Q2 2026 IPG Photonics Corp Earnings Call

August 4, 2026

Operator 2: Good morning, and welcome to IPG Photonics Q2 2026 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 Senior Director and Investor Relations for the introductions. Please go ahead with your conference.

Operator: Good morning, and welcome to IPG Photonics Q2 2026 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 Senior Director and Investor Relations for the introductions. Please go ahead with your conference.

Speaker #1: Photonics second quarter 2026 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 Senior Director and Investor Relations for the introductions.

Speaker #1: Please go ahead with your conference.

Speaker #2: Thank you, and good morning, everyone. With me today are IPG Photonics CEO Dr. Mark Gitin and Senior Vice President and CFO Tim Mammen. On today's call, Mark will provide a summary of our second quarter results, as well as an overview of the demand environment.

Eugene Fedotoff: Thank you. Good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin, and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary of our Q2 results, as well as the overview of demand environment, then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details. Let me remind you that statements made during this call that discuss our 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. These risks and uncertainties are detailed in our Form 10-K for the period ended 31 December 2025, and our reports on file with the Securities and Exchange Commission.

Eugene Fedotoff: Thank you. Good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin, and Senior Vice President, CFO, Tim Mammen. On today's call, Mark will provide a summary of our Q2 results, as well as the overview of demand environment, then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details. Let me remind you that statements made during this call that discuss our 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. These risks and uncertainties are detailed in our Form 10-K for the period ended 31 December 2025, and our reports on file with the Securities and Exchange Commission.

Speaker #2: And then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details.

Speaker #2: Let me remind you that statements made during this call that discuss our 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.

Speaker #2: These risks and uncertainties are detailed in our Form 10-K for the period ended December 31, 2025, and in our reports on file with the Securities and Exchange Commission.

Speaker #2: Any forward-looking statements made on this call are the company's expectations or predictions as of today, August 4, 2026 only, and the company assumes no obligation to publicly release any updates or revisions to any such statements.

Eugene Fedotoff: Any forward-looking statements made on this call are the company's expectations or predictions as of today, 04 August 2026, only. The company assumes no obligation to publicly release any updates or revisions to any such statements. During this call, we will be referencing certain non-GAAP measures. For more information on how we define these non-GAAP measures and the reconciliation of such measures to the most directly comparable GAAP measures, as well as additional details on our reported results, please refer to the earnings press release, earnings call 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.

Speaker #2: During this call, we will be referencing certain non-GAAP measures. For more information on how we define these non-GAAP measures, and the reconciliation of such measures to the most directly comparable GAAP measures, as well as additional details on our reported results, please refer to the earnings press release, earnings call presentation, and the financial data workbook posted on our investor relations website.

Speaker #2: We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark.

Speaker #3: Thanks, Eugene. Good morning, everyone. Second quarter revenue was above the midpoint of our guidance, increasing double digits year over year and growing sequentially. Both Industrial Solutions and Advanced Solutions grew quarter over quarter, and adjusted gross margin and adjusted EPS came in above our expectations.

Mark Gitin: Thanks, Eugene. Good morning, everyone. Q2 revenue was above the midpoint of our guidance, increasing double digits year-over-year and growing sequentially. Both industrial solutions and advanced solutions grew quarter-over-quarter, and adjusted gross margin and adjusted EPS came in above our expectations. Bookings also improved in the quarter, and book-to-bill remained above one. Growth in both revenue and bookings points to sustained demand for our products across our end markets. Revenue growth was led by strength in industrial solutions, primarily in welding applications, as we continued to benefit from increased demand and business wins for our solutions in battery manufacturing. Cleaning and additive manufacturing also contributed to the year-over-year growth. Advanced solutions revenue improved sequentially, driven by strong growth in semiconductor applications as we are making progress with large semiconductor equipment manufacturers. We are also seeing strong interest in our directed energy defense system, CROSSBOW.

Speaker #3: Bookings also improved in the quarter, and book-to-bill remained above 1. Growth in both revenue and bookings points to sustained demand for our products across our end markets.

Speaker #3: Revenue growth was led by strength in industrial solutions primarily in welding applications as we continued to benefit from increased demand in business wins for our solutions in battery manufacturing.

Speaker #3: Cleaning and additive manufacturing also contributed to the year-over-year growth. Advanced solutions revenue improved sequentially, driven by strong growth in semiconductor applications, as we were making progress with large semiconductor equipment manufacturers.

Speaker #3: We are also seeing strong interest in our directed energy defense system crossbow. Overall, in advanced solutions, we continue to execute on our long-term strategic initiatives and believe that we have numerous opportunities for growth.

Mark Gitin: Overall, in advanced solutions, we continue to execute on our long-term strategic initiatives and believe that we have numerous opportunities for growth. The growth we achieved in Q2 also demonstrates that we are making progress on our two clearly defined strategic growth initiatives. The first is strengthening our leadership in industrial solutions by expanding laser adoption, displacing incumbent technologies, and further moving up the value chain with differentiated system and subsystem solutions. Welding drove much of the industrial solutions growth in the quarter. Demand in battery manufacturing remains strong across both electric vehicles and stationary storage, which supports data center energy requirements. Following our strategy to further move up the value chain, I'm excited to report that our subsystems revenue increased significantly this year. Our unique combination of Adjustable Mode Beam lasers, advanced beam delivery, and real-time process monitoring enables unmatched welding speed and quality.

Speaker #3: The growth we achieved in the second quarter also demonstrates that we are making progress on our two clearly defined strategic growth initiatives. The first is strengthening our leadership in industrial solutions by expanding laser adoption, displacing incumbent technologies, and further moving up the value chain with differentiated system and subsystem solutions.

Speaker #3: Welding drove much of the industrial solutions growth in the quarter. Demand in battery manufacturing remained strong across both electric vehicles and stationary storage, which supports data center energy requirements.

Speaker #3: Following our strategy to further move up the value chain, I'm excited to report that our subsystems revenue increased significantly this year. Our unique combination of adjustable mode beam lasers advanced beam delivery and real-time process monitoring enables unmatched welding speed and quality.

Speaker #3: We are also making these subsystems easier to integrate, and adding computer vision and artificial intelligence into the solutions. These advantages have helped drive recent wins with two major global automotive manufacturers.

Mark Gitin: We are also making these subsystems easier to integrate and adding computer vision and artificial intelligence into the solutions. These advantages helped drive recent wins with two major global automotive manufacturers. Additive manufacturing revenue remained strong in the quarter and grew significantly year-over-year. Demand is accelerating as our newest solutions enable the displacement of conventional metal machining. Winning here takes precise laser parameters, partnership with OEM customers, and deep applications expertise. Our latest generation of lasers with proprietary beam shaping capabilities increases process speeds by approximately 1.5 to 2 times, translating directly into higher productivity and lower total cost per part for customers. Our second strategic growth initiative is expanding our leadership in laser and photonics technologies in attractive markets and applications in advanced solutions, including medical, directed energy, micromachining, and semiconductor.

Speaker #3: Additive manufacturing revenue remains strong in the quarter and grew significantly year over year. Demand is accelerating as our newest solutions enable the displacement of conventional metal machining.

Speaker #3: Winning here takes precisely laser parameters, partnership with OEM customers, and deep applications expertise. Our latest generation of lasers with proprietary beam shaping capabilities increases process speeds by approximately 1.5 to 2 times translating directly into higher productivity and lower total cost per part for customers.

Speaker #3: Our second strategic growth initiative is expanding our leadership in laser and photonics technologies and attractive markets and applications in advanced solutions, including medical, directed energy, micromachining, and semiconductor.

Speaker #3: We are leveraging core capabilities to target applications where precision, accuracy, control, efficiency, and reliability matter most, and are pursuing those opportunities both organically and through acquisition.

Mark Gitin: We are leveraging core capabilities to target applications where precision, accuracy, control, efficiency, and reliability matter most, and are pursuing those opportunities both organically and through acquisition. This strategic initiative is addressing over $5 billion of TAM, and we are expecting hundreds of millions of dollars in revenue over the longer term. Let me tell you about the progress we are making and the encouraging signs we are seeing towards realizing this potential. On 16 July, we entered into a binding offer to acquire Lumibird Medical, a global leader in diagnostic and treatment systems for ophthalmology. We believe this acquisition will allow us to achieve four things. First, it accelerates IPG's strategic evolution by meaningfully expanding our advanced solutions revenue into attractive higher-margin medical markets with durable demand, strengthening the quality of our business mix.

Speaker #3: This strategic initiative is addressing over $5 billion of TAM, and we are expecting hundreds of millions of dollars in revenue over the longer term.

Speaker #3: Let me tell you about the progress we are making in the encouraging signs we are seeing towards realizing this potential. On July 16, we entered into a binding offer to acquire Lumibird Medical, a global leader in diagnostic and treatment systems for ophthalmology.

Speaker #3: We believe this acquisition will allow us to achieve four things: first, it accelerates IPG's strategic evolution by meaningfully expanding our advanced solutions revenue into attractive, higher-margin medical markets with durable demand; strengthening the quality of our business mix; second, it delivers on our commitment to improve profitability through the addition of a high-margin business that we expect will be accretive to gross margin EBITDA and adjusted EPS in the first year.

Mark Gitin: Second, it delivers on our commitment to improve profitability through the addition of a high-margin business that we expect will be accretive to gross margin, EBITDA, and adjusted EPS in the first year. Third, it creates a scaled medical laser platform by combining our leading urology business with Lumibird Medical's leading ophthalmology business, increasing our addressable medical market by approximately $1 billion. Fourth, it expands our long-term value creation opportunity by combining complementary technologies, commercial capabilities, and applications expertise to drive innovation and unlock future growth. We are very excited about this opportunity, which we expect to close in Q4 2026. In our medical business, bookings and backlog remain strong, and we expect shipments to increase in H2 of the year. Looking forward, we remain confident in long-term demand growth for our urology systems and fibers.

Speaker #3: Third, it creates a scaled medical laser platform by combining our leading urology business with Lumibird Medical's leading ophthalmology business, increasing our addressable medical market by approximately $1 billion.

Speaker #3: And fourth, it expands our long-term value creation opportunity by combining complementary technologies, commercial capabilities, and applications expertise to drive innovation and unlock future growth.

Speaker #3: We are very excited about this opportunity which we expect to close in the fourth quarter of 2026. In our medical business, bookings and backlog remain strong and we expect shipments to increase in the second half of the year.

Speaker #3: Looking forward, we remain confident in long-term demand growth for our urology systems and fibers. We are also advancing our innovation roadmap with new product approvals and introductions expected in 2026 and 2027.

Mark Gitin: We are also advancing our innovation roadmap with new product approvals and introductions expected in 2026 and 2027. Our strongest performance within advanced solutions was in semiconductor applications, as we continue to win new business with large semiconductor equipment manufacturers due to the differentiated value that we deliver. Our solutions for lithography, metrology, and inspection are gaining traction, increasing our exposure to this high-growth market, driven by an acceleration of AI-related demand for GPUs and high-bandwidth memory chips. We continue to advance our product development by working closely with customers on design and opportunities, supported by the clear performance advantages our lasers and photonic solutions offer. In our defense business, we began shipping Lockheed Martin's order for CROSSBOW this quarter. We will be shipping more units in Q3 and continuing to engage with potential customers working to convert their interest into orders.

Speaker #3: Our strongest performance within advanced solutions was in semiconductor applications, as we continue to win new business with large semiconductor equipment manufacturers due to the differentiated value that we deliver.

Speaker #3: Our solutions for lithography, metrology, and inspection are gaining traction, increasing our exposure to this high-growth market driven by an acceleration of AI-related demand for GPUs and high-bandwidth memory chips.

Speaker #3: We continue to advance our product development by working closely with customers on designing opportunities supported by the clear performance advantages our lasers and photonics solutions offer.

Speaker #3: In our defense business, we began shipping Lockheed Martin's order for crossbow this quarter. We will be shipping more units in the third quarter and continuing to engage with potential customers working to convert their interest into orders.

Speaker #3: We recently participated in a defense event at White Sands Missile Range demonstrating crossbow capabilities to multiple agencies in demanding real-world environments. The system continues to be broadly tested in various scenarios domestically and overseas, and has proven to perform reliably in harsh conditions.

Mark Gitin: We recently participated in a defense event at White Sands Missile Range, demonstrating CROSSBOW capabilities to multiple agencies in demanding real-world environments. The system continues to be broadly tested in various scenarios domestically and overseas, and has proven to perform reliably in harsh conditions. We remain optimistic about the current developments in the directed energy market and believe that our systems provide effective solutions with a favorable cost exchange ratio to address the increasing threats from Group 1 and Group 2 drones. Along with making progress on our strategic growth initiatives, we are also transforming into an organization positioned to maximize the growth and profit opportunities ahead through the One-IPG operating model. We are streamlining operations, strengthening decision-making, and accelerating product development, translating into better performance and greater consistency across the business.

Speaker #3: We remain optimistic about the current developments in the directed energy market and believe that our systems provide effective solutions with a favorable cost-exchange ratio to address the increasing threats from Group 1 and Group 2 drones.

Speaker #3: Along with making progress on our strategic growth initiatives, we are also transforming into an organization positioned to maximize the growth and profit opportunities ahead through the One IPG operating model.

Speaker #3: We are streamlining operations, strengthening decision-making, and accelerating product development, translating into better performance and greater consistency across the business. In summary, the global IPG team delivered another quarter of sequential and year-over-year growth as customer demand for our unique solutions has strengthened across our markets.

Mark Gitin: In summary, the global IPG team delivered another quarter of sequential and year-over-year growth as customer demand for our unique solutions has strengthened across our markets. Orders also grew, keeping our book-to-bill above one, and we reported significant increases in adjusted gross margin and adjusted EPS. We are making meaningful progress on our strategic objectives, positioning us to continue to deliver profitable growth and create sustained shareholder value. With that, I will now turn the call over to Tim.

Speaker #3: Orders also grew, keeping our book-to-bill above $1. We reported significant increases in adjusted gross margin and adjusted EPS. We are making meaningful progress on our strategic objectives, positioning us to continue to deliver profitable growth and create sustained shareholder value.

Speaker #3: With that, I will now turn the call over to Tim.

Speaker #2: Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation, which is available on our Investor Relations website. I will start with revenue trends by application on slide 5.

Tim Mammen: Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation, which is available on our investor relations website. I will start with revenue trends by application on slide five. Industrial solutions revenue increased 16% year over year in Q2, driven by growth in welding, marking, cleaning, and additive manufacturing. On a sequential basis, revenue is up 4%, primarily due to strength in welding and cleaning. Advanced Solutions revenue decreased 9% compared with last year, as growth in semiconductor applications was offset by lower revenue in micromachining and defense. However, Advanced Solutions revenue improved 10% quarter over quarter on growth in semiconductor and sequential improvement in micromachining applications. Sales of our emerging growth products continued to increase and accounted for 58% of our total revenue in Q2, up from 53% in the prior quarter.

Speaker #2: Industrial solutions revenue increased 16% year-over-year in the second quarter, driven by growth in welding, marking, cleaning, and additive manufacturing. On a sequential basis, revenue is up 4%, primarily due to strength in welding and cleaning.

Speaker #2: Advanced solutions revenue decreased 9% compared with last year, as growth in semiconductor applications was offset by lower revenue in micro machining and defense. However, advanced solutions revenue improved 10% quarter over quarter on growth in semiconductor and sequential improvement in micro machining applications.

Speaker #2: Sales of our emerging growth products continued to increase and accounted for 58% of our total revenue in the second quarter up from 53% in the prior quarter.

Speaker #2: Strong growth in our lasers and solutions for battery manufacturing processes drove the increase. Moving to revenue performance by region on slide 6, North American revenue decreased 2% compared with last year, due to lower revenue in cutting defense and medical applications.

Tim Mammen: Strong growth in our lasers and solutions for battery manufacturing processes drove the increase. Moving to revenue performance by region on slide six. North American revenue decreased 2% compared with last year due to lower revenue in cutting, defense, and medical applications. Sequentially, revenue was up 1% due to increased marking and defense sales. European sales were up 5% year over year, and 1% sequentially, driven by increased sales in cleaning and additive manufacturing, partially offset by a decrease in cutting. Revenue in Asia increased 19% year over year, and 8% sequentially, driven by strong growth in welding applications, which benefited from higher demand in battery manufacturing. Moving to the financial performance review on slide seven. Total revenue was $279 million, up 11% year over year, marking our third consecutive quarter of double-digit year-over-year sales growth.

Speaker #2: Sequentially, revenue is up 1%, due to increased marking and defense sales. European sales were up 5% year-over-year, and 1% sequentially, driven by increased sales in cleaning and additive manufacturing, partially offset by a decrease in cutting.

Speaker #2: Revenue in Asia increased 19% year-over-year and 8% sequentially, driven by strong growth in welding applications which benefited from higher demand in battery manufacturing. Moving to the financial performance review on slide 7, total revenue was $279 million up 11% year-over-year marking our third consecutive quarter of double-digit year-over-year sales growth.

Speaker #2: Foreign currency benefited revenue by approximately 2% in this quarter compared to the same period in the prior year. GAAP gross margin was 40.4% and adjusted gross margin was 40.7%.

Tim Mammen: Foreign currency benefited revenue by approximately 2% this quarter compared to the same period in the prior year. GAAP gross margin was 40.4%, and adjusted gross margin was 40.7%, above the top end of our guidance range. We recorded a benefit from tariff refunds of approximately $4.7 million that had a positive impact on gross margin of approximately 170 basis points in the quarter. Lower inventory provisions and product cost continued to provide a positive benefit, while manufacturing cost absorption remains below the level we are targeting in the medium term. Total adjusted operating expenses were $91 million, excluding $17.6 million in impairment of long-lived assets related to the sale of our Belarusian operations and other one-time items. Adjusted operating expenses declined sequentially and came in slightly below our guidance range as we benefited from a German R&D tax credit of $1.8 million in the quarter.

Speaker #2: Above the top end of our guidance range. We recorded a benefit from tariff refunds of approximately $4.7 million that had a positive impact on gross margin of approximately $170 basis points in the quarter.

Speaker #2: Lower inventory provisions and product cost continued to provide a positive benefit while manufacturing cost absorption remains below the level we are targeting in the medium term.

Speaker #2: Total adjusted operating expenses were $91 million, excluding $17.6 million in impairment of long-lived assets in our Belorussian operations and other one-time items. Adjusted operating expenses declined sequentially and came in slightly below our guidance range, as we benefited from a German R&D tax credit of $1.8 million in the quarter.

Speaker #2: Overall, we expect operating expenses to modestly increase going forward due to our continued investments to drive growth. GAAP operating income in the quarter was $5 million, and GAAP net income was $5 million, or $0.12 per diluted share.

Tim Mammen: Overall, we expect operating expenses to modestly increase going forward due to our continued investments to drive growth. GAAP operating income in the quarter was $5 million, and GAAP net income was $5 million, or $0.12 per diluted share. Adjusted operating income was $24 million, and adjusted net income was $25 million, with adjusted earnings per diluted share of $0.58. Adjusted EBITDA was $49 million. Both adjusted EPS and adjusted EBITDA came in above the top end of our guidance range. Moving to a summary of our balance sheet and cash flow on slide eight. We ended the quarter with $871 million in cash equivalents, and short-term investments. We had $33 million in long-term investments and no debt. Cash flow from operations was $38 million in the quarter, improving significantly from Q1.

Speaker #2: Adjusted operating income was $24 million and adjusted net income was $25 million with adjusted earnings per diluted share of $58 cents. Adjusted EBITDA was $49 million both adjusted EPS and adjusted EBITDA came in above the top end of our guidance range.

Speaker #2: Moving to a summary of our balance sheet and cash flow, on slide 8, we ended the quarter with $871 million in cash, cash equivalents, and short-term investments.

Speaker #2: We had $33 million in long-term investments and no debt. Cash flow from operations was $38 million in the quarter, improving significantly from the first quarter.

Speaker #2: During the second quarter, we spent $21 million on capital expenditures bringing year-to-date capex to $37 million. Our capex outlook remains $90 million to $100 million for this year including investments in our major fiber manufacturing facility in Germany.

Tim Mammen: During Q2, we spent $21 million on capital expenditures, bringing year-to-date CapEx to $37 million. Our CapEx outlook remains $90 million to $100 million for this year, including investments in our major fiber manufacturing facility in Germany. Excluding the German investment, underlying CapEx is running at about 5% of revenue, and we expect to maintain this level going forward. Moving to our outlook on slide nine. Orders remain strong with book-to-bill staying above one. For Q3 of 2026, we expect revenue of $265 million to $295 million and adjusted gross margin between 37.5% and 40.5%, factoring in the ongoing impact from tariffs of about 150 basis points.

Speaker #2: Excluding the German investment, underlying capex is running at about 5% of revenue, and we expect to maintain this level going forward. Moving to our outlook on Slide 9, quarters remain strong, with book-to-bill staying above 1.

Speaker #2: For the third quarter of 2026, we expect revenue of $265 million to $295 million and adjusted gross margin between 37.5% and 40.5%. Factoring in the ongoing impact from tariffs of about $150 basis points.

Speaker #2: We estimate adjusted operating expenses in the range of $92 million to $95 million in the third quarter and we expect to deliver adjusted earnings per diluted share in the range of 30 cents to 60 cents with approximately $43 million diluted common shares outstanding.

Tim Mammen: We estimate adjusted operating expenses in the range of $92 million to $95 million in Q3. We expect to deliver adjusted earnings per diluted share in the range of $0.30 to $0.60 with approximately 43 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $35 to 51 million. In summary, we are pleased with our Q2 results with growth in revenue and bookings, as well as improvements in gross margin and adjusted EPS. We believe that we are well positioned to continue improving our performance. We are seeing solid long-term demand trends across our markets and are gaining traction on initiatives to expand margins even as we continue to invest in the growth opportunities ahead. I will now turn the call back over to Mark.

Speaker #2: Our adjusted EBITDA is expected to be between $35 million and $51 million. In summary, we are pleased with our second quarter results with growth in revenue and bookings as well as improvements in gross margin and adjusted EPS.

Speaker #2: We believe that we are well positioned to continue improving our performance. We are seeing solid long-term demand trends across our markets and are gaining traction on initiatives to expand margins, even as we continue to invest in the growth opportunities ahead.

Speaker #2: I will now turn the call back over to Mark.

Speaker #3: Thanks, Tim. We are pleased with the strong start in the first half of the year, driven by sustained industrial demand and the progress we are making with our key strategic initiatives.

Mark Gitin: Thanks, Tim. We are pleased with the strong start in H1 of the year, driven by sustained industrial demand and the progress we are making with our key strategic initiatives. Our announced acquisition of Lumibird Medical accelerates our strategic evolution and significantly expands our advanced solutions portfolio into higher growth and higher margin medical applications. We continue to execute on our growth strategy, supported by operational excellence and an innovation engine that unlocks significant areas of opportunity. As we continue along this path, I am increasingly confident in our ability to achieve above-market growth, expand margins, and deliver lasting value for our customers and shareholders. With that, we will be happy to take your questions.

Speaker #3: Our announced acquisition of Lumibird Medical accelerates our strategic evolution and significantly expands our advanced solutions portfolio into higher-growth and higher-margin medical applications.

Speaker #3: We continue to execute on our growth strategy, supported by operational excellence and an innovation engine that unlocks significant areas of opportunity. As we continue along this path, I am increasingly confident in our ability to achieve above-market growth, expand margins, and deliver lasting value for our customers and shareholders.

Speaker #3: With that, we will be happy to take your questions.

Speaker #1: Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Operator 2: 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 in the question queue. You may press star two if you'd like to remove your question from the queue. One moment while we poll for questions. Our first question comes from Ruben Roy with Stifel. Your line is now live.

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 in the question queue. You may press star two if you'd like to remove your question from the queue. One moment while we poll for questions. Our first question comes from Ruben Roy with Stifel. Your line is now live.

Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Speaker #1: One moment while we pull for questions. Our first question comes from Ruben Roy. With Stiefel, your line is now live.

Speaker #4: Thank you, good morning. I'm Mark. Hi, Tim. I wanted to start with a question on just maybe longer-term, Mark, on the bookings. You've had three quarters in a row now where the book-to-bill is above 1.

Ruben Roy: Thank you. Good morning. Hi, Mark. Hi, Tim. I wanted to start with a question on just maybe longer term, Mark, on the bookings. You've had three quarters in a row now where the book-to-bill is above 1. The Q3 guidance is again sort of roughly flat at the midpoint of the revenue guide. Just wondering if you could talk a little bit about building a shippable backlog against the revenue guidance and how you're thinking maybe about the next couple of quarters against, again, what seems to be a nice backdrop for bookings. Thank you.

Speaker #4: The Q3 guidance is, again, sort of roughly flat at the midpoint of the revenue guide. So, just wondering if you could talk a little bit about the building of shippable backlog against the revenue guidance, and how you're thinking maybe about the next couple of quarters against, again, what seems to be a nice backdrop for bookings.

Speaker #4: Thank you.

Speaker #3: Sure. Hey, good to hear from you, Ruben. So just to step back for a second, of course, as you mentioned, we're seeing double-digit growth year over year.

Mark Gitin: Sure. Hey, good to hear from you, Ruben. Just to step back for a second, of course, as you mentioned, we're seeing double-digit growth year-over-year, and this is the third quarter in a row for that. Book-to-bill again, was strong, was above 1 for the third quarter in a row. We're really seeing encouraging signs across the business. On the industrial side, we've seen very positive progress with the differentiated solutions that we've talked about in battery and additive manufacturing, cleaning, et cetera. If you look at the PMIs globally, they've been expansive and stable. We're seeing quite positive momentum in our advanced solutions. We've talked about the key areas of advanced solutions that are giving us confidence in the long-term opportunity for the business.

Speaker #3: And this is the third quarter in a row for that. Book-to-bill, again, was strong, was above 1 for the third quarter in a row.

Speaker #3: And we're really seeing encouraging signs across the business. On the industrial side, we've seen very positive progress with the differentiated solutions that we've talked about in battery and additive manufacturing, cleaning, etc.

Speaker #3: And if you look at the PMIs globally, they've been expansive and stable. And we're seeing quite positive momentum in our advanced solutions we've talked about the key areas of advanced solutions.

Speaker #3: They're giving us confidence in the long-term opportunity for the business.

Ruben Roy: Mm-hmm. Okay. Thanks, Mark. Maybe for a follow-up to drill in a little bit on the battery commentary. You've now cited both EV and battery storage as drivers, and I'm also looking at the China numbers. China back to 34% and change of revenue. Quite a bit of growth the last several quarters, well into the double-digits from China. Maybe if you could just talk about two different things. On welding and battery specifically, how are you thinking about that in terms of sustainability or durability of that demand? Then also relative to what's going on in China, are you gaining share in China? What's the pricing environment like for that market in China, and how do you think about China as a percentage of revenue longer term? I know a lot in there, but clearly something that seems to be going well.

Speaker #4: Okay. Thanks, Mark. Maybe for a follow-up to drill in a little bit on the battery commentary. So you've now cited both EV and battery storage as drivers.

Speaker #4: And I'm also looking at the China numbers. So, China back to 34 and change percent of growth the last several quarters, well into the double digits from China.

Speaker #4: So maybe if you could just kind of talk about two different things. So on welding and battery specifically, sort of how you're thinking about that in terms of sustainability or durability of that demand and then also relative to what's going on in China.

Speaker #4: Are you gaining share in China? What's the pricing environment like for that market in China? And how do you think about China as a percentage of revenue longer term?

Speaker #4: I know a lot in there, but clearly something that seems to be going well. Thanks.

Ruben Roy: Thanks.

Speaker #3: Oh, sounds good. Let me break it down and let me start with the batteries. Again, we're seeing continued wins in that area in the battery welding, but also for batteries just to remind you that they're also some other key applications there.

Mark Gitin: Oh, sounds good. Let me break it down, and let me start with the batteries. Again, we're seeing continued wins in that area, in the battery welding, but also for batteries, just to remind you that there are also some other key applications there and specialized foil cutting as well as cleaning. We're seeing strong pull and bookings in that area. The demand here is really driven for us by the high-capacity batteries, where we have strong differentiation. In high-capacity batteries, you have higher currents. Higher currents mean thicker busbars, also more critical contacts. The drivers there are now kind of two key areas.

Speaker #3: And specialized foil we're seeing strong pull and bookings in that area. And the demand here is really driven for us by the high-capacity batteries where we have strong differentiation.

Speaker #3: So in high-capacity batteries, you have higher currents, higher currents mean thicker bus bars, also more critical contacts. And the drivers there are now kind of two key areas.

Speaker #3: Of course, there's the EV piece, which I'll come back to, but what's becoming a bigger piece of this now is actually the stationary storage, which is being driven by data centers for AI and also some grid stability for solar and other renewables.

Mark Gitin: Of course, there's the EV piece, which I'll come back to, but what's becoming a bigger piece of this now is actually the stationary storage, which is being driven by data centers for AI and also some grid stability for solar and other renewables. On the EV side, which is still continuing to grow, the high capacity is what's needed for the longer range side. Continue to believe in the long-term growth prospects there for batteries. If we now shift to China and what's happening in China. First of all, just want to remind that China is a significant industrial market globally. The fact that we have differentiated solutions, you can see the differentiation by the key design wins that we're getting there. I just want to note that we're winning not only against the local Chinese players, but also against other Western players.

Speaker #3: And on the and then on the EV side, which is still continuing to grow, the high-capacity is what's needed for the longer-range side. So continued to believe in the long-term growth prospects there for batteries.

Speaker #3: And if we now shift to China and what's happening in China—first of all, I just want to remind everyone that China is a significant industrial market globally.

Speaker #3: And the fact that we have differentiated solutions you can see the differentiation by the key design wins that we're getting there. And I just want to note that we're winning not only against the local Chinese players, but also against other Western players because the key differentiation that we have there and we've mentioned this before, but on the battery side with the combination of our AMB lasers or adjustable mode beam plus the beam delivery plus the measurement capability has been really key.

Mark Gitin: The key differentiation that we have there, and we've mentioned this before, but on the battery side with the combination of our AMB lasers, our Adjustable Mode Beam, plus the beam delivery, plus the measurement capability has been really key. I want to also point out that in China, we have strong capability there, and we win in additive. That's a very important piece, which I talked about also in the prepared remarks, where we have new lasers. We work very closely with that sector.

Speaker #3: And I want to also point out that in China, we have strong capability there, and we win in additive. So that's a very important piece, which I talked about also in the prepared remarks, where we have new lasers.

Speaker #3: We work very, very closely with that sector. We've developed new lasers with specialized mode qualities that actually improve the throughput of those systems by, in some cases, 1.5 to 2 times, really helping to drive that business of additive because the cost per part is reduced. That's allowed additive to grow from both, which started in the areas of—of course—aerospace and defense, where you had very high cost and part was critical.

Mark Gitin: We develop new lasers with specialized mode qualities that actually improve the throughput of those systems by, in some cases, 1.5x to 2x, and really helping to drive that business of additive because the cost per part's reduced, and that's allowed the additive to grow from both which started in the areas, of course, aerospace and defense, where you had very high cost. Cost of part wasn't critical, it was just the importance of making those parts. To now with the cost per part dropping with some of the things that we're helping to drive, you're seeing the solutions move into medical devices and even into some consumer devices. In terms of pricing environment, the areas where we have strong differentiation in these areas, so that gives us pricing power in those markets.

Speaker #3: It was just the importance of making those parts to now with the cost per part dropping with some of the things that we're helping to drive you're seeing the solutions move into medical devices and even into some consumer devices.

Speaker #3: And in terms of pricing environment, the areas where we have we have strong differentiation in these areas. So that gives us pricing power in those markets.

Speaker #4: That's a lot of detail, Mark. I don't want to hog this up, but maybe just one quick one for Tim on the lower product cost that you just talked about.

Ruben Roy: That's a lot of detail, Mark. I don't want to hog this up, but maybe just one quick one for Tim on the lower product cost that you just talked about. If you can remind us, Tim, where you are on the structural cost out, and how you're thinking about utilization leverage, and the gross margins from here. That's all I have. Thank you.

Speaker #4: If you can remind us, Tim, where you are on the structural cost out. And how you're thinking about utilization leverage in the gross margins from here.

Speaker #4: That's all I have. Thank you.

Speaker #3: Sure. So yeah, we've talked about this. We've got a number of different ways to impact margin. The first is that we're taking cost out of product by moving to higher power optical components.

Tim Mammen: Sure. Yeah, we've talked about this. We've got a number of different ways that we're driving improvements in gross margin. The first is that we're taking cost out of product by moving to higher power optical components, the most obvious of which is the diodes, right? The higher power the diode you have, the fewer diodes you need, the smaller the form factor of the lasers. We're still at a relatively early stage of rolling the new generation of diodes out across the product platform. We have further improvements to gain from that. The other side of that equation actually is where we've got the differentiation is optimizing pricing. That's another initiative that's being driven by the sales team. You come down as you drop through the manufacturing operations area. We are trying to drive meaningful improvements in absorption.

Speaker #3: The most obvious of which is the diodes, right? The higher the power of the diode, the fewer diodes you need, the smaller the form factor of the lasers.

Speaker #3: We're still at a relatively early stage of rolling the new generation of diodes out across the product platform, so we have further improvements to gain from that.

Speaker #3: The other side of that equation actually is where we've got the differentiation is optimizing pricing. And that's another initiative that's being driven by the sales team.

Speaker #3: And then you come down as you drop through the manufacturing and operations area. We are trying to drive meaningful improvements in absorption. We're still behind where we want to be on that, but we've got several initiatives that the team is working on across different areas.

Tim Mammen: We're still behind where we want to be on that. We've got several initiatives that the team is working on across different areas that would drive manufacturing efficiency and, again, improve the cost of product and utilization. With those initiatives gaining momentum over the H2 of the year and into 2027, we're continuing to target improvements in gross margin and coupling that with an increasing scale of the business, which should help that.

Speaker #3: That would drive manufacturing efficiency and, again, improve the cost of product and utilization. With those initiatives gaining momentum over the second half of the year and into 2027, we're continuing to target improvements in gross margin and coupling that with an increasing scale of the business, which should help that.

Speaker #4: Perfect. Thank you, Jens.

Ruben Roy: Perfect. Thank you, gents.

Speaker #3: Thanks, Ruben.

Tim Mammen: Thanks, Ruben.

Speaker #2: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions.

Operator 2: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions. Our next question comes from Jim Ricchiuti with Needham & Company. Your line is now live.

Operator: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions. Our next question comes from Jim Ricchiuti with Needham & Company. Your line is now live.

Speaker #2: Our next question comes from Jim Rashoudi with Needham & Company. Your line is now live.

Speaker #5: Thank you. Good morning. Apologies if you touched on this—I may have missed it—but I was hoping to get a little bit more color on the decline in North America. I think you alluded to a little softer medical business in the quarter.

Jim Ricchiuti: Thank you. Good morning. Apologies if you touched on this, I may have missed it, but I was hoping to get a little bit more color on the decline in North America. I think you alluded to a little softer medical business in the quarter. I'm just wondering what you're seeing in North America and what your expectations are for the medical business going forward, apart, obviously, from the acquisition.

Speaker #5: So I'm just wondering what you're seeing in North America and what your expectations are for the medical business going forward apart obviously from the acquisition.

Speaker #3: Yes, absolutely. Good to hear from you. Specifically, I think you're asking about the medical demand. We have very strong demand and backlog in medical, and we're confident that we're going to have another good year.

Mark Gitin: Yes. Absolutely. Good to hear from you. Specifically, I think you're asking about the medical demand. We have very strong demand and backlog in medical, and we're confident that we're going to have another good year. We're continuing to advance in the innovation roadmap there, with new product approvals and introductions that are planned in 2026 and 2027. I talked about those. Of course, Jim, we talked about the fact that we launched a key new product at the end of last year. We picked up a new key customer. The fact that we have both systems as well as the disposable fibers. Those are all moving strongly. As I've talked about in the past, we expect to more than double the business over the next two to three years. We have a lot of confidence in the medical business.

Speaker #3: We're continued to we're continuing to advance in the innovation roadmap there. With new product approvals and introductions that are planned in 2026 and 2027.

Speaker #3: And I've talked about those. Of course, Jim, we talked about the fact that we launched a key new product at the end of last year.

Speaker #3: We picked up a new key customer. The fact that we're have both systems as well as the disposable fibers. So those are all moving strongly.

Speaker #3: And as I've talked about in the past, we expect to more than double the business over the next two to three years. So we have a lot of confidence in the medical business.

Speaker #3: And of course, we're also excited about combining that with Lumiburg Medical.

Mark Gitin: Of course, we're also excited about combining that with Lumibird Medical.

Speaker #5: So potential improvement in medical in the back half of the year, Mark. How do you think about the rest of the business in North America?

Jim Ricchiuti: Potential improvement in medical in H2. Mark, how do you think about the rest of the business in North America? What's the tone of demand that you're seeing out there?

Speaker #5: What is the tone of demand that you are seeing out there?

Speaker #3: Yeah. So again, in the area of revenue, we've been overall strong. Even though we were slightly down there in North America, though, our total bookings are strong.

Mark Gitin: Yeah. Again, in the area of revenue, we've been overall strong. Even though we were slightly down there in North America, our total bookings is strong. Book-to-bill strong for Q3 in a row overall. Continued strength. I'll just point out, just to put it in context, that we're seeing also continued strength as I talk about bookings in Asia, especially Japan and China. We're seeing some improvement in Europe, and we are absolutely seeing strengthening in medical as well.

Speaker #3: Book-to-bill strong for the third quarter in a row overall, so continued strength. And I'll just point out, just to put it in context, that we're seeing also continued strength.

Speaker #3: As I talk about bookings in Asia, especially Japan and China, we're seeing some improvement in Europe and we are absolutely seeing strengthening in medical as well.

Speaker #5: Got it. One final question. Just you sound more positive on Crossbow. And I know it's early days, but as you look at that opportunity, in 2027, have your expectations changed at all?

Jim Ricchiuti: Got it. One final question. Just, you sound more positive on CROSSBOW, and I know it's early days, but as you look at that opportunity in 2027, have your expectations changed at all?

Speaker #3: What I'd say, Jim, is we're very excited about that program. And for context, again, we're still seeing daily headlines for drone threats. We think this is a really big opportunity.

Mark Gitin: What I'd say, Jim, is we're very excited about that program. For context, again, we're still seeing daily headlines for drone threats. We think this is a really big opportunity. Of course, it's still emerging, but we're excited about it both for military and civilian, as we've talked about before. We have a really unique position because in order for this area to be strong, we need to be able to address the threats in a sustainably affordable approach. That's why CROSSBOW is so strong because we have this very compelling cost exchange ratio. We're leveraging the IPG, our commercial scale, the vertical integration, the quality, cost, and volume we've talked about. We're seeing quite positive momentum. Obviously, we've started shipping, as we said, the production order from Lockheed. That's great.

Speaker #3: Of course, it's still emerging, but we're excited about it, both for military and civilian, as we've talked about before. And we have a really unique position because, in order for this area to be strong, we need to be able to address the threats in a sustainably affordable approach.

Speaker #3: And that's why Crossbow is so strong because we have this very compelling cost exchange ratio we're leveraging the IPG, our commercial scale, the vertical integration.

Speaker #3: The quality cost and volume we've talked about. And we're seeing quite positive momentum. Obviously, we've started shipping as we said, the production order from Lockheed.

Speaker #3: So that's great. And we're also seeing the systems now being operated in very harsh conditions, in the US and multiple countries overseas. And I mentioned also in the prepared remarks, that we've had successful tests at now at the White Sands missile range recently with multiple agencies.

Mark Gitin: We're also seeing the systems now being operated in very harsh conditions in the US and multiple countries overseas. I mentioned also in the prepared remarks that we've had successful tests at the White Sands Missile Range recently with multiple agencies. That's quite exciting, and there were a number of tests done. Just to give you a little bit more color there were multiple CROSSBOW systems under test at the same time, really showcasing that some cooperative engagement tactics with the units. They were validated over really extreme environmental conditions for really a multi-week deployment that had monsoonal rain, extreme heat. They had sandstorm testing, really validating CROSSBOW's environmental ratings, and even some testing of interoperability on government systems. Again, a lot of good things happening there.

Speaker #3: That's quite exciting. And there were a number of tests done. Just to give you a little bit more color there, there were multiple Crossbow systems under test at the same time, really showcasing some cooperative engagement tactics with the units.

Speaker #3: They were validated over really extreme environmental conditions for really a multi-week deployment. That had monsoonal rain, extreme heat, they had sandstorm testing, really validating Crossbow's environmental ratings.

Speaker #3: And even some testing of interoperability on government systems. So again, a lot of good things happening there. We're really excited about the future of Crossbow, both in the defense military area, but also we have this view of the strength for civilian infrastructure which is also significant problem all of this addressing the drone problem.

Mark Gitin: We're really excited about the future of CROSSBOW, both in the defense and military area, but also we have this view of the strength for civilian infrastructure, which is also a significant problem. All of this addressing the drone problem.

Speaker #5: Good color. And one final question maybe for Tim. Tim, were the bookings, was that book to bill fairly consistent across your major regions? Any real variability in that?

Jim Ricchiuti: Good color. One final question, maybe for Tim. Tim, were the bookings, was that book-to-bill fairly consistent across your major regions? Any real variability in that?

Tim Mammen: No, not a lot. I think it generally reflects on the industrial side, the strengthening PMI data, which continues to be expansionary and pretty good. Yeah, we had good bookings in Asia, Japan, and China in particular. We had good bookings in North America. Europe was also pretty good, although I'd say Europe is probably the area where we continue to see some impact from the higher oil prices and the geopolitical environment, probably a bit more than elsewhere. Yeah, generally we're pretty good. Mark mentioned the medical bookings were strong. Continue to make progress in some of the other advanced applications such as semiconductor and micromachine. They're still a small part of the business, but we're certainly getting a good beachhead across those areas, too.

Speaker #3: Not a lot. I think it generally reflects on the industrial side the strengthening PMI data, which has been continues to be expansionary and pretty good.

Speaker #3: So yeah, we had good bookings in Asia—Japan and China in particular. We had good bookings in North America, and Europe was also pretty good, although I'd say Europe is probably the area where we continue to see some impact from the higher oil prices and the geopolitical environment.

Speaker #3: Probably a bit more than elsewhere. But yeah, in general, they were pretty good. Mark mentioned the medical bookings were strong. No continue to make progress in some of the other advanced applications such as semiconductor and micro machine.

Speaker #3: There's still a small part of the business, but we're certainly getting a good beachhead across those areas too.

Speaker #5: Great. Thank you.

Jim Ricchiuti: Good. Thank you.

Speaker #1: Our next question comes from Scott Graham with Seaport Research. Your line is now live.

Operator 2: Our next question comes from Scott Graham with Seaport Research. Your line is now live.

Operator: Our next question comes from Scott Graham with Seaport Research. Your line is now live.

Speaker #4: Good morning. Thanks for taking the question. With the additive manufacturing being up significantly, I think, Mark, you cited beam control and one and a half to two times efficiency.

Scott Graham: Good morning. Thanks for taking the question. With the additive manufacturing being up significantly, I think, Mark, you cited beam control and one and a half to two times efficiency. I know you're trying to do this across your businesses, and yet I thought maybe you only cited it for additive. Could you kind of talk about what you're doing in your other businesses, in your other markets to get customers to upgrade their lasers and maybe change out their machinery?

Speaker #4: I know you're trying to do this across your businesses and yet I thought maybe you only cited it for additive. Could you kind of talk about what you're doing in your other businesses and your other markets to get customers to upgrade their lasers and maybe change out their machinery?

Speaker #3: Sure. Thanks very much for the question, Scott. Maybe the way to talk about this is just like in additive—what's really unique about IPG is not only the strength in the lasers and photonics, but the really deep understanding of the applications.

Mark Gitin: Sure. Thanks very much for the question, Scott. Maybe the way to talk about this is just like in additive, what's really unique about IPG is not only the strength in the lasers and photonics, but the really deep understanding of the applications. As I pointed out in additive, partnering with the OEM customers, really understanding the needs there, allowed us to develop these specialized mode structures that plugged into their systems, made their systems have throughputs that were significantly higher. I mentioned when I talked earlier, that's allowed the cost per part to drop and actually allowed the expansion of those systems into broader markets. If I take that in areas like semiconductor that I've talked about, again, we have this deep technology broadly in lasers and photonics and the applications understanding. In semiconductor, it's a great example.

Speaker #3: So, as I pointed out in additive, partnering with the OEM customers and really understanding the needs there allowed us to develop these specialized mode structures that plugged into their systems and made their systems have throughputs that were significantly higher.

Speaker #3: And I mentioned when I talked earlier, that's allowed the cost per part to drop and actually allowed the expansion of those systems into the broader markets.

Speaker #3: So if I take that in areas like semiconductor that I've talked about, again, we have this deep technology broadly in lasers and photonics.

Speaker #3: And the applications we’re seeing in semiconductors are a great example. In those semiconductor CAPEX areas, where they're really pushing the limits in lithography, metrology, and inspection, we have core technologies that help them stay on the cutting edge.

Mark Gitin: Those semiconductor CapEx areas where they're really pushing the limits in lithography, metrology, and inspection, we have core technologies that help them on the cutting edge. By working with them on their roadmaps and developing specialized solutions for our lasers, then we're able to become part of those roadmaps, get designed in, and that's why we're starting to see the benefits there. We do that in a variety of markets. In fact, just to give you a little bit more color, because I talked about the subsystems piece, again, that takes that deep applications understanding to be able to design not only the lasers for the specific application, but also the surrounding beam delivery, scanning capabilities, and the actual application piece so that we can provide a full solution where it's needed.

Speaker #3: And so, by working with them on their roadmaps and developing specialized solutions for our lasers, we're able to become part of those roadmaps and get designed in.

Speaker #3: And that's why we're starting to see the benefits there. And we do that in a variety of markets. And in fact, just to give you a little bit more color because I talked about the subsystems piece, again, that takes that deep applications understanding to be able to design not only the lasers for the specific application, but also the surrounding beam delivery, scanning capabilities, and the actual application piece so that we can provide a full solution where it's needed.

Speaker #3: So, we can provide the lasers where they're needed. We can provide combinations with specific other photonic components, and even provide a full solution as a subsystem or a system.

Mark Gitin: We can provide the lasers where it's needed, we can provide a combination with specific other photonic components, and even provide a full solution as a subsystem or a system. We're able to do that in multiple markets.

Speaker #3: And we're able to do that in multiple markets.

Speaker #4: Got it. That's helpful—more clear, thank you. On pricing, I know you implemented some price increases this year. I just wanted to know how they’re sticking—are they intended to cover inflation in full, or just partially, or maybe mostly offset it?

Scott Graham: Got it. That's helpful. More clear. Thank you. The pricing, I know you implemented some price increases this year. Just kind of wanted to know how they're sticking. Are they intended to cover inflation in full or just partially, or maybe mostly offset it?

Speaker #3: Yeah, so let me just speak generally about pricing. That's an area where, again, the strong differentiation that we have can provide much higher value for customers, and we can therefore take that in price.

Mark Gitin: Yeah. Let me just speak generally about pricing. That's an area, again, the strong differentiation that we have can provide much higher value for customer, where we can therefore take that in price. Of course, it depends on the particular area. We're able to do that again, where we add the most value, where we have the most differentiation, and we're doing that to obviously be able to offset in some of those areas, but also to command the value that we deserve in the marketplace.

Speaker #3: Of course, it depends on the particular area. We’re able to do that again where we add the most value, where we have the most differentiation, and we’re doing that to obviously be able to offset in some of those areas, but also to command the value that we deserve in the marketplace.

Speaker #4: So just—is the goal there to fully offset, or is it just going to be a partial offset of inflation in these selected areas?

Scott Graham: Just is the goal there to fully offset, or is it just going to be a partial offset of inflation in these selected areas?

Speaker #3: I think you try to offset inflationary pressures, whether they be on material input costs or labor, but you've also got to stay ahead of the curve there, Scott, on bringing the cost of the product down as well, right?

Tim Mammen: I think you try to offset inflationary pressures, whether they be on material input costs or labor, but you've also got to stay ahead of the curve there, Scott, on bringing the cost of the product down as well, right? Making, as I mentioned, increasing the power that you can get out of different optical components, that changes the form factor of the product itself. It reduces your material input. It's part of the strategy to offset that, but as with anything that we've done historically, taking cost out of product is the other arrow in the quiver, if you like, and then driving the improvements in manufacturing efficiency to see an overall improvement in gross margin and drop-through to profitability.

Speaker #3: So making as I mentioned, increasing the power that you can get out of different optical components, that changes the form factor of the product itself.

Speaker #3: It reduces your material input. So it's part of the strategy to offset that, but as with anything that we've done historically, taking cost out of product is the other arrow in the quiver, if you like.

Speaker #3: And then driving the improvements in manufacturing efficiency to see an overall improvement in gross margin and drop through to profitability.

Speaker #4: Very good. Thank you both.

Scott Graham: Very good. Thank you both.

Speaker #1: Andrew, thanks. 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.

Tim Mammen: Thanks.

Operator 2: 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 Keith Housum with Northcoast Research. Your line is live.

Operator: 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 Keith Housum with Northcoast Research. Your line is live.

Speaker #1: Our next question comes from Keith Housem with North Coast Research. Your line is live.

Speaker #3: Great, thanks. Good morning, gentlemen. Hey Mark, I’m just trying to understand a little bit more about the adjustable beam part of the business. I understand that's a driver of some of the growth here, especially over in China and in the welding area.

Keith Housum: Great. Thanks. Good morning, gentlemen. Mark, just trying to understand a little bit more of the adjustable beam part of the business. I understand that's a driver of some of the growth here, especially over in China, I know in the welding area. How big is the adjustable beam business for you guys, and is that growing faster than the overall business for you?

Speaker #3: How big is the adjustable beam business for you guys? And is that growing faster than the overall business for you?

Speaker #2: Yeah. So again, to talk about the that area of adjustable mode beam, that's important for a number of welding applications. One of those is certainly the battery.

Mark Gitin: Yeah. Again, to talk about that area of Adjustable Mode Beam, that's important for a number of welding applications. One of those is certainly the battery. As we talk about the battery demand and the continued wins and strong pull in bookings that we're seeing there, the Adjustable Mode Beam lasers are a key piece of that. Remember that that has a high differentiation, and I'm just going to remind you why, that in those applications it's critical to have that Adjustable Mode Beam and especially the fact that we've developed very high power single mode in that beam, that's what's helping to drive that area of battery, but also broader welding. It gives you some significant advantages in that area. One of the key drivers is absolutely the batteries.

Speaker #2: So, as we talk about the battery demand and the continued winds and strong pull and bookings that we're seeing there, that is strongly—the adjustable mode beam lasers are a key piece of that.

Speaker #2: And remember that that has high differentiation. And I'm just going to remind you why: in those applications, it's critical to have that adjustable mode beam, and especially the fact that we've developed very high power single mode in that beam.

Speaker #2: And that's what's helping to drive that area of battery, but also a broader welding. It gives you some significant advantages in that area. So one of the key drivers is absolutely the batteries.

Speaker #2: And as I mentioned before, the batteries are being driven by stationary storage as well as other renewables so stationary storage for data centers, also for other renewables, and the longer-range EVs.

Mark Gitin: As I mentioned before, the batteries are being driven by stationary storage as well as other renewables. Stationary storage for data centers, also for other renewables and the longer range EVs. Again, that area of battery, but there are other welding applications that also drive that. That has been a significant driver, and it's also something that you can see in the emerging growth products as you saw the growth in that area, and that we're at a maximal point in that at 58% of revenue. That's one of the key areas that's driving that.

Speaker #2: So again, that area of battery, but there are other welding applications that also drive that. So that has been a significant driver, and it's also something that you can see in the emerging growth products.

Speaker #2: As you saw the growth in that area and that we're at a maximal point in that at 58% of revenue. That's one of the key areas that's driving that.

Speaker #3: Okay.

Keith Housum: Okay. Appreciate that. In terms of medical, your hope to double that business in two to three years, remind me how big medical is for you guys. Is that in the 7% to 8% range right now for you?

Speaker #4: Appreciate that. And in terms of medical, you’re hoping to double that business in two or three years, or maybe even triple it. Remind me, how big is medical for you guys?

Speaker #4: Is that in the 7 to 8 percent range right now for you?

Speaker #3: Yes. That's correct.

Mark Gitin: Yes, that's correct.

Speaker #4: Okay, great. Thanks, guys. I appreciate it.

Keith Housum: Okay. Great. Thanks, guys. Appreciate it.

Speaker #1: We have reached the end of the question-and-answer session. I would now like to turn the call back over to Eugene Fedotoff for closing comments.

Operator 2: 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.

Operator: 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.

Speaker #3: Thank you for joining us this morning and your continued interest in IPG. We will be participating in several industrial events this quarter and are looking forward to speaking with you again soon.

Eugene Fedotoff: Thank you for joining us this morning and your continuing interest in IPG. We will be participating in several investor events this quarter, and are looking forward to speaking with you again soon. Have a nice day, everyone.

Speaker #3: Have a nice day, everyone.

Operator 2: This concludes 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.

Q2 2026 IPG Photonics Corp Earnