Q2 2024 IPG Photonics Corp Earnings Call
Good morning and welcome to IPG Photonics' second quarter 2024 conference call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotoff, IPG's Senior Director Investor Relations, for introductions.
Unknown Executive: School. Today's call is being recorded and webcast.
Operator: Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotoff, IPG Senior Director, Investor Relations, for an introduction. Please go ahead with your comments.
Eugene Fedotoff: At this time, I'd like to turn the call over to Eugene Fedotoff, IPG Senior Director and Investor Relations for introductions. Please go ahead with your conference.
Speaker Change: Please go ahead with your conference.
Eugene Fedotoff: Thank you and good morning, everyone.
Eugene Fedotoff: Thank you, and good morning everyone. With me today is IPG Photonics CEO Dr. Mark Gittin and Senior Vice President and CFO Tim Mammen. Let me remind you that statements made during the course of this call that discuss management or the company's intentions, expectations, or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements.
Eugene Fedotoff: With me today's IPG Photonics CEO, Dr. Mark Gitin, and Senior Vice President and CEO for Tim Mammen. Let me remind you that statements made during the course of this call that discuss management or the company's intentions, expectations of predictions of the future are forward-looking statements. These four looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such four looking statements. These risks and uncertainties are detailed in IPG Photonics Forum TNK. So the period and the December 31st, 2023, and our reports on file with the Securities and Exchange Commission.
Eugene Fedotoff: Thank you and good morning, everyone. With me today is IPG Photonics CEO , Dr. Mark Gittin, and Senior Vice President and CFO , Tim Mammen. Let me remind you that statements made during the course of this call that discuss management or the company's intentions, expectations or predictions of the future are forward-looking statements.
Eugene Fedotoff: These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements.
Eugene Fedotoff: These risks and alternatives are detailed in IPG Photonics' Form 10-K for the period ended December 31st, 2023, and our reports are filed with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the investor section of IPG's website or on the SEC website directly. Any forward-looking statements made on this call are the company's expectations or predictions as of today, July 30, 2024 only, and the company assumes no obligation to publicly release any updates or revisions to any such statement.
Eugene Fedotoff: These risks and alternatives are detailed in IPG Photonics Form 10-K for the period ended December 31, 2023, and our reports are filed with the Securities and Exchange Commission.
Eugene Fedotoff: Copies of these filings may be obtained by visiting the Investor section of IPG's website or on the SSC website directly. Any four looking statements made on this call are the company's expectations or predictions as of today, July 30th, 2024 only. And the company assumes no obligation to publicly release any updates or revisions to any such statements.
Eugene Fedotoff: Copies of these filings may be obtained by visiting the investor section of IPG's website or on the SEC website directly.
Eugene Fedotoff: Any forward-looking statements made on this call are the company's expectations or predictions as of today.
Eugene Fedotoff: July 30, 2024 only, and the company assumes no obligation to publicly release any updates or revisions to any such statements.
Eugene Fedotoff: For additional details on our report of results, visit a theoretical variance press release, variance call presentation, and the financial data work posted on our relationship relations website. We will also post these prepared remarks on our website after this call.
Eugene Fedotoff: For additional details on our recorded results, please refer to the earnings press release, earnings co-presentation, and the financial data workbook posted on our investor relations website.
Eugene Fedotoff: For additional details on our recorded results, please refer to the earnings press release, earnings co-presentation, and the financial data workbook posted on our investor relations website. We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark.
Eugene Fedotoff: We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark.
Mark Gitin: With that, I'll now turn the call over to Mark. Good morning, everyone. I'm excited to be here with you on my first earnings call as CEO of IPG Photonics. I look forward to meeting many of you into talking more about our story and our plans at IPG.
Mark S. Miller: Good morning, everyone. I'm excited to be here with you on my first earnings call as CEO of IPG Photonics. I look forward to meeting many of you and to talking more about our story and our plans at IPG. Before diving into our second quarter performance, I'd like to spend a moment on my background, why I took this role, and what I've been focusing on since I joined just over seven weeks ago. For the past 35 years, I've been actively involved with lasers and laser applications, leading different functions at Coherent and the Photonics Solutions Division at MKSU.
Mark: Good morning everyone. I'm excited to be here with you on my first earnings call as CEO of IPG Photonics. I look forward to meeting many of you and to talking more about our story and our plans at IPG.
Mark Gitin: Before diving into our second quarter performance, I'd like to spend a moment on my background, why I took this role and what I've been focusing on since I joined just over seven weeks ago. For the past 35 years, I've been actively involved with lasers and laser applications, leading different functions at Coherent and the Photonic Solutions Division at MKS Instruments. I joined MKS to integrate the Newport acquisition and significantly improve the performance of the business over five years. During my career, I've always admired IPG. It's industry leadership, culture of innovation, and ability to drive fiber lasers into new use cases.
Mark: Before diving into our second quarter performance, I'd like to spend a moment on my background, why I took this role, and what I've been focusing on since I joined just over seven weeks ago.
Mark: For the past 35 years, I've been actively involved with lasers and laser applications.
Mark: and the Photonic Solutions Division at MKS Instruments.
Mark S. Miller: I joined MKS to integrate the new product and significantly improved the performance of the business over five years. During my career, I've always admired IPG, its industry leadership, culture of innovation, and ability to drive fiber lasers into new uses. I'm thrilled to have joined such an innovative and dynamic organization. We have a lot of great opportunities ahead of us. Since joining in June, I've focused on diving deep into key aspects of the business. The dedication, creativity, and passion of IPG's team is truly inspiring, and conversations with employees have given me an even deeper appreciation of the team's knowledge and expertise.
Mark: I joined MKS to integrate the Newport acquisition and significantly improve the performance of the business over five years.
Mark: During my career, I've always admired IPG, its industry leadership, culture of innovation, and ability to drive fiber lasers into new use cases.
Mark Gitin: I'm thrilled to have joined such an innovative and dynamic organization and see a lot of great opportunities ahead of us. Since joining in June, I've focused on diving deep into key aspects of the business. The dedication, creativity, and passion of IPG's team is truly inspiring, and conversations with employees have given me an even deeper appreciation of the team's knowledge and expertise. I'm especially excited about IPG's R&D pipeline. I believe we have a number of projects in process that will put us in a strong position to extend our industry leadership, provide further differentiation, and reduce the productivity of the industry.
Mark: I'm thrilled to have joined such an innovative and dynamic organization and see a lot of great opportunities ahead of us.
Mark: Since joining in June , I've focused on diving deep into key aspects of the business. The dedication, creativity, and passion of IPG's team is truly inspiring, and conversations with employees have given me an even deeper appreciation of the team's knowledge and expertise.
Mark S. Miller: I'm especially excited about IPG's R&D pipeline. I believe we have a number of projects in the pipeline that will put us in a strong position to extend our industry leadership, provide further differentiation, and reduce product costs. I know that in the current macroeconomic cycle, we've seen competitors get more aggressive, particularly in cutting. Competition is expected, and as a leader, it's important to keep driving innovation.
Mark: I'm especially excited about IPG's R&D pipeline.
Mark: I believe we have a number of projects in process that will put us in a strong position to extend our industry leadership, provide further differentiation, and reduce product costs.
Mark Gitin: I know that in the current macroeconomic cycle, we've seen competitors get more aggressive, particularly in cutting. Competition is expected, and as a leader, it's important to keep driving innovation. Our team has been focusing on multiple initiatives to increase technological modes around laser products and provide complete solutions and world-class support to customers, which cannot be easily replicated. We're clearly seeing these efforts bear fruit in the areas such as EV battery welding and 3D printing. We're also expanding into new applications and use cases for new fiber lasers in areas where we offer significant advantages relative to other laser and non-laser solutions, including efficiency, speed, and environmentally friendly solutions.
Mark: I know that in the current macroeconomic cycle, we've seen competitors get more aggressive, particularly in cutting. Competition is expected, and as a leader, it's important to keep driving innovation.
Mark S. Miller: Our team has been focusing on multiple initiatives to increase technological moats around laser products and provide complete solutions and world-class support to customers, which cannot be easily recognized. We're clearly seeing these efforts bear fruit in areas such as EV battery welding, 3D, and we're also expanding into new applications and use cases for new fiber lasers in areas where we offer significant advantages relative to other laser and non-laser solutions, including efficiency, speed, and environmentally friendly solutions. In the coming months, I will be working with my management team to enhance existing strategies and develop new goals and objectives that provide a foundation for IPG's success in the coming years.
Mark: Our team has been focusing on multiple initiatives to increase technological moats around laser products and provide complete solutions and world-class support to customers, which cannot be easily replicated.
Mark: We're clearly seeing these efforts bear fruit in the areas such as EV battery welding and 3D printing.
Mark: We're also expanding into new applications and use cases for new fiber lasers in areas where we offer significant advantages relative to other laser and non-laser solutions, including efficiency, speed, and environmentally friendly solutions.
Mark Gitin: In the coming months, I will be working with my management team to enhance existing strategies and develop new goals and objectives that provide a foundation for IPG success in the coming years. On the operational side, we will be investing in our business where we can generate attractive returns while managing our discretionary costs. I strongly believe that by providing our customers with the highest quality solutions, the best service, and optimizing our operational efficiencies, we will be best positioned to drive shareholder value in the long term. Internally, we will prioritize continued focus on collaboration, growth, and continuous improvement.
Speaker Change: In the coming months, I will be working with my management team to enhance existing strategies and develop new goals and objectives that provide a foundation for IPG's success in the coming years.
Mark S. Miller: On the operational side, we will be investing in our business, where we can generate attractive returns while managing our discretionary costs. I strongly believe that by providing our customers with the highest quality solutions, the best service, and optimizing our operational efficiency, we will be best positioned to drive shareholder value in the long run. Internally, we will prioritize continued focus on collaboration, growth, and continuous improvement. I look forward to being able to share more details about these strategies with you.
Speaker Change: On the operational side, we will be investing in our business where we can generate attractive returns while managing our discretionary costs.
Speaker Change: I strongly believe that by providing our customers with the highest quality solutions, the best service, and optimizing our operational efficiencies.
Speaker Change: We will be best positioned to drive shareholder value in the long term.
Speaker Change: Internally, we will prioritize continued focus on collaboration, growth, and continuous improvement.
Mark Gitin: I look forward to being able to share more details about these strategies with you in the future.
Speaker Change: I look forward to being able to share more details about these strategies with you in the future.
Mark Gitin: Moving on to the second quarter results, we continue to generate strong operating cash flow in a challenging demand environment as we executed on inventory reduction initiatives. Second quarter sales and earnings per share were above the midpoint of our revenue guidance, but overall demand conditions stabilizing at a low level, particularly in general manufacturing and EV markets. Revenue was relatively stable in Asia sequentially and improved in North America, helped by stronger sales in the emerging growth products such as light weld and medical. Trends in Europe continued to moderate, with industrial markets facing persistent headwinds and macroeconomic uncertainty.
Mark S. Miller: Moving on to the second quarter results, we continued to generate strong operating cash flow in a challenging demand environment as we executed on inventory reduction. Second quarter sales and earnings per share were above the midpoint of our revenue guidance, with overall demand conditions stabilizing at a low level, particularly in general manufacturing and EV markets. Revenue was relatively stable in Asia sequentially and improved in North America, helped by stronger sales of emerging growth products such as Lightweld and Medicare. Trends in Europe continued to moderate, with industrial markets facing persistent headwinds and macroeconomic uncertainty.
Speaker Change: Moving on to the second quarter results, we continued to generate strong operating cash flow in a challenging demand environment as we executed on inventory reduction initiatives.
Speaker Change: Second quarter sales and earnings per share were above the midpoint of our revenue guidance with overall demand conditions stabilizing at a low level particularly in general manufacturing and EV markets.
Speaker Change: Revenue was relatively stable in Asia sequentially and improved in North America helped by stronger sales in the emerging growth products such as light weld and medical.
Speaker Change: Trends in Europe continue to moderate with industrial markets facing persistent headwinds and macroeconomic uncertainty.
Mark Gitin: Turning to the key applications that we serve in welding, revenue decreased year over year, primarily due to lower demand and immobility, and partially offset by growth in handheld welding. However, I'm pleased to see that welding revenue was stable sequentially, and we were able to gain market share in Europe, winning EV customer accounts even in a challenging operating environment. IPG strength is our unique knowledge of laser material interaction and process know-how that significantly increases speed and quality welding. Putting this together with our real-time process monitoring enables meaningful yield improvement through our customers. Our laser welding processes and real-time weld monitoring have been widely adopted in EV battery manufacturing, where faulty welds can have catastrophic results.
Mark S. Miller: Turning to the key applications that we serve, in welding, revenue decreased year-over-year, primarily due to lower demand and e-mobility, and partially offset by growth in handheld welding. However, I'm pleased to see that welding revenue was stable sequentially and we were able to gain market share in Europe, winning EV customer accounts even in a challenging operating environment. IPG's strength is our unique knowledge of laser material interaction and process know-how that significantly increases the speed and quality of welding.
Speaker Change: Turning to the key applications that we serve.
Speaker Change: In welding, revenue decreased year-over-year, primarily due to lower demand and e-mobility, and partially offset by growth in handheld welding.
Speaker Change: However, I'm pleased to see that welding revenue was stable sequentially and we were able to gain market share in Europe , winning EV customer accounts even in a challenging operating environment.
Speaker Change: IPG's strength is our unique knowledge of laser material interaction and process know-how that significantly increases speed and quality of welding. Putting this together with our real-time process monitoring enables meaningful yield improvements for our customers.
Mark S. Miller: Putting this together with our real-time process monitoring enables meaningful yield improvements for our customers. Our laser welding processes and real-time weld monitoring have been widely adopted in EV battery manufacturing, where faulty welds can have catastrophic results.
Speaker Change: Our laser welding processes and real-time weld monitoring have been widely adopted in EV battery manufacturing, where faulty welds can have catastrophic results.
Mark Gitin: We feel very good about our competitive position when investment spending in EV battery capacity resumes. And furthermore, we saw a strong pickup in sales of our handheld welding solutions driven by our new partnership with Miller Electric, a leader in welding solutions.
Mark S. Miller: We feel very good about our competitive position when investing in EV battery capacity. And furthermore, we saw a strong pickup in sales of our handheld welding, driven by our new partnership with Miller Electric, a leader in welding. Continuous innovations, driving improved efficiency, smaller form factor, and lower cost, enabled the commercial viability of laser welding for metal fabricators and job shops, opening up a huge new market opportunity for IPPs. Moving on to our second largest application, cutting, which is where I've seen the greatest impact on our business over the past several years from Chinese companies.
Speaker Change: We feel very good about our competitive position when investment spending and EV battery capacity resumes.
Speaker Change: And furthermore, we saw a strong pickup in sales of our handheld welding solutions.
Speaker Change: Driven by our new partnership with Miller Electric.
Mark Gitin: Continuous innovations driving improved efficiency, smaller form factor, and lower cost enabled the commercial viability of laser welding for middle fabricators and opening up a huge new market opportunity for I- We're moving on to our second largest application, Cutting, which is where I've seen the greatest impact to our business over the past several years from Chinese competition. The good news is that our China cutting early end business now accounts for less than 5% of our total revenue. In our European, US, and Japanese businesses, we have a stronger competitive position in customers who value productivity and uptime.
Speaker Change: a leader in welding solutions.
Speaker Change: Continuous innovations driving improved efficiency, smaller form factor, and lower cost enabled the commercial viability of laser welding for metal fabricators and job shops, opening up a huge new market opportunity for IPG.
Speaker Change: Moving on to our second largest application, cutting, which is where I've seen the greatest impact to our business over the past several years from Chinese competition.
Mark S. Miller: The good news is that our China cutting OEM business now accounts for less than 5% of our total revenue, and our European, U.S., and Japanese operations. We have a stronger competitive position and customers who value productivity. This business was impacted by our customers working down inventory as they managed to significantly lower end market demand. Now we're starting to see those customers' inventories normalize, but the overall demand conditions in general industrial markets remain weak, primarily in Europe. We have strong relationships with all of the major global cutting OEM customers and are confident the decline is macro-driven.
Speaker Change: The good news is that our China cutting OEM business now accounts for less than 5% of our total revenue.
Speaker Change: and our European, U.S. and Japanese businesses.
Speaker Change: [inaudible]
Mark Gitin: This business was impacted by our customers working down inventory that they managed to significantly lower end market demand. Now we're starting to see those customers' inventory normalizing, but the overall demand conditions in general industrial markets remain weak, primarily in Europe. We have strong relationships with all of the major global cutting OEM customers and are confident the decline is macro-driven. We're working closely with our customers to understand their needs, enhance our service capabilities, and reduce product costs. This approach ensures that our products not only stand out from the competition, but also deliver higher value to our customers.
Speaker Change: This business was impacted by our customers working down inventory as they managed to significantly lower end market demand.
Speaker Change: Now we're starting to see those customers' inventories normalizing, but the overall demand conditions in general industrial markets remain weak, primarily in Europe . We have strong relationships with all of the major global cutting OEM customers and are confident the decline is macro-driven.
Mark S. Miller: We work closely with our customers to understand their needs, enhance our service capabilities, and reduce product costs. This approach ensures that our products not only stand out from the competition but also deliver higher value to our customers. We're excited to announce the launch of a series of innovative products over the next two quarters, which are designed to foster win-win relationships and solidify our market. I'm particularly excited about the new growth opportunities for IP, where fiber lasers can replace incumbent technology.
Speaker Change: We're working closely with our customers to understand their needs, enhance our service capabilities, and reduce product costs.
Speaker Change: This approach ensures that our products not only stand out from the competition, but also deliver higher value to our customers.
Mark Gitin: We're excited to announce the launch of a series of innovative products over the next two quarters, which are designed to foster win-win relationships and solidify our market position. I'm particularly excited about the new growth opportunities for IPG where fiber lasers can replace incumbent technologies. There are areas where we can innovate to provide solutions to specific problems in a way that is much better for the environment, as we are replacing processes that are typically done with harmful chemicals or significant use of electricity. Perfect example would be cleaning and heating applications. IPG is extremely proud to provide the most energy efficient and environmentally friendly solutions in these areas.
Speaker Change: We're excited to announce the launch of a series of innovative products over the next two quarters, which are designed to foster win-win relationships and solidify our market position.
Speaker Change: I'm particularly excited about the new growth opportunities for IPG, where fiber lasers can replace incumbent technologies.
Mark S. Miller: There are areas where we can innovate to provide solutions to specific problems in a way that is much better for the environment as we are replacing processes that are typically done with harmful chemicals or significant use of electricity. A perfect example would be cleaning and heating.
Speaker Change: There are areas where we can innovate to provide solutions to specific problems in a way that is much better for the environment as we are replacing processes that are typically done with harmful chemicals or significant use of electricity.
Mark S. Miller: IPG is extremely proud to provide the most energy efficient and environmentally friendly solutions in these areas. Medical is another exciting area for the company with significant barriers. We have a strong growth pipeline in urology applications and are seeing robust demand for lasers for skin rejuvenation. We believe that new product launches in 2024 and 2025 will result in strong revenue growth. Moving to the outlook, our second quarter book-to-bill was below 1. We're seeing more stable demand sequentially in China, but macroeconomic uncertainty is still negatively impacting demand across general industrial markets and applications in Europe and North America.
Speaker Change: The perfect example would be cleaning and heating applications.
Speaker Change: IPG is extremely proud to provide the most energy efficient and environmentally friendly solutions in these areas.
Mark Gitin: Medical is another exciting area for the company with significant barriers to entry. We have a strong growth pipeline in urology applications and are seeing robust demand in lasers for skin rejuvenation and lesion removal. We believe that new product launches in 2024 and 2025 will result in strong revenue growth opportunities for this business.
Speaker Change: Medical is another exciting area for the company with significant barriers to entry.
Mark Gitin: Moving to the outlook, our second quarter book-to-bill was below one. We're seeing more stable demand sequentially in China, but macroeconomic uncertainty is still negatively impacting demand across general industrial markets and applications in Europe and North America. We believe strongly in the future of EVs; the well-publicized slowdown in EV adoption in Europe and the US has prompted several customers to delay further investment in battery capacity around the world. Our prior expectation for rebound and demand in the second half seems less likely to materialize, and we currently are not expecting to see a meaningful recovery in our laser sales until sometime in 2025.
Mark S. Miller: Well, we believe strongly in the future of EBs. However, the well-publicized slowdown in EB adoption in Europe and the U.S. prompted several customers to delay further investment in battery capacity around the world. Our prior expectation for a rebound in demand in the second half seems less likely to materialize, and we currently are not expecting to see a meaningful recovery in our laser sales until sometime in 2025. Before I turn to the call with Tim to discuss financial results, I would like to thank Dr. Scherbakov for his significant contributions to IPG and the laser community over the last 30 years.
Mark Gitin: Before I turn to the call to Tim to discuss financial results, I would like to thank Dr. Sherbacov for his significant contributions to IPG and the laser community over the last 30 years. I would also like to thank the board for their trust in me.
Speaker Change: Before I turn to the call to Tim to discuss financial results, I would like to thank Dr. Scherbakov for his significant contributions to IPG and the laser community over the last 30 years.
Mark S. Miller: I would also like to thank the board for their trust. I look forward to leading this company, pushing the boundaries of innovation, and transforming the world around us by applying light in ways that improve life.
Mark Gitin: I look forward to leading this company, pushing the boundaries of innovation and transforming the world around us by applying light in ways that improve life.
Timothy Mammen: With that, I would like to now turn the call over to Tim. Thank you, Mark, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our investor relations website.
Timothy P. V. Mammen: Thank you, Mark, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our investor relations website. I will start with the financial review on slide five. Revenue in the second quarter was $258 million, a decline of 24% year over year. Foreign currency headwinds reduced revenue growth by approximately 2%. Revenue from Materials Processing Applications. Decreased 28% year-over-year, while revenue from other applications increased 24%. The gap gross margin was 37.3%, a decrease of 610 basis points year over year, www. IPGPhotonics.co.uk and our continued effort to reduce inventory.
Speaker Change: With that, I would like to now turn the call over to Tim.
Tim: Thank you, Mark, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our Investor Relations website.
Timothy Mammen: I will start with the financial review on slide five. Revenue in the second quarter was $258 million, a decline of 24% year over year. Foreign currency headwinds reduced revenue growth by approximately 2%. Revenue from materials processing applications decreased 28% year over year, while revenue from other applications increased 24%. Gap gross margin was 37.3%, a decrease of 610 basis points year over year, due to lower absorption of manufacturing costs, as a result of lower revenue, and our continued effort to reduce inventory, which reduced gross margin by over 700 basis points. This was despite achieving a $23 million decrease in manufacturing expenses as compared to the prior year.
Timothy P. V. Mammen: This was despite achieving a $23 million decrease in manufacturing expenses as compared to the prior year. Higher inventory provisions added another 200 basis points to the headwinds in the course. I'm happy with the progress we're making on the inventory side, but more work needs to be done before we get back to a more normalized level.
Tim: I will start with the financial review on slide five.
Tim: Revenue in the second quarter was $258 million, a decline of 24% year-over-year.
Speaker Change: Revenue from Materials Processing Applications
Speaker Change: decreased 28% year-over-year, while revenue from other applications increased 24%.
Speaker Change: Gap gross margin was 37.3%.
Speaker Change: A decrease of 610 basis points year-over-year due to lower absorption of manufacturing costs as a result of lower revenue and our continued effort to reduce inventory.
Speaker Change: which reduced gross margin by over 700 basis points.
Timothy Mammen: Higher inventory provisions added another 200 basis points to the headwinds in the quarter. I'm happy with the progress we're making on the inventory side, but more work needs to be done before we get back to more normalized levels. These negative impacts to gross margins were partially offset by a decrease in import duty and shipping costs. Operating expenses came in at the low end of our expectations, due to reduced variable compensation, but increased year over year, primarily due to increased investment in research and development and sales and marketing. FX headwinds also had a negative impact on revenue and gross profit in the quarter.
Speaker Change: I'm happy with the progress we're making on the inventory side, but more work needs to be done before we get back to more normalized levels.
Timothy P. V. Mammen: These negative impacts on gross margin were partially offset by a decrease in import duty and shipping costs. Operating expenses came in at the low end of our expectations due to reduced variable compensation, but increased year-over-year primarily due to increased investment. Research and Development, and Sales and Marketing. FX headwinds also had a negative impact on revenue and gross profit in the quarter. Its exchange rates relative to the U.S. dollar had been the same as one year ago.
Speaker Change: and Shipping Costs.
Speaker Change: Operating expenses came in at the low end of our expectations.
Speaker Change: due to reduced variable compensation.
Speaker Change: But increased year-over-year, primarily due to increased investment
Speaker Change: in Research and Development and Sales and Marketing.
Speaker Change: FX headwinds also had a negative impact on revenue and gross profit in the quarter.
Timothy Mammen: If exchange rates relative to the US dollar had been the same as one year ago, we would have expected revenue to be $6 million higher and gross profit to be $3 million higher. Gap operating income was $12 million; an operating margin was 4.7%. Net income was $20 million or $0.45 cents per diluted share. The effective tax rate in the quarter was 19% and benefited from certain discreet items: foreign currency transaction losses as a result of remeasuring of foreign currency assets and liabilities. Two period-end exchange rates had a negative impact on operating income of $3 million, or 5 cents per share.
Speaker Change: If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $6 million higher.
Timothy P. V. Mammen: We would have expected revenue to be $6 million higher, and gross profit to be $3 million higher. Gap operating income was $12 million, and its operating margin was 4.7%. Net income was $20 million, or $0.45 per diluted share. The effective tax rate in the quarter was 19%, which benefited from certain discrete items.
Speaker Change: and gross profit to be $3 million higher.
Speaker Change: Gap operating income was $12 million.
Speaker Change: and operating margin was 4.7%.
Speaker Change: Net income was $20 million or $0.45 per diluted share.
Speaker Change: The effective tax rate in the quarter was 19% and benefited from certain discrete items.
Timothy P. V. Mammen: The Foreign Currency Transaction Lawsuit, as a result of the re-measuring of foreign currency assets and liabilities, to period and exchange rates, had a negative impact on operating income of $3 million or $0.05 per share. We continue to optimize our footprint, and had a gain on sale of assets in the quarter, which increased operating income by $1 million and increased diluted EPS by one cent. Moving to revenue performance by region on slide six. Sales in North America decreased 2% year over year. We saw strong growth in medical 3D printing and advanced applications, which was offset by lower revenue in cutting, welding, and cleaning applications.
Speaker Change: Foreign Currency Transaction Losses
Speaker Change: as a result of re-measuring of foreign currency assets and liabilities.
Speaker Change: to period and exchange rates.
Speaker Change: had a negative impact on operating income of $3 million or $0.05 per share.
Timothy Mammen: We continued to optimize our footprint and had a gain on sale of assets in the quarter, which increased operating income by $1 million and increased diluted EPS by 1 cent.
Speaker Change: We continue to optimize our footprint.
Speaker Change: and had a gain on sale of assets in the quarter.
Speaker Change: which increased operating income by $1 million and increased diluted EPS by one cent.
Timothy Mammen: Moving to revenue performance by region on slide 6, sales in North America decreased 2% year over year. We saw strong growth in medical 3D printing and advanced applications, which was offset by lower revenue in cutting, welding, and cleaning applications. Fails in North America held up relatively well, but macro headwinds have continued in the general industrial market. as well as led to reduced EV investments. In addition, continued inventory management by cutting OEMs is leading to a more uncertain outlook in the region. In Europe, sales decrease 27% compared to the prior year. Similar to the trends we saw in North America, cutting sales were impacted by large OEM customers reducing purchases as they manage their inventory.
Timothy P. V. Mammen: Sales in North America held up relatively well, but macro headwinds have continued in the general industrial market, as well as led to reduced EV investment. In addition, continued inventory management by cutting OEMs is leading to a more uncertain outlook in the region. Sales decreased 27% compared to the prior year. Similar to the trends we saw in North America, declining sales were impacted by large OEM customers. Producing Purchases as they manage their, Economic conditions in Europe seem to be deteriorating further and impacting Investments in Industrial and Automotive Markets.
Speaker Change: Moving to revenue performance by region on slide 6.
Speaker Change: Sales in North America decreased 2% year over year.
Speaker Change: We saw a strong growth in medical, 3D printing, and advanced applications.
Speaker Change: which was offset by lower revenue in cutting, welding, and cleaning applications.
Speaker Change: Sales in North America held up relatively well, but macro headwinds have continued in the general industrial markets.
Speaker Change: as well as led to reduced EV investments.
Speaker Change: In addition, continued inventory management, like cutting OEMs, is leading to more uncertain outlook in the region.
Speaker Change: In Europe , sales decreased 27% compared to the prior year.
Speaker Change: Similar to the trends we saw in North America, cutting sales were impacted by large OEM customers.
Timothy Mammen: Economic conditions in Europe seem to be deteriorating further and impacting investments in industrial and automotive markets. EV investment is also delayed, and current projects are being pushed out into 2025. Revenue in China decreased 34% euro per year; has demand declined in general industrial and e-mobility markets, negatively impacting sales across cutting and welding applications. On the other hand, sales to cleaning and 3D printing applications continued to increase in the region. China revenue improved sequentially, and we are seeing some stabilization there.
Speaker Change: Reducing purchases as they manage their inventories.
Speaker Change: Economic conditions in Europe seem to be deteriorating further and impacting investments in industrial and automotive markets.
Speaker Change: EV investment is also delayed and current projects are being pushed out into 2025.
Timothy P. V. Mammen: The EV investment is also delayed, and current projects are being pushed out into 2025. Revenue in China decreased 34% year over year. Demand declined in general industrial and e-mobility markets, negatively impacting sales across cutting and welding applications, while cleaning and 3D printing applications, on the other hand, failed to cleaning and 3D printing applications, continue to increase in the region.
Speaker Change: Revenue in China decreased 34% year-over-year as demand declined in general industrial and e-mobility markets.
Speaker Change: negatively impacting sales across cutting and welding applications.
Speaker Change: On the other hand, sales to cleaning and 3D printing applications.
Timothy P. V. Mammen: China Revenue Improved Sequentially, and we are seeing some stabilization. Moving to a summary of our balance sheet and cash flow on slide seven. We ended the quarter with cash, cash equivalents, and short-term investments of 1.1 billion dollars. No debt, and continues to manage inventory, reducing it by $31 million from the prior quarter. We're targeting further reductions in inventory over the course of 2024. Cash provided by operations with $53 million. Capital expenditures were $24 million during the quarter.
Speaker Change: continue to increase in the region.
Speaker Change: China Revenue Improved Sequentially
Timothy Mammen: Moving to a summary of our balance sheet and cash flow on slide 7, we entered the quarter with cash equivalence and short-term investments of $1.1 billion and no debt. We continued to manage inventory, reducing it by $31 million from the prior quarter. We're targeting further reductions in inventory over the course of 2024. Cash provided by operations with $53 million and capital expenditures were $24 million during the quarter. While maintaining a strong balance sheet, we have been returning a significant amount of capital to shareholders for opportunistic share repurchases. We spent $122 million on share repurchases in the second quarter and $212 million a year to date.
Speaker Change: And we are seeing some stabilization there.
Speaker Change: Moving to a summary of our balance sheet and cash flow on slide 7.
Speaker Change: We ended the quarter with cash, cash equivalents.
Speaker Change: and short-term investments of $1.1 billion and no debt.
Speaker Change: We continue to manage inventory.
Speaker Change: Reducing it by $31 million from the prior quarter.
Speaker Change: We're targeting further reductions in inventory over the course of 2024.
Speaker Change: cash provided by operations.
Speaker Change: with 53 million dollars.
Speaker Change: and capital expenditures were $24 million during the quarter.
Timothy P. V. Mammen: While maintaining a strong balance sheet, we have been returning a significant amount of capital to shareholders through opportunistic share repurchases, spent $122 million dollars, and share repurchases in the second quarter. $212 million year-to-date, and beginning of 2021, we have returned over $1 billion to shareholders through share rebirth. Moving to our outlook on slide nine, for the third quarter of 2024, we expect revenue of $210 million to $240 million. The third quarter Gross Margin is estimated to be between 34% and 37%.
Speaker Change: While maintaining a strong balance sheet, we have been returning a significant amount of capital to shareholders through opportunistic share repurchases.
Speaker Change: We spent $122 million on share repurchases in the second quarter.
Timothy Mammen: Since the beginning of 2021, we have returned over $1 billion to shareholders through share repurchases.
Speaker Change: and $212 million year-to-date.
Speaker Change: Since the beginning of 2021, we have returned over $1 billion to shareholders through share repurchases.
Timothy Mammen: Moving to our outlook on slide 9 for the third quarter of 2024, we expect revenue of $210 million to $240 million. The third quarter gross margin is estimated to be between 34% and 37%. We anticipate delivering earnings per diluted share in the range of zero cents to 30 cents, with approximately 45 million diluted common shares outstanding. As discussed in the safe harbor passage of today's earnings press release, our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release, and is subject to risks outlined in the safe harbor and the company's reports with the SEC.
Speaker Change: Moving to our Outlook on slide 9.
Speaker Change: For the third quarter of 2024, we expect revenue of $210 million to $240 million.
Speaker Change: The Third Quarter Gross Margin
Speaker Change: is estimated to be between 34% and 37%.
Timothy P. V. Mammen: We anticipate delivering earnings per diluted share in the range of 0 cents to 30 cents, with approximately 45 million diluted common shares outstanding, as discussed in the Safe Harbor passage of today's earnings press release. Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release, and is subject to risks outlined in the Safe Harbor and the company's reports with the S&P. With that, we will be happy to take your questions.
Speaker Change: We anticipate delivering earnings per diluted share in the range of zero cents to 30 cents with approximately 45 million diluted common shares outstanding.
Speaker Change: as discussed in the Safe Harbor passage of today's earnings press release.
Speaker Change: Our guidance is based upon current market conditions and expectations.
Speaker Change: assumes exchange rates referenced in our earnings press release.
Speaker Change: and is subject to risks outlined in the Safe Harbor and the company's reports with the SEC.
Unknown Executive: With that, we will be happy to take your questions. Questions. Thank you.
Speaker Change: With that, we will be happy to take your questions.
Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for our first question comes from Jim Ricchiuti with Needham & Company. Please proceed with your question.
Unknown Executive: At this time, we'll be conducting a question-and-answer session. If you like to ask a question, please press star 1 on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker Change: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please, while we poll for questions.
Jim Ricciuti: Our first question comes from Jim Ricciuti with Needham and Company. Please proceed with your question. All right. Thanks. I'm wondering if you could talk a little bit about whether you're seeing much variability in the book to build by region. It looks like North America seems to be holding up, although I'm sure you've seen some pockets of weakness in some of its industrial markets that you talked about. That's my first question.
Speaker Change: Our first question comes from Jim Ricchiuti with Needham & Company. Please proceed with your question.
James Andrew Ricchiuti: Hi, thanks. I'm wondering if you could talk a little bit about whether you're seeing much variability in the book to build by region. It looks like North America seems to be holding up, although I'm sure you've seen some pockets of weakness in some of those industrial markets that you talked about. But maybe that's my first question.
James Andrew Ricchiuti: Hi, thanks. I'm wondering if you could talk a little bit about whether you're seeing much variability in the book to build by region. It looks like
James Andrew Ricchiuti: North America seems to be holding up, although I'm sure you've seen some pockets of weakness in some of those industrial markets that you talked about, but maybe that's my first question.
Unknown Executive: Yeah, hi, Jim. Yeah, on the book, the bill.
Mark Gitin: Yeah, hi, Jim. On the book to build for the quarter, it was below one. The weakness continues to really be in Europe, so that was down to the first quarter. North America altogether was relatively stable, but we saw some headwinds around the industrial and other businesses. We actually had a strong quarter on bookings for medical, and then Asian bookings are actually alluded to really much more stable than Europe. So we're actually quite pleased with the performance of underlying bookings in Asia as a whole, both China, Japan, and South Korea as well.
James Andrew Ricchiuti: Yeah, hi Jim. Yeah, on the Booker Bill...
James Andrew Ricchiuti: For the quarter, it was below 1. The weakness continues to really be in Europe , so that was down compared to the first quarter. North America, all together, was relatively stable, but we saw some...
Edwins: Edwins around the industrial...
Edwins: and other businesses. We actually had a strong quarter on bookings for medical.
Edwins: And then Asian bookings are actually, as we've alluded to, really much more stable than Europe . So we're actually quite pleased with the performance of underlying bookings in Asia as a whole, both China, Japan, and South Korea as well.
Jim Ricciuti: Yeah, x-cutting in China, are you? I don't know how to think about what you're thinking in China, frankly, just because of what we're seeing now on the weakness on the EV side. How would you characterize the business in China, excluding the legacy cutting?
Speaker Change: Yeah, ex-cutting in China. Are you, I don't know how to think about what you're seeing in China, frankly, just because of what we're seeing now on the weakness on the EV side. How would you characterize the business in China excluding the legacy cutting?
Mark S. Miller: Hey Jim, this is Mark. How are you? Hi Mark, welcome by the way. Thanks very much.
Mark Gitin: Hey, Jim, this is Mark.
Mark Gitin: Hi, Mark. Welcome. Thanks very much. Yeah, so China's still a very important part of our business. It's about 25% of the business, and we've been able to over time really diversify that business. So the China cutting market, as you said, that's now become a very small part of our business. It's less than 5%. And we've been diversifying into areas like EV, the welding area. We've been very successful in that region because of the capabilities that we have in, not only we've talked about the AMB lasers, the special mode for being able to weld without spatter, but that combined with our scanning capability and our sensing capability actually measure and look at the welding situ, to be able to do that, has been really critical.
Speaker Change: Hey Jim, this is Mark.
Speaker Change: Hi, Mark. Welcome, by the way. Thank you.
Mark: Thanks very much. Yeah, so China is still, you know, very important part of our business. It's about 25% of the business
Mark: And we've been able to, over time, you know, really diversify that business. So, the China cutting market, as you said, that's now become a very small part of our business. It's less than 5%.
Mark: [inaudible]
Mark: We've talked about the AMD lasers, the special mode for being able to weld without spatter, but that combined with...
Mark: With our scanning capability and our sensing capability, actually measure and look at the weld in situ.
Mark Gitin: That's a quality control for the customer and really a safety prevention issue as well. So that's been really important in EV, and we've kept a significant market share there. And then also in the area of another example would be 3D printing, where our lasers are really unmatched there because we have very high power single mode lasers that have low noise as well. And that's really important to these very high-speed machines that need very high performance and key to the key to those devices. and so on.
Mark: to be able to do that has been really critical. That's a quality control for the customer and, you know, really a...
Mark: a safety prevention issue as well. So that's been really important in EV and we've kept a significant market share there. And then also in the area of, another example would be 3D printing.
Mark: where, you know, our lasers are really unmatched there because we have very high power single mode lasers that are, you know, have low noise as well. And that's really important to these very high speed machines that need very high performance and
Mark Gitin: So, you know, those are a couple areas where it's, you know, really, really been important. And again, we're, we have a significant business in China and continue to, continue to drive there at an area also where in China, the, you know, their first, first to take some of the new technologies. So it's been important for us as we bring out from our roadmap, new technologies. China is a great place because they're, they're willing to start with those on an early basis. So again, we're able to diversify the business in that region, and it's an important region for us.
Mark: and key to those devices.
Mark: So, you know, those are a couple areas where it's, you know, really, really been important. And again, we're, we have a significant business in China and continue to continue to drive there. It's an area also where in China, the, you know, they're first to first to take some of the new technologies. So it's been important for us as we bring out from our roadmap, new technologies, China is a great place because
Mark: They're willing to start with those on an early basis. So again, being able to diversify the business in that region, it's an important region for us.
Jim Ricciuti: Thank you.
James Andrew Ricchiuti: Thank you. I'll jump back in the queue with somebody else.
Jim Ricciuti: I'll jump back on the queue with somebody else.
Speaker Change: Thank you. I'll jump back in the queue and let somebody else.
Ruben Roy: Our next question is from Ruben Roy with People. Please proceed with your question. Thank you very much.
Ruben Roy: Our next question is from Ruben Roy with Stiefel. Please proceed with your question.
Speaker Change: Our next question is from Ruben Roy with Stiefel. Please proceed with your question.
Ruben Roy: Thank you very much, and Mark, welcome. Thank you for providing some, I guess, a preview of some of the areas of focus and, you know, how you're thinking about things here at IPG. I guess, Mark, I have a question for you.
Ruben Roy: Mark, welcome. Thank you for providing some, I guess, a preview on some of the areas of focus and, you know, you're thinking about things here at IPG. I guess Mark, a question for you, you made a comment on, you know, cutting still obviously a big, a big market, small on China, smaller in China, but still a big market for IPG. And you made a, you know, comment; I think you were talking about Europe, where you were talking about the decline is macro driven. I see you were, you were implying that not, not a competitive issue.
Ruben Roy: Thank you very much. And Mark, welcome. Thank you for providing some, I guess, a preview
Speaker Change: on some of the areas of focus and how you're thinking about things here at IPG.
Ruben Roy: You made a comment on, you know, cutting still, obviously, a big market, small in China, smaller in China, but still a big market for IPG, and you made a comment, I think you were talking about Europe, where you were talking about the decline being macro-driven, and I assume you were implying that it was not a competitive issue. In the past, IPG management has talked about cutting ex-China as a potential area of growth longer term, as, you know, overall cutting in other geographies is still, you know, on the comet.
Ruben Roy: I guess, Mark, a question for you. You made a comment on cutting still obviously a big market, small in China, smaller in China.
Speaker Change: Still a big market for IPG. And you made a comment, I think you were talking about Europe , where you were talking about the decline is macro driven. And I assume you were you were implying that not a competitive
Ruben Roy: In the past, IPG management talked about cutting X China as a potential area of growth. Longer term, as you know, overall, cutting and other geographies is still, you know, on the comment, it really hasn't gotten to critical mass in some areas.
Speaker Change: issue. In the past, IPG management's talked about cutting ex-China as a potential area of growth longer term as, you know, overall.
Speaker Change: cutting and other geographies is still, you know, on the comet, it really hasn't gotten to critical mass in some areas, I guess, you know, as you think about cutting and
Ruben Roy: It really hasn't gotten to critical mass in some areas. I guess, you know, as you think about cutting and R&D into cutting, maybe if you could give us a little more perspective on how you're thinking about that market specifically and IPG positioning in some of these markets outside of China, that would be helpful.
Ruben Roy: I guess, you know, as you think about cutting and R&D into cutting, I'm, you know, maybe if you could give us a little more perspective on how you're thinking about that market specifically and IPG positioning in some of these markets outside of China, that would be helpful.
Speaker Change: R&D into cutting. Maybe if you could give us a little more perspective on how you're thinking about that market specifically and IPG positioning in some of these markets outside of China, that would be helpful.
Mark S. Miller: Yeah, absolutely. You know, thanks very much for the question.
Mark Gitin: Yeah, absolutely. You know, thanks very much for the question. As you mentioned, cutting is still an important piece of our business, although welding is now the largest part of IPG's business. And as you said, you know, the competition for us has really been in China, and that part of the business is, you know, less than 5% now. In Europe and Japan and in the US, you know, the OEMs, we have great relationships with them, and they really understand the value that we provide. You know, this is a quality up time, up time on the systems, and, you know, that's very critical for those, for those customers.
Mark S. Miller: As you mentioned, cutting is still an important piece of our business, although welding is now the largest part of IPG's business. And as you said, the competition for us has really been in China. And that part of the business is, you know, less than 5% now.
Speaker Change: Yeah, absolutely. Thanks very much for the question. As you mentioned, cutting is still an important piece of our business, although welding is now the largest part of IPG's business.
Speaker Change: [inaudible]
Speaker Change: And that part of the business is, you know, less than 5% now.
Mark S. Miller: In Europe and Japan and the U.S., you know, the OEMs, we have great relationships with them, and they really understand the value that we provide. You know, this is quality, uptime, and uptime on the systems, and, you know, that's very critical for those customers. And, you know, we talk to them all the time. That's a, you know, an area where we're not losing share because of that. It's a service, it's a support, it's the full, you know, the full package with those OEMs.
Speaker Change: in Europe and Japan and in the United States.
Speaker Change: The OEMs, we have great relationships with them, and they really understand the value that we provide. This is quality, uptime on the systems, and it's very critical for those customers.
Mark Gitin: And you know, we talked to them all the time. That's a, you know, that's an area where we're not losing share because of that. It's a service. It's a support. It's the full, you know, the full package with those OEMs. And yes, we are continuing to drive in that area. It's an important, it's an important area.
Speaker Change: and you know we talked to them all the time that's a you know that's an area where we're we're not losing share because of that it's a service it's the
Mark S. Miller: And yes, we are continuing to drive in that area because it's an important, it's an important area. So, you know, very shortly, we'll be releasing new high power lasers that are at the high end and are a very, very, very big change in the volume of the lasers. So, you know, smaller form factor and lower cost, saving 15 to 20 percent in cost.
Speaker Change: support it's the full package with those OEMs and yes, we are continuing to drive in that area, it's an important area. So you've heard us talk about our roadmap in...
Mark Gitin: So you've heard us talk about our roadmap in cutting. So, you know, very shortly we'll be releasing very, you know, new high power lasers that are at the high end, are very, very, very big change in the volume of the lasers. So, you know, smaller form factor and then lower cost, you know, saving 15 to 20% in the cost. So again, very, very key. And we're also, you know, constantly working with the customers on, you know, I mentioned the support, the support infrastructure. So we've, you know, that's a lot in our service infrastructure to support those OEMs. And that's, that's very key, very key as well.
Speaker Change: in cutting. So, you know, very shortly, we'll be releasing
Speaker Change: [inaudible]
Mark S. Miller: So again, very, very key. And we're also constantly working with the customers on, you know, I mentioned the support, the support infrastructure. So we've, you know, invested a lot in our service infrastructure to support those OEMs, and that's very, very key as well.
Speaker Change: in the cost. So again, very, very key. And we're also, you know, constantly working with the customers on, you know, I mentioned the support, the support infrastructure. So we've, you know, invested a lot in our service infrastructure to support those OEMs. And that's, that's very key, very key as well.
Ruben Roy: That's a helpful detail.
Ruben Roy: That's a helpful detail. Thanks, Mark.
Ruben Roy: Thanks, Mark.
Ruben Roy: And then, as a follow-up, around the discussion on EV, I think most of us understand that adoption has slowed, and there's a lot of macro impacts that interest rates and otherwise, you know, kind of creating issues for the market. But you know, when you talk to your customers, you know, it sounds like you're pushing out, you know, any expectations for improvement out into somewhere in 2025. What drives that improvement? I mean, are we, are we close on the inventory level? You know, are you seeing some signs from your discussions that there will be some capacity added, you know, as you get into 25? Any detail on, you know, actual customer feedback would be helpful.
Mark S. Miller: That's helpful detail. Thanks, Mark. And then, yeah, as a follow-up,
Speaker Change: Around the discussion on EV, I think most of us understand that adoption has slowed and there's a lot of macro impacts, interest rates and otherwise, you know, kind of creating issues.
Ruben Roy: And then as a follow-up, around the discussion on EVs, I think most of us understand that adoption has slowed, and there are a lot of macro impacts, interest rates, and otherwise, kind of creating issues for the market. But, you know, when you talk to your customers, it sounds like you're pushing out, you know, any expectations for improvement out into somewhere in 2025. What drives that improvement? I mean, are we close on the inventory level? You know, are you seeing some signs from your discussions that there will be some capacity added, you know, as you get into 25? Any detail on, you know, actual customer feedback would be helpful.
Speaker Change: for the market. But, you know, when you talk to your customers...
Speaker Change: You know, it sounds like you're pushing out.
Speaker Change: you know, any expectations for improvement out into somewhere in 2025.
Speaker Change: What drives that improvement? I mean, are we are we close on the inventory level? You know, are you seeing some signs from your discussions that there will be some capacity added? You know as you get into 25 any any detail on you know, actual customer feedback would be would be helpful
Mark S. Miller: Yeah, I know what I can tell you. Thanks for the second follow-up question. We're in a very good position with the EV. I mentioned earlier the technical solution that we provide with the EV, being able to lock up both the A and B lasers, plus scanning, plus the capability to measure those welds.
Mark Gitin: Yeah, I know what I can tell you. You know, thanks for the thanks for the second follow-up question. And, you know, we're in a very good position in the EV. I mentioned earlier, you know, the kind of the technical solution that we provide in the EV being able to lock up both the AMB laser plus scanning plus the capability to measure those welds. So that puts us in a, you know, in a very good position, both at the component subsystem and systems level in that in that EV market. Now I'm talking with the customers, you know, at, you know, last quarter, they told us they thought things were going to be coming back, you know, in the second, in the second half of the year, and then we see some of those projects start to come back in the second half.
Speaker Change: Yeah, I know what I can tell you, you know, thanks for the thanks for the second follow-up question.
Speaker Change: We're in a very good position in the EV. I mentioned earlier the technical solution that we provide in EV, being able to lock up both the A and B laser, plus scanning, plus the capability to measure those welds. That puts us
Speaker Change: in a very good position, both at the component subsystem and systems level in that ED market. Now, I'm talking with the customers.
Mark S. Miller: You know, last quarter, we, they told us they thought things were going to be coming back, you know, in the second, in the second half of the year, and then we'd see some of those projects start to come back in the second half. What they've been telling us recently is that they just see things really pushing to the right in 2025. So that's what we're hearing, and that's what we're seeing right now.
Speaker Change: You know last quarter we they they told us they thought things were going to be coming back You know in the second in the second half of the year and that we'd see some of those projects
Mark Gitin: What they've been telling us recently is that they just see things really pushing to the right into 2025. So that's what we're hearing, and that's what we're seeing right now.
Speaker Change: [inaudible]
Ruben Roy: Okay, thanks, Mark. Just really quick for Tim on the model. In terms of, Tim, some of the new lasers coming out and, you know, the cost downs on some of the high power stuff, how is that looking from a timing perspective? Just wondering how you're thinking about gross margins, you know, given the reality of where revenues are into year end here, and maybe even early 25. Any idea how you're thinking about it, you know, sort of a potential bottom for gross margins, some of those new products roll out, or, you know, any color there would be helpful.
Ruben Roy: Okay, thanks, Mark.
Timothy Mammen: Just really quick for Tim on the model. In terms of, you know, some of the new lasers coming out and, you know, the cost downs on some of the high power step. How is that looking from a timing perspective? You're wondering how you're thinking about gross margins. You know, given the reality of where revenues are into year end here, maybe even early 25, you know, it's sort of how you're thinking about it, you know, sort of a potential bottom for gross margins of those new products roll out or, you know, any color there would be helpful.
Speaker Change: Okay, thanks, Mark. Just really quick for Tim on the model. In terms, Tim, of, you know, some of the new majors coming out and, you know, the cost downs on some of the high power stuff.
Speaker Change: How is that looking from a timing perspective? Just wondering how you're thinking about gross margins.
Speaker Change: you know, given the reality of where revenues are into year-end here and maybe even early 25, you know, it's sort of how you're thinking about it, you know, sort of a potential bottom for gross margins, some of those new products roll out or you know, any color there would be helpful.
Timothy Mammen: Sure, Rune. I think on gross margin, really the underperformance continues to be related to under absorption, even though it managed to take out a lot of manufacturing costs. So the product gross margin, when I look at that on an isolated basis, is holding up very well. So what I would expect as we get some of those cost production initiatives actually rolled out into product towards the end of this year, into next year. We'll start to see the margin of the product improve potentially a little bit because we're going to keep some of those cost reductions in hand.
Timothy P. V. Mammen: Sure, Ruben. On gross margin, really, the underperformance continues to be related to underabsorption, even though we've managed to take out a lot of manufacturing costs. So the product gross margin... When I look at that on an isolated basis, it's holding up very well.
Speaker Change: Sure, Ruben. On gross margin, really the underperformance continues to be related to underabsorption even though we've managed to take out a lot of manufacturing costs. So the product gross margin...
Timothy P. V. Mammen: So what I would expect is we get some of those cost production initiatives actually rolled out into product. Towards the end of this year and into next year, we'll start to see the margin of the product improve potentially a little bit because we're going to keep some of those cost reductions in hand. And then, as we start to grow the business again, you'll start to recover some of the under absorption on the fixed costs.
Speaker Change: When I look at that on an isolated basis, it's holding up very well. So what I would expect as we get some of those cost production initiatives actually rolled out into product towards the end of this year into next year, we'll start to see
Speaker Change: The margin of the product improved potentially a little bit Because we're going to keep some of those cost reductions in in hand And then as we start to grow the business again, you'll start to recover some of the under absorption on the fixed cost basis
Timothy Mammen: And then, as we start to grow the business again, you'll start to recover some of the under-absorption on the fixed cost basis. Yeah, I think at this level of revenue, if we can start to recover a little bit from here, you are talking about gross margin being kind of at a trough level. The other thing that's impacting us is the need at the time we've got the headwinds around revenue is to continue to take inventory down, right? So that is also driving some of the under absorption. As we get closer to target level of inventory, I said we've got more work to do on that in the second half of the year.
Timothy P. V. Mammen: I think at this level of revenue, if we can start to recover a little bit from here, you are talking about gross margin being kind of at a trough level. The other thing that's impacting us is the need for transcripts provided by Transcription Outsourcing, LLC. So that'll drive some improvement in gross margin as well.
Speaker Change: I think at this level of revenue, if we can start to recover a little bit from here, you are talking about gross margin being kind of at a trough level.
Speaker Change: The other thing that's impacting us is the need...
Speaker Change: at the time we've got the headwinds around revenue is to continue to take inventory down right so that that is also driving some of the under-absorption.
Speaker Change: as we get closer to target level of inventory.
Mark Gitin: But I expect that situation to ameliorate certainly into 2025. The sort of double whammy of lower revenue and getting inventory down really, really should, we hope to turn that on both accounts, both on the revenue and the inventory side of it. So that will drive some improvement in gross margin as well. And then, you know, Ruben and Tim was saying this is largely an under absorption issue. So we've been investing and are continuing to invest in our product roadmap, driving differentiation. We've got a lot of exciting things in a number of areas. You've heard us talk about the heating and drying applications.
Speaker Change: I said we've got more work to do on that in the second half of the year, but I expect that situation to ameliorate certainly into 2025. The sort of double whammy of lower revenue and getting inventory down really, really should, we hope to turn that on both accounts, both on the revenue and the inventory side of it.
Mark S. Miller: And then, you know, Ruben, as Tim was saying, this is largely an under-absorption issue. So we've been investing in, and are continuing to invest in, our product roadmap, driving differentiation. We've got a lot of exciting things in a number of areas. You've heard us talk about the heating and drying applications. We've been very successful with the medical products, and those are growing. And, you know, you've heard us talk about light weld and the combination with Miller.
Speaker Change: So that will drive some improvement in gross margin as well.
Ruben Roy: And then, you know, Ruben, as Tim was saying, this is largely an under-absorption issue. So we're, you know, we've been investing and are continuing to invest in our product roadmap, driving differentiation. We've got a lot of exciting things in a number of areas. You've heard us talk about the heating and drying applications. We've been very successful on the medical products. Those are growing. And, you know, you've heard us talk about light weld and the combination with Miller. Those are all areas that are going to drive growth.
Timothy Mammen: We've been very successful on the medical products. Those are growing. And, you know, you've heard us talk about light weld and the combination with mill. Those are all areas that are going to drive growth. And as I said, as that growth drives, of course, that's going to improve the absorption, and we'll see the gross margins improve. So that plus the cost balance.
Mark S. Miller: Those are all areas that are going to drive growth. And as that growth drives, of course, that's going to improve absorption, and we'll see the gross margins improve. So that, plus the cost balancing that Tim was saying, are important areas.
Speaker Change: As that growth thrives, of course, that's going to improve the absorption, and we'll see that those margins improve. So that, plus the cost balancing that Tim was saying are important areas.
Timothy Mammen: with Tim Hussein, our important areas.
Keith Housum: Thank you, Jeff. Our next question comes from Keith Housum with North Coast Research. Please proceed with your question. Good morning. Thank you.
Ruben Roy: Got it. Thank you, Jeff.
Speaker Change: Got it. Thank you, Jeff.
Keith Haslam: Our next question comes from Keith Haslam with North Coast Research. Please proceed with your question.
Speaker Change: Our next question comes from Keith Haslam with North Coast Research. Please proceed with your question.
Keith Haslam: Good morning, thank you. And Mark, congratulations and welcome aboard. The investment in SG&A and R&D, I guess maybe a look at SG&A in particular, you know, after several years of, you know, disappointing results. Obviously, I appreciate the investment in SG&A, but is there a particular strategy or area that you guys are focused on in order to help drive growth into the future?
Mark Gitin: And Mark, congratulations and welcome aboard. You invested in SG&A and R&D. I guess maybe you look at the SG&A in particular.
Keith Haslam: Good morning. Thank you. And Mark, congratulations and welcome aboard.
Mark Gitin: You know, after several years of, you know, down results, obviously I appreciate the investment in the SG&A, but is there a particular strategy or an area that you guys are focused on in order to help drive growth into the future? Yeah, I can, I can take that. Thanks very much for the question, Keith. So, as we said, again, we have a very exciting, exciting roadmap and absolutely investing in R&D. We've got a lot of capability there. I have to tell you, I'm really thrilled coming. I, of course, was looking at the company very closely over a number of years.
Keith Haslam: The investment in SG&A and R&D, I guess maybe a look at the SG&A in particular, you know, after several years of, you know, down results, obviously, I appreciate the investment in SG&A, but is there a particular strategy or area that you guys are focused on in order to help drive growth into the future?
Mark S. Miller: Yeah, I can take that. Thanks very much for the question, Keith. So, as we said again, we have a very exciting roadmap and are absolutely investing in R&D. We've got a lot of capability there. I've got to tell you, I'm really thrilled to be here. I, of course, had been looking at the company very closely over a number of years and then, you know, before coming to IPG, I looked very closely at what I saw as the technology and product roadmaps. But, you know, now being here, seeing under the covers, it's even better than I expected.
Speaker Change: Yeah, I can take that. Thanks very much for the question, Keith.
Speaker Change: So as we said, again, we have a very exciting, exciting roadmap and absolutely investing in in R&D. We've got a lot of capability there. I have to tell you, I'm really thrilled coming. I, of course, was was looking at the company very closely over a number of years. And then, you know, before for
Mark Gitin: And then, you know, before, for coming to a type of G, I looked very, very closely at, you know, what I saw as technology and product roadmaps. But, you know, now being here, seeing under the covers, it's even better than I expected. So a really great innovation. There are great things to drive the product roadmaps, drive differentiation. You've heard us talk about some of the new products. And it's beyond products now, just the, just lasers and components. We've been investing into the applications and the process development side. And so that's a very critical piece for us because we're, you know, we're able to go in, we're able to work with the customers.
Speaker Change: Coming to IPG, I looked very closely at what I saw as technology and product roadmaps.
Speaker Change: But, you know, now being here, seeing under the covers, it's even better than I expected. So really great innovation. There are great things to drive.
Mark S. Miller: So, really great innovation. There are great things to drive the product roadmap and drive differentiation. You've heard us talk about some of the new products, and it's beyond products now, just lasers and components. We've been investing in applications and the process development side. So, that's a very critical piece for us because we're, you know, we're able to go, and we're able to work with the customers. We now have these labs and these capabilities all over the world.
Speaker Change: [inaudible]
Mark Gitin: We now have these, these labs and these capabilities all over the world. We're working with the customers. We're seeing the problem that they need to solve. We're working with them. We're developing a solution, and that's the laser. But it's also, you know, being delivery. It's also, I talked about some of the sensing capability. So when you put all those things together and wrap that process together and then be able to deliver to the customer a subsystem and a system that's a whole another way to put a motor on the product.
Speaker Change: because we're able to go in, we're able to work with the customers. We now have these labs and these capabilities all over the world. We're working with the customers. We're seeing the problem that they need to solve. We're working with them. We're developing a solution. And that's the laser, but it's also beam delivery. It's also, I talked about some of the sensing capability. So when you put all of those things together and wrap that process together and then be able to deliver to the customer a subsystem and a system.
Mark S. Miller: We're working with the customers. We understand the problem that they need to solve. We're working with them. We're developing a solution, and that's the laser, but it's also, you know, beam delivery. It's also, I talked about some of the sensing capability. So, when you put all of those things together and wrap that process together and then are able to deliver to the customer a subsystem and a system, that's a whole other way to put a motor on the product. So, that's, you know, another area where we're absolutely investing in that SG&A side that will continue to drive growth in the product.
Mark Gitin: So that's, you know, another area where we're absolutely investing on that SG&A side that will continue to drive growth in the business.
Speaker Change: That's a whole nother way to put a motor on the product. So that's another area where we're absolutely investing on that SG&A side that will continue to drive growth in the business.
Mark Gitin: Okay, so just to understand in terms of investing in the applications and solutions. Are you expanding, are you going to be starting to be able to more with some of your OEMs and integrators or just developing beyond just the lasers and doing more of it for which they would have done themselves? So what I would tell you is that we've got development on the lasers, development again on that on that delivery and the and the process side, and a lot of the processes that we're growing in, you know, are new processes, things like heating and cleaning, which they're, you know, that's those are big areas for us to grow in particular markets.
Keith Haslam: Okay, so just so I understand, in terms of investing in the applications and solutions, are you expanding, are you going to start competing a little bit more with some of your OEMs and integrators, or just developing beyond just the lasers and doing more of it for which they would have done themselves? https://www.patreon.com
Speaker Change: Okay, so just so I understand, in terms of investing in the applications and solutions, are you expanding, are you going to start competing with them more with some of your OEMs and integrators, or just developing beyond just the lasers and doing more of it for which they would have done themselves?
Mark S. Miller: So what I would tell you is that we've got development on the lasers, development again on that delivery and the process side, and a lot of the processes that we're growing in are new processes, things like heating and cleaning, which are big areas for us to grow in particular markets. That's something that we've done in the EV, for example, the cleaning application, where we can rid some of those processes of chemical kinds of processes and be able to do that with lasers.
Speaker Change: It's a...
Speaker Change: So what I would tell you is that we've got development on the lasers, development again on that delivery and the process side, and a lot of the processes that we're growing in, you know, are new processes.
Speaker Change: [inaudible]
Mark Gitin: That's something that we've done in the EV, for example, you know, the cleaning application where we can read some of those processes of, you know, chemical kinds of processes and be able to do that with lasers. So there were really driving improvements or new laser parameters that can do that by understanding the process and then being able to provide some of the wraparound pieces that really are unique because of our process knowledge. So that allows us to expand into, you know, unique new applications as well.
Speaker Change: [inaudible]
Mark S. Miller: So there, we're really driving improvements or new laser parameters that can do that by understanding the process and then being able to provide some of the wraparound pieces that really are unique because of our process knowledge. So that allows us to expand into unique new applications as well.
Speaker Change: that really are unique because of our process knowledge. So that allows us to expand into unique new applications as well.
Michael Feniger: Thank you. Good luck. Hi, the next question comes from Michael Feniger with Bank of America. Please proceed with your question. Hey everyone, thanks for taking my questions. Mark, you kind of touched on this, but I'm just curious about the driving the penetration of lasers and the industrial applications. Is it, does IPGP have to think differently, maybe on, on, on either pricing to help, you know, drive that adoption or is it, is it market applications or is it maybe to go, go to market strategy in terms of, you know, I know it was touched on before when it comes to some of these, the OEMs and distributors.
Speaker Change: Great. Thank you. Good luck.
Michael J. Feniger: My next question comes from Michael Feniger with Bank of America. Please proceed with your question.
Speaker Change: Our next question comes from Michael Feniger with Bank of America. Please proceed with your question.
Michael J. Feniger: Hey everyone, thanks for taking my questions. Mark, you kind of touched on this, but I'm just curious about the driving the penetration of lasers in industrial applications. Does IPGP have to think differently, maybe on either pricing to help? you know, drive that adoption? Or is it is market applications? Or is it maybe the go-to-market strategy? In terms of, you know, I know, it was touched on before when it comes to some of these, the OEMs and distributors, I'm just curious if, with fresh eyes, you feel like getting that penetration up outside of China requires, you know, maybe a different approach.
Michael Fenninger: Hey everyone, thanks for taking my questions. Mark, you kind of touched on this, but I'm just curious about the driving the penetration of lasers in the industrial applications.
Speaker Change: Does IPGP have to think differently maybe on either pricing to help
Speaker Change: you know, drive that adoption, or
Speaker Change: Is it market applications or is it maybe the go-to-market strategy?
Speaker Change: In terms of, you know, I know it was touched on before when it comes to some of these, the OEMs and distributors, I'm just curious if, you know, with fresh eyes, if you feel like getting that penetration up outside of China requires, you know, maybe a different approach.
Mark Gitin: I'm just curious if, you know, with fresh eyes, if you feel like getting that penetration up outside of China requires, you know, maybe a different approach. Yeah, thanks very much. That's a very good question. And, you know, we are taking, you know, a deeper approach on some of these. It's a little bit different.
Mark S. Miller: Thanks very much, that's a very good question and you know we are taking you know a deeper approach on some of these it's a little bit different so you know even you know look at the handheld welding you know we've taken a different go-to-market approach there we've partnered with our light weld with you know premier premier welding supplier in the you know in North America Miller Electric that you know supplies today or had supplied that to date was with a conventional MIG and TIG experts in the welding you know they provide those systems and and they've they're working with us in partnership to take that on to label it as a Miller product so they're seeing the you know that this is the right way to go in welding and they're seeing that because you know you're able with our system with our light weld system We build the process, so again this is talking about that process development, we actually build it into the system, so you can actually dial in, hey I'm doing aluminum on aluminum or aluminum on copper, and the system will set itself and you can go and do that welding. Where in standard processes, if you're a maker to welder, you might have to apprentice for years before you can do those processes. Here you can do that, I've even welded with the system.
Speaker Change: Thanks very much. That's a very good question. And, you know, we are taking, you know, a deeper approach on some of these. It's a little bit different. So, you know, even, you know, look at the handheld welding.
Mark Gitin: So, you know, even, you know, look at the handheld welding, you know, we've taken a different go-to-market approach there. We've partnered with our light weld with, you know, premier, premier welding supplier in the, you know, in North America, Miller Electric that, you know, supplies today, or had, had supplied that, today was, were, were the conventional Megan Kig experts in the welding, you know, they provide those systems and, and they've, they're working with us in partnership to, to take that on to label it as a Miller product. So, they're seeing the, you know, the, the, this is the right way to go in welding.
Speaker Change: We've taken a different go-to-market approach there, we've partnered.
Speaker Change: with our light weld with, you know, Premier.
Speaker Change: Premier Welding Supplier in the, you know, in North America, Miller Electric, that, you know, supplies
Speaker Change: Today, or had supplied that to date was with a conventional MIG and KIG.
Speaker Change: experts in the welding, you know, they provide those systems and they're working with us in partnership to take that on, to label it as a Miller product. So they're seeing that this is the right way to go in welding and they're seeing that because
Mark Gitin: And they're seeing that because, you know, you're able with our system, our light weld system. We build the process. So, again, this is talking about, you know, that process development. We've actually built it into the system. So, you can actually dial in, hey, I'm doing aluminum, I'm on aluminum, or aluminum on copper. And the system will set it, will set itself, and you can go and do that welding, where in standard processes, you know, if you're a mega-tig welder, you might have to apprentice for years before you can do, you know, do those processes. Here, you know, you can do that. You know, I've even welded with the system.
Speaker Change: You know, you're able, with our system, with our light-weld system,
Speaker Change: We build the process. So again, this is talking about, you know, that process development, we actually build it into the system.
Speaker Change: So you can actually dial in, hey, I'm doing aluminum on aluminum or aluminum on copper and the system will set itself and you can go and do that welding. Where in standard processes, you know, if you're a MIG or TIB welder, you might have to apprentice for years before you can do, you know, do those processes.
Mark Gitin: So, you know, you can go from, you know, years to hours of being competent. So, that allowed us a different market, you know, go-to-market strategy, again, with Miller, and putting that into the market. And then, again, pushing on that, you know, that application and that process development, again, taking and optimizing not only the lasers for a particular process, you know, let's take something, you know, like cleaning. We can, we, you know, that's, that's, again, replacing a process that would potentially have been done with, with chemicals, right? So, something better for the environment now using a laser, but you have to optimize the laser to be able to do that.
Speaker Change: here.
Speaker Change: You know, you can do that. You know, I've even welded with the system.
Mark S. Miller: So you can go from years to hours of being competent. So that allows us a different market, go-to-market strategy, again with Miller, and putting that into the market. And then again, pushing on that application and that process development, again taking and optimizing not only the lasers for a particular process, let's take something like cleaning. That's again replacing a process that would potentially have been done with chemicals, right? So something better for the environment now using a laser, but you have to optimize the laser to be able to do that.
Speaker Change: [inaudible]
Mark Gitin: So, you know, we're making high-power lasers with short pulses that are optimized for that. But then, you also have to drive the; the scanning has to work as well. So, we've actually developed, you know, case use scanners that are very high speed for that cleaning application to tie to that laser, to tie to the process. And then, working with the customer, be able to provide the solution, right? Either in a subsystem or a system level. So, again, a different code of market strategy because we need to solve the problem in the, in that non-laser space, right?
Mark S. Miller: So we're making high-power lasers with short pulses that are optimized for that, but then you also have to drive the scanning to work as well. So we've actually developed case-use scanners that are very high-speed for that cleaning application to tie to that laser, to tie to the process, and then, working with the customer, be able to provide the solution, either at a subsystem or a system level. So again, a different go-to-market strategy because we need to solve the problem in that non-laser space and be able to provide that whole piece. So that's an investment that we've been making, as I mentioned, and that's a change in approach that we're going to continue to invest in.
Speaker Change: But then you also have to drive the, the scanning has to work as well. So we've actually developed, you know, case use scanners that are very high speed for that cleaning application to tie to that laser, to tie to the process, and then
Speaker Change: Working with the customer be able to provide the solution right either in a subsystem or system level So again a different go-to-market strategy because we need to solve the problem in the in that non laser space
Mark Gitin: And, and be able to provide that whole, that whole piece. So, that's an investment that we've been making, as I mentioned. And that's, you know, that's a change in, in go-to-market that we're going to continue to invest.
Speaker Change: [inaudible]
Michael J. Feniger: And Tim, just curious about seasonality, like if you look back, typically, Q4 might be down a little bit versus Q3, depending on some years, but this year, obviously, because of some of the macro and some of the factors, it feels like Q3 is actually a little bit weaker seasonalally than usual. I'm just curious, Tim, is there anything you want to flag in terms of like seasonal factors as we kind of think about this year and if it's different than you kind of, you know, see in prior years when we think of the seasonality of the business?
Michael Feniger: Tim, I'm just curious on seasonality. If you look back, typically Q4 might be down a little bit versus Q3, depending on some years, but this year, obviously, because of some of the macro, some of the factors, feels like Q3 is actually a little bit weaker seasonally than normal. I'm just curious, Tim, is there anything you want to flag towards seasonal factors as we kind of think about this year, if it's different than what you kind of see in prior years when we think of the seasonality of the business?
Speaker Change: understood in
Speaker Change: Tim, just curious on seasonality.
Speaker Change: like, if you look back, typically Q4 might be down a little bit versus Q3, depending on some years.
Tim: This year, obviously, because of the macro and some of the factors, it feels like Q3 is actually a little bit weaker.
Speaker Change: Seasonally than normal. I'm just curious, Tim, is there anything you want to flag in terms of, like, seasonal factors as we kind of think about, you know, this year, if it's different than what you kind of, you know, see in prior years when we think of the seasonality of the business?
Timothy P. V. Mammen: Michael, it's completely different at the moment. I mean, any historic trends on seasonality right now... Transcripts provided by Transcription Outsourcing, LLC. Transcribed by https://otter.ai. At this point in time, I think seasonality is not you can't pick anything out of it. And, you know, what we've stated is we just don't seem to see any meaningful recovery until sometime in 2025.
Timothy Mammen: Michael, it's completely different at the moment. I mean, any historic trend on seasonality right now can be sort of disregarded, where we're in a pretty deep downturn, particularly in Europe. You got a different dynamic to the China business in a week, in London, rather than even though that business has stabilized. We'd often see Q3 and Q2 as stronger quarters, given some of those demand dynamics you'd see out of those areas. At this point in time, I think, for seasonality is not; you can't pick anything from it.
Tim: Michael, it's completely different at the moment. I mean, any historic trends on seasonality right now can be sort of disregarded. We're in a pretty...
Michael Fenninger: in Q2 is stronger quarters, given some of those demand dynamics you'd see out of those areas.
Speaker Change: At this point in time, I think seasonality is not, you can't pick anything from it. And you know, what we've stated is we just don't see, we don't see any meaningful recovery until sometime in 2025 at this point.
Timothy Mammen: And what we've stated is we just don't see any meaningful recovery until sometime in 2025 at this point.
Michael J. Feniger: Fair enough. And if I could just squeeze one more in, Mark, or do you think M&A has to be a bigger component of us talking about the growth profile going forward? Thank you. Yeah, sure.
Michael Feniger: There are enough, and if I could just squeeze one, one more in Mark, I think you really are emphasizing sounds like really, you know, spending to drive a growth in investing the business. I'm just curious with where the balance sheet is, Mark. Do you feel like the growth can get revitalized just by the organic growth profile and some of these markers you guys are trying to tack? Obviously, I think the macro is important as well. Do you get back to that double-digit growth profile that IPG was kind of used to before the softest we've observed?
Speaker Change: Fair enough. And if I could just squeeze one more in, Mark. I think you really are emphasizing, sounds like, really, you know,
Speaker Change: Spending to drive the growth and investing in the business. I'm just curious where the balance sheet is, Mark. Do you feel like the growth can get revitalized?
Speaker Change: Just just by the organic growth profile and some of these markers you guys are trying to attack Obviously, I think the macro is Important as well. Do you think you get back to that double-digit kind of growth profile that IPG is
Mark Gitin: Or do you think M&A has to be a very component of us talking about the growth profile going forward? Thank you. Yeah, sure. Thanks for that follow-up question.
Speaker Change: was kind of used to before the softness we've observed, or do you think M&A has to be a bigger component of us talking about, you know, the growth profile going forward? Thank you.
Mark S. Miller: Yeah, sure. Thanks for that follow-up question. So, you know, first of all, I just want to emphasize the product roadmap and the technology here. So, first and foremost, we're continuing to drive that. We've got a great lineup of things that we're working on that will be coming out that will absolutely drive growth. So, you know, on the material processing side, you've heard me talk about the lasers and then, you know, some of the components like the fast scanning, tying those things together and driving growth, you know, with the subsystem and system capability.
Mark Gitin: First of all, I just want to emphasize the product roadmap and the technology here. First and foremost, it's continuing to drive that. We've got a great lineup of things that we're working on that will be coming up that will absolutely drive growth. You know, in the material processing side, you've heard we talk about the lasers, and then, you know, some of the components like the fast scanning time, those things together, and driving growth, you know, with the subsystem and system capability, and then also, you know, in other areas like medical, that we've seen that fantastic growth, and we've got a great roadmap that we're investing in that will give us great growth over the next years.
Speaker Change: Yeah, sure. Thanks for that follow-up question. So, you know, first of all, I just want to emphasize the, again, the product roadmap and the technology here. So, you know, first and foremost is continuing to drive that. We've got a great lineup of things that we're working on that will be coming up.
Speaker Change: that will absolutely drive growth. In the material processing side, you've heard me talk about the lasers and then some of the components like the fast scanning, tying those things together and driving growth.
Mark S. Miller: And then also, you know, in other areas like medical, where we've seen such fantastic growth, and we've got a great roadmap that we're investing in that will give us great growth over the next years. Now, of course, I'm always interested in anything that could drive that growth faster, give us, you know, differentiation, faster time to market, you know, put us into adjacent markets. So, you know, the M&A, I'm certainly, you know, always, always interested, always looking. But, you know, in that area, I'm not looking for any, you know, any giant transitional kinds of acquisitions. And again, you know, we have a really great opportunity to continue to grow that business.
Speaker Change: with the subsystem and system capability, and then also in other areas like medical that we've seen that fantastic growth and we've got a great roadmap that we're investing in that will give us great growth over the next years. Now, of course,
Mark Gitin: Now, of course, I'm always interested in anything that could, that could drive that growth faster, give us, you know, differentiation, faster time to market, you know, put us into adjacent markets. So, you know, the M&A, I'm certainly always interested, always looking, but you know, in that area, not looking for any, you know, any giant transitional kinds of. And again, you know, we have a really great opportunity to continue to to grow that business.
Speaker Change: I'm always interested in anything that could drive that growth faster, give us differentiation, faster time to market, put us into adjacent markets, so M&A I'm certainly always interested, always looking.
Speaker Change: But, you know, in that area, not looking for any, you know, any giant transitional kinds of acquisitions.
Speaker Change: Again, we have a really great opportunity to continue to grow that business.
Unknown Executive: So, to remind, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please by we poll for questions.
Michael J. Feniger: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Mark Miller with Benchmark. Please proceed with your question.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions.
Mark Miller: Our next question comes from Mark Miller with Benchmark. Please proceed with your question.
Mark S. Miller: Yeah, I can take that, Mark. Thank you for the questions.
Speaker Change: Our next question comes from Mark Miller with Benchmark. Please proceed with your question.
Mark Gitin: I too would like to welcome Mark to IPG. And I had a question: General Motors and Ford recently reported strong EV sales. Just wondering what you're seeing in terms of EV-related sales in both North America and China. Yeah, I can take that that Mark thank you for the for the questions. You know again, as I mentioned earlier, McCall, we're in a really good position on the on the EV because of the because of the solutions that that we bring not only in the laser but but also the you know the wrap around a process there.
Speaker Change: I too would like to welcome Mark to IPG, and I had a question, General Motors and Ford recently reported strong EV sales, just wondering what you're seeing in terms of EV related sales in both North America and China?
Mark S. Miller: You know, again, as I mentioned earlier in the call, we're in a really good position on the EV because of the solutions that we bring, not only in the laser, but also the wraparound process there. And so we have a great share of that. But what we've seen, you know, again, as we talk to the customers, those projects are being pushed to the right, you know, where we thought they were going to come in in the second half of this year. The customers in each of the regions are talking about those projects being, you know, more into 2025. There are a couple of good data points, I think.
Speaker Change: Yeah, I can take that, Mark. Thank you for the questions. You know, again, as I mentioned earlier in the call, we're in a really good position on the EV because of the...
Speaker Change: [inaudible]
Mark Gitin: And so we have a we have a great share in that, but what we've seen, you know, again as we talk to the customers, you know, those those projects are being are being pushed pushed to the right.
Speaker Change: Those projects are being pushed to the right, where we thought they were going to come in in the second half of this year. The customers in each of the regions are talking about those projects being more into 2025.
Mark Gitin: You know where we thought they were going to come in in the second half of this year, the you know the customers in each of the regions are talking about those projects being you know more into 2025. Mark, maybe just a couple of good data points, I think. Now overall EV sales in the first half of the year are up 20% in China; there are 30%. Europe's a bit flat at the moment. The office smaller base North America has actually performed quite well, so total battery capacity utilization we think is increased by about 20%. That's going to help drive higher utilization overall globally, and I think supports the thesis that we start to see a recovery in the 2025.
Mark S. Miller: Well, Mark may just pick you up on that. That's a couple of good data points, I think. Overall EV sales in the first half of the year are up 20%. Transcripts provided by Transcription Outsourcing, LLC. Okay, last question is, in terms of recently introduced products, what percent of sales? About 45%. 46, let's call it that.
Speaker Change: Well, Mark, maybe just picking up on that, there's a couple of good data points, I think.
Mark S. Miller: Overall EV sales in the first half of the year are up 20%.
Mark S. Miller: Thank you very much.
Mark S. Miller: That's going to help drive higher utilization overall globally, and I think supports the thesis that we start to see a recovery in this 2025.
Mark Gitin: Check.
Timothy Mammen: Less question is terms of recently introduced products of percent of sales about 45% 46% this quarter. Thank you.
Speaker Change: Last question is in terms of recently introduced products, what percent of sales? About 45%.
Speaker Change: 46th quarter. Thank you.
Unknown Executive: We've reached the end of the question to answer session.
Eugene Fedotoff: We've reached the end of the question-and-answer session. I'd now like to turn the call back over to Eugene Fedotoff for closing comments.
Eugene Fedotoff: I'd now like to turn a call back over to Jean to your gene federal for closing comments. Thank you for joining us this morning, and you're continuing the interest in IPG. We will be participating in a number of investor events this quarter and are looking forward to speaking with you so again.
Speaker Change: We have reached the end of the question and answer session. I'd now like to turn the call back over to Eugene Fedotoff for closing comments.
Eugene Fedotoff: Thank you for joining us this morning and for your continued interest in IPG. We will be participating in a number of investor events this quarter and are looking forward to speaking with you soon again. Have a great day, everyone.
Eugene Fedotoff: Thank you for joining us this morning and your continued interest in IPG. We will be participating in a number of investor events this quarter and I'm looking forward to speaking with you soon again. Have a great day everyone.
Unknown Executive: Good day, everyone.
Unknown Executive: This includes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.