational execution resulted in cash provided by operations.
$73 million during the course.
Capital expenditures were $20 million in the quarter.
For the full year Twentytwenty, we now expect capital expenditures of approximately 100 million.
Below prior target of $115 million to $125 million.
During the quarter, we repurchased 131000 shares.
$16 million.
Second quarter book to Bill.
Was greater than one with strong bookings growth in China.
Offset by weaker order trends in other regions.
As expected to post the pace of order growth in China moderated in the second quarter.
As the quarter progressed.
Well, we have seen modest improvement in order trends in other regions.
However visibility into a recovery in global demand remains uncertain at this time.
We continue to benefit from near term growth opportunities in ultra high power catching.
Electric vehicle battery processing.
And systems in devices for the medical industry.
We believe that the strides we are making in higher products within our core materials processing business.
New solutions will enable us to a much from the pandemic in a stronger competitive position.
Well the third quarter of Twentytwenty, I.P.G. expects revenue of 280 million to $310 million.
The company expects the third quarter tax rate to be approximately 26%.
Hi, Peachy anticipates delivering earnings per diluted share.
In the range of 70 cents to one dollar.
53 million basic common shares outstanding and 53.5 million diluted common shares outstanding.
Financial guidance provided this quarter is subject to greater risk and uncertainty.
Given the cobot 19 pandemic and its associated impacts.
The global business environment and government policies.
As discussed in the Safe Harbor passage of todays earnings press release.
Actual results may differ from all guidance to two factors, including.
But not limited to goodwill and other impairment charges.
Demand.
Order cancellations and delays.
Competition tariffs trade policies.
Health epidemics and general economic conditions.
Our guidance is based upon current market conditions on expectations.
Assumes exchange rates referenced in our earnings press release.
And is subject to risks outlined in the company's reports.
With the S. You see.
With that bouncing Eugene and I will be happy to take your questions.
Thank you we will now be conducting a question answer session. If he would like to ask a question. Please press star one on your telephone keypad. It confirmation Todd will indicate your line is the question Q.
We press star too if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys.
Our first question comes from Jim Ricchiuti with Needham <unk> Company. Please go ahead.
Hi, Good morning couple of questions just on the other applications area, you referenced that 36% growth, which is certainly a strong growth rate, but sequentially. It was down and I just want to.
Maybe square some of that with the commentary you made about the momentum from new products was there some coal that related intact that sequentially affected that.
Was it just more macro related.
No it wasn't really either of those things Jim first of all.
The medical.
<unk>.
Oh, the lithotripsy application was launched in Q2, and we had very strong initial sales is the [noise].
Customer not area built the inventory to launch the product.
I had stated on the Q1 call that revenue from that application would still continues to be strong on a year over year basis, but the total demand would moderates a bit compared to that initial product launch interestingly dot customer. The launch has gone very well and we actually received an increase in the total orders that we've caught on.
During the quarter.
Additional 4 million. So that's more just timing of product launch rather than anything code or macro related in particular.
The second thing is the defense than other advanced applications, including instrumentation and others had a very strong first quarter, we shipped 100 kilowatt laser.
In the U.S.. So again, it's more timing of orders for those some of those other advanced applications, which performed again well in the second quarter, but just relative to Q1 some of the evenness around revenue.
Was exhibited interestingly, we're working on several more orders for high power single mode lasers in the U.S., we have in order to be delivered to Asia or in the second half of the yet its little bit of uncertainty around the timing of that delivery. So the backlog around some of the advanced applications continues to be big telecom business in Q.
She was a bit weaker and that was cobot related demand.
So I think that clarifies feed does.
Okay.
If you can it form where do you go.
Did you go way to see if interest magic on my Kid Theater, when you'll get all so it depends throwing do you ever G. you put all though Chris number one it's so where are you ready successful in order words, you know it become go then nowadays recognizable and that the new in this ordinary application, but the one of the fifth what do you.
Two to three mom, but where did you ever G. For example, she had an old since in China, and Russia, where do you see it wasn't a few months ago, India or did you stopped hoped they would that be calls before it was 44 tested store so very well since you thought or would you implication on just stop Jim.
Secondly, we developed new products not only for an overview, but for work I put pen odds application medical application, but it's almost every dollar wise should finish it. So we wanted to I won't say mid towards you know a where they will prevail, but do we still stage old densification, you'll get that.
You know, but you know there comes a similar I put although we could not share with you if in the market well, we expect next year for yields where do you see where most of it put away then we will open they deal with the vote the margin attacking the market from when you are these going from when you implication so where do you go away with that business where.
Greg will grow what are your <unk>, Nick <unk> who's going to you.
Got it.
Thank you and it's just a follow up on the the guidance.
I'm wondering if you're seeing any stronger demand in the consumer electronics market. There are some companies that have shown some some demonstrate some pickup in demand in this area and I'm wondering is that at all factored into your guidance.
So I mean.
Yeah, we sold some tomorrow evening Q2, Jim was accused CW improvement, but for US the total demand environment for consumer electronics is certainly much more moderate than it's been historically, that's a bit of the benefit that styles into consumer electronics and.
Primarily in Asia, but it certainly hasn't got the momentum behind it.
We've historically seen on the materials processing type applications.
Thank you and I'll jump back into queue. Thank you.
Thanks.
Thank you. Our next question comes from Tom Jeff away with D.A. Davidson. Please go ahead.
Yeah. Good morning, first wondering what the relative strength in the pole business is coming from.
So that was really on the high power post its electric vehicle battery applications, including a foil coaching.
Cleaning applications as well so.
The I'll try and a higher power pulsed lasers that we have a significant competitive advantage in the market for those types of applications there may even be some.
A limited amount of welding being done with those high Oh pulse lasers, alongside the Q CW as well.
Okay sure.
Beginning leading into for example, already booked on cullinan stopped or to grow whatever Bob <unk> for this when you do you want to come to a a menu founded talk to you in kilowatt fault.
We are kilowatt power filed from ways that we're carrying through all the sample from ways that it's not a way both from the products that go in yards in source it for B. So it should.
Got a won't bodes well for the winter to keep toward for much in the UK. It's always predict you go I would say within China.
So Chris as you put I should write code for old not consistent with my question couple thousand doors, but not to it and what she does it don't tell you will withdraw from this market in China in other company with it was felt wins is masking the ways I bumped in China, not possible with though they too much.
Yeah, Okay that stuff and then I'm curious.
How important is the auto industry the global auto industry for you for recovery and what is your view of the well the.
Auto recovery over the next several quarters to you.
Well most of industry continues to be an important.
Part of I.P.G. and lazy usage.
Many European auto manufacturers are almost exclusively using.
PG products, there's some recovery and.
Main body applications and closures would help both on the welding and even the coffee market, but one of the primary growth areas. We see on automotive outside traditional will be continued investment in electric vehicle manufacturing all around the world and that continues to have some.
Particular strength.
Behind it overall some of the welding applications for automotive even on the traditional side were reasonable in Q2. For example, one of the main Japanese manufacturers is continuing to roll out some of that specialty welding applications using RPG lasers.
Okay. Thank you.
Hey, Chris your mind, given all the Pritchard go where it is almost all your you wouldn't all the cheered won those east automotive customers the U.S.P.G. away.
Dick well question North weeping trade, we say if they put off the yields if you're not only in Germany, Oh said not in Japan for example in the U.S. It. So one Bob talked or would you mind now where do you know you with them when you problem ones I got them. What your market on said you have to Corbett minyard, the reason, but thought though demand or is there.
I didn't move, but we want them, we can't pool, Oh is it fair knutson, they're buying put all my LPG.
Yeah, Yeah, Yeah, Yeah go down to kind of it but they never had a couple of caught out that situation I won't say that's about for example, our <unk> I might fall but.
[noise]. Thank you. Our next question comes from Joe Wittine with Edgewater Research. Please go ahead.
Hey, Thanks first off I wanted to try to bridge to the third quarter sales guide, which is a flattish sequentially at the midpoint.
You have a benefit of a full quarter of activity in the west versus the second with April essentially being a loss bought so is there anything or anything that's an offset there that's worth noting that.
That's more of a headwind sequentially.
No I think we're seeing some moderate improvement in order trends outside of.
China in particular, so moderate improvements in North America.
In Europe.
And.
I'm not quite the same into China still got some strong demand to it but I haven't got quite the same momentum.
In China that you had coming out of the crisis at the beginning of last quarter. So we've said that.
Total order flow in China, it moderated a little bit we caught a lot of backlog in China.
And some of that is actually also scheduled to ship in Q4, rather than Q3.
Oh, no anything in particular, I think you're dealing with an environment that is not exactly strong.
And have a lot of momentum by did anywhere right you're in a situation of recovery in reasonable.
Demand trends, where weve guided to not particularly strong demand trends.
Okay makes sense and then Tim the gross margin was ER was impressive the only favorable comment I caught in your prepared remarks was smaller inventory reserve is there anything else worst worth, noting that uplift, which was almost 500 basis points in any context with that on on how you're looking at gross margin in second half.
[music].
I think the most pleasing thing about gross margin is that despite prices coming down the gross margin that we're achieving all a product bill of material has actually stabilize and even gone up a bit so that that's being the main benefit and that's even before we launch the a smaller.
The the while all you gosh, you rack mounted lasers, so there'll be some additional cost benefit coming in from those as well. So I think most pleasing thing is that despite continued pricing pressure in the market.
P.G. continues to execute very well around reducing cost a product.
And has further cost reductions coming through in the second half the year in the second quarter all guidance range for gross margin ranges from about 40.
43, 44% up to 47% so.
So a reasonable level.
Okay, maybe I'll squeeze in one more just on that topic on the new rack Mount the all the while our you any comments on how you're envisioning the curve of adoption going forward how quickly yeah, how how much do that could be a an above trend to benefit from a competitive.
Perspective in the one three kilowatt, China market, and if you're able to quantify any kind of corresponding impact to gross margin or how you're thinking about that from a building materials perspective that could be interesting as well. Thanks.
How did you want to the new while all you product adoption of course.
Well they are willing to do it said the might you started to say I wouldn't boardroom on your perception award in this quarter.
But to give to upgrade to a amazed that much more it's in a much greater than what we've got underway that were sold you fall in north competitor, but would or wouldn't what did you well with the kitchen you just put on the edge of where the important. They go quote of money your franchise ways I won't say central there with.
So were coal because that will go up now with your finds important issue, but I spoilage before these ways.
End of March it.
But it takes some time accumulation and also what we're calling but they've put order.
Will you please submit it shouldn't use it all because they put an optimal if so would you not to northern compatible and the already it isn't a wouldn't be <unk> did you guys well this product, but now with all of my kids should have tested this year than even the coordinator.
But in non but we're getting good always in infill first quarter, we're doing a good old would you say with <unk> Morgan friendship with simple compared the wealthy out.
So you know numbers, but to Joe too, but I just good old if we achieve some dropping the day with you.
But we hope no there I would do a non but so increase more wouldn't second half of this year. It's always the other where do you have done today I would say when youre sort of friends of mine.
With this Oh power a wonderful for care about what the fourth kilowatts to put on north that way, but we're told from which can use by up to now and you go for care about walked in direct my went to what it is threeq, you're well what the maximum.
Oh, well if we increased saw what do you see all says these students are gonna called the year, we increase our did or didn't come on went into the studios Upto 8-K, well watch it that's unique ways. Its adult showed its.
Good.
We're calling this a real didn't know physicians <unk>, it's a low power market or.
Hi, power North Dakota, EPS or would you know Jim so other people to complete.
<unk>.
Helpful. Thanks, a lot.
Our next question comes from Michael Feniger with Bank of America. Please go ahead.
Hey, guys. Thanks for taking my questions can just flesh out at previous question about the midpoint of your affair guide with.
A lot sequentially I'm I'm, just trying to get a sense if there's been a break down when when we think of the PMI the manufacture Karel manufacturing activity and and your business. That's the thing in July we saw the team eyes recover actually go above 50, indicating some expansion I usually in that environment, you guys I see some.
Rental growth. So I'm just curious if how much of it just conservatism because we don't know obviously what could happen in August September.
Did you guys see at least that improvement not just can't knives I'm just any help more did you flush out around that.
I think you're just in a phase of recovery from very slow economic activity in in the second quarter <unk> I agree that.
Yeah, I'm always have improved a bit we've also seen some improvement in order flow outside of China as we said in other countries in Asia.
In Europe, and the U.S., it's just not that it's rebounded in quite the same way that.
It did in China. Initially I 10 thing that's necessarily at a big disconnect from this I think we actually performed.
Very well in Q2 in fact, so perhaps the expectation is going to a stronger sequential growth is a bit more muted because of that underlying strong performance in Q2 relative to Q3, I'm already seeing any fundamental dislocation between where the economic data reason where.
Our revenue numbers off.
I think there's a little bit more optimism out there, but I can't claim that it's tremendously strong at this point in time.
The other you want to factor in is a little bit that even though things being shut down like Q3 in August is always very slow in Europe. For example, just with a summer vacations and.
Fountains views, maybe people work harder this year, because I haven't been the office I said I think I don't Wanna get up no calling holiday so.
I didn't see big dislocation.
That's that's good to hear and the gross margin. This is the second quarter surprising to the upside I think you might have mentioned before pricing kind of stable <unk>. It looks like your inventories are back under control you have cost savings coming through I guess, Tim if we get back you know and that's the big yet, but if we get back that's 350 million.
Revenue run rate is there any change you see in your and your gross margin range.
First full price, it's not stable, it's not through <unk>.
It's not always is showing a week ago ore and waste. It just came from which we are getting which I know for example, they're getting or you could say mark but when you cut him again, they don't produce an open <unk>, probably the one to ensure well what but in addition, I will like 15, when she puts in the middle price problem. It's still good all right.
Hi, good fourth quarter will this year.
It's crazy goal, but they situation its they are doing the its into their own real was they supported by just go month begins its Mike.
So here, we pool is to come through reported see north to jobs company or commercial partnership what it's the situation or what how we can compete disease.
It's where did she just city or do I knew that all pen just Boise market segment also.
Are you guys didn't he is saying what's in the U.S. for example, nowadays.
Yeah.
Yeah, I might have kind of a few show which is helpful centered their way my kids <unk>, what do you have no wonder now that's a whole got indices.
New even went into that you its new at all it's again does there come more sold was no I would tell you we could not to go well, especially with new put on the weekend goal they require more and more muted in helping a waste in billions in <unk>. So what we're not or not able to both what we might go all the bulk.
Well again, so we have to wait a week was not the walk with customer West said, if you sold say so on its insidious damage again.
But it sure does demonstrate good.
It's a accounted for what we're done no recourse nor do I I do you feel you wouldn't know when your case.
I I once we put shifts we know what your quota docs, which it.
Did I read I went dark citigroup used to roll them up and you'll see from other states are yet. They are do you view if they told me I don't understand situation that you do you assume no delay what does it.
What we put just waiting.
One that's it sold much years, we could not get this multi dose.
No you go up no formal cool.
Hey, Thanks for that and just just sneak a question and on we shoring Oh I'm. Just curious if you guys are hearing anything of customer signaling that's in it in North America or other regions is this more if this is an opportunity is it more on the welding side.
Because the argument against sharing has always been its cost prohibitive, which is why automation would have to play a part. So I'm curious if you guys have any thoughts on not or see any early signs of oh that type of Steve. Thank you.
Oh My God. Your other question I'd remind me, we're happy with the range of 45% to 50% on gross margin.
We get boxes to 350 million of revenue, we'd be hoping to be more much more closely towards the top with our range. We're not we're no we're not gonna be changing that range at this point in time to see how things Pan out.
On on shoring.
No I think it's a longer term trend and.
If and as it happens it's gonna have to be driven by.
Improvements in productivity and ensuring the cost is manufacturing product onshore is low and not plays into utilizing more lasers and automation. So I got it has been any huge announcements by companies onshore.
Maybe one semiconductor companies starting to do more on onshore in the U.S., but I think it.
The geopolitical situation continues in the way well, it's probably likely to become a longer term trends.
Thank you. Our next question comes from Nick Todorov with Longbow Research. Please go ahead.
Hey, guys. Thanks, Good morning, I just wanted to ask first the you mentioned are.
I think some signs of laser so displacing plasma cutting machines I think you're specifically talking about the 50 kilowatt lasers that you're selling but I wonder if you can provide a little bit more color along that dynamic that also on got Super high power lasers or region, but also if you're seeing any of that is happening and the more towards.
As you know 10 to 15 kilowatt laser space Oh, Yeah, there will be my first question.
Okay, I'm not sure if you're talking about another name it for older gifts Oliver.
Well the from our dual city OEM customer footprint to call at lasers, which islands are paying in other countries.
It is something what is your order or the first order for certain kilo plays is also for cutting applications.
Oh from this point there can you always see the potential for our hi, Paul lasers definitely because more competition Hunter Formosa Hall with us I mean any cases.
Superior.
It's a this is a threat is.
It's not only to expand or the substitute plasma cutting machine. It's one on one of the goal because based on this franchise sort of kilowatt lasers, our customer can provide absolutely new approach to cutting applications. This much more high speed much more a reliable catching up.
I mean and also much more productive from a machine and finally it is much more along a price for cutting a applications. This is a much more important.
And that in my one do fuel few years ago, <unk> companies, who put out you will see a two raises catching it does seem unrealistic to own world. It's good I used to Fiberblaze I wonder poor caught where do you see as seen with a wide.
The food to 35 millimeter thornley now with the way, we're particularly what would you still got 50 million me. Since then it said never more than 10 millimeters wouldn't be airports <unk>, it's probably but with the now where do you go that question. We did well you know just not only must be 50 kilowatt walked away is that will walk you Coca its.
Well you can what would you comment too caught where do you see and went though she is that protects you go kind of where all year too caught them with a lot that we did even now we do one meter.
With those suites, one me instead of met that would fit well with success with a good bit we did either in the cold. So you can copy you wouldn't want me to redeem of today to now <unk>, nobody you'd be able to possibly with tool.
So just well done we're catching me it's no don't understand when you're going to <unk>, you choose to not only problem or catch him, but next step we've got to not only minimal touching the metal sheets got units on next step is gotten all I would say much easier like.
Let's see so bikes are you guys said I mean, it could well you can you obviously, if we do we'll do stick mode. You broke out you know it's also you where do you see this new market. When you when do you need to catching a a U.S. wonderful where do you see no like who want to meet the needs of for example, so why Oh go out for.
Before and so on where they will ignore would you say too we will pop in kite.
Steve.
You too much easier there I mean, well do you see no go out fit so on which got caught up too many it tends to meet new limits there.
Sure. It's nobody you it's up to know these technologies told don't have the weaker having it took note would you can pop in India, where we'll be <unk>. You said my could you maybe little more supercar total touch much you for them come to an auction robots.
Oh I see character, who grew up says it's all when its future market.
Oh, it's catching.
So did you can still north where the world you see beauty to only took ways in market, particularly it's true yeah, Yeah pretty my name's out city tool, but then our newly move from June two cities you catch in its own to negotiate duration, we wouldn't be you much.
A lot you scale in the watch you applications.
Range.
That's helpful. Thank you didn't give ellington just another follow up you mentioned that yeah, I guess guidance implies that.
China revenue is gonna be more flat to down sequentially, you mentioned, you're not seeing any disconnect economically, but I guess you can you comment on the competitive environment, a little bit you you mentioned that you're seeing a skills like seeing aggressive price action, but we also heard that they're some of the competitors.
Sure have some some of our ops for share gains, particularly in the six kilowatt than a but like I guess, what do you see data speeds of or how do you plan on combating that.
[laughter] competition hasn't really changed fundamentally it's still the same plans there of course.
The lower end as being fierce competition I think we're responding to that with a new product, which fountain articulate. It was was way ahead of where they are in terms of efficiencies form factor electrical or electrical efficiency sorry reliability.
Yes of course at higher power levels. The competition is trying to get share that we've referenced before that they see a lot of power degradation in their lasers, even not lower power levels. So those path that power degradation becomes more of a an issue as you go up to lasers with Sixeight and 10 kilowatt.
So more probably more crowded you given there's so much more density so on you, but they still couldn't look there is doing for one food care about what you're gonna do should you get a dish in Chinese somebody's is 10 times I have been there now we're ready to spend time Scott it.
So it's easy to ignore them a year from that so and that's how you Paul would you get Additionally, it's much more then turn to the no problem. Its number one number two then when thread you know this year into March to wealthier interval lots a year. This year also knew where to spend a whole not totally why it down you bought.
So why L.S.C. you why you will see you. It's amazing put on coal fired cure will want to up to 15, when she came up but absolutely new won't syntel Nielsen much more again more peer fracs in the more complex to enjoy cheaper in what's my cheap imports. So far this amazing we don't can you put on <unk>.
Gross margin and so it's still know we've all got bridge it wouldn't what's in not only core that you brought in court and they put I should do it skews that they don't fit when you GYMCL opinion to compete printed TRID. She just in this market changes to the.
Got it thanks good luck.
Our next question comes from Mark Miller, but the benchmark company. Please go ahead.
You mentioned strengthen emerging products are up 20% sequentially. I think you said cinema I'm not sure. If you include that in emerging products put up if you could break out some of these emerging products that are showing the healthy demand.
Mark we don't go into that granular level on those they include.
Things like the high Apollo almost for the cleaning applications and E V battery processing, which had strong sales includes green lasers for solar cell in non metal processing, it's deletion ablative process is.
Ultra fast you V is called many different types of projects, we're working on that with I.
The systems beam delivery.
And some of the defense and single mode applications are included in that but we just don't get down into giving a granular break down between each of those individually.
One is this a year that they're going to cover this year in Prescott from next year, we Internet you wouldn't do my kids.
Some can you put all of them the most of them and don't care when you had an hour.
Well into this next 12 months winter graduates in some markets. So many new put on now would you way to do to Chordiant. Because then you brought up you have to walk where are you.
I believe with customers you have to meet with them if train them campaigns. So careful but now we won't get more the more we very limited delay penetration productions the market, but to each will go in school and it does this situation, where we are used to them.
The button my Nordics, putting it to go. It is you know qualification put onto itself is you. So long way to stone mass production, it's Umberto view in a way to promote the.
More of a some pins north of one boy did you fly with some and broaden oh no different than duplicated winter and you won't need now we didn't remark.
And then any any further penetration in terms of lasers in the automotive industry were replacing spot waters.
That was kind of a cost issue before.
Yes recently installed Oh in our fall a German a customer.
16, [laughter] Lss system for.
Production Uh huh.
Automotive production from this point of view always she is a good potential for older systems not only for one application, but different kinds of applications. It's also for you mean.
Nickel vehicle, but will.
Also sees some opportunity for all the but also I would like to mention Baltimore, such kind of system. All we use them not only for autumn winter.
Our culture for example was a blue collar across so many United States also any or all this stuff that you saw the system for production there a machine.
Is itself by the stuff that he was a laser systems and the filters office William However.
Oh good.
Anthony This is very important nothing I'm not a shipping on their small system, but that's it.
Complete production lie for that's kind of application.
Thank you.
No we didn't produce now when thread you will tell you when the next to this I will be pretty early this month.
It really tried you know where do you introducing new products, which what them. Once you were you what's in when you Yeah. I mean, my North menu 10000, but do you want it sounded to tell then the unions the youth and Sam do what you did you when parents do you accept a new solution extremely interested in a much more capex.
What did you.
I would tend to a one solution we introduced since its magnitude you will.
We'd be wherever they wouldn't be accepted to where do your question. Why is the most were touching a little more to companies, but don't come from point in time.
In the.
But patient well then we won't embedded culottes, it wouldn't be wearable technology, well for catching them wherever didn't there can always your point as well our economy.
Manufacturing.
It's too and we shared with them. It's a novel city system, we bought into their plant grip is simply don't peptide and say where it fits your customer. So we hope to distribute it didn't it wouldn't be always this you said you should know Vincent cotton in where we didnt application.
Thank you.
We've run out of time I'd like to turn the floor over to James Hillier for closing comments.
Thank you for joining us this morning for your continued interest Nike G.. We look forward speaking with you over the coming weekend were participating in a number of virtual Investor conference this quarter. So.
So thank you.
And I think everyone.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.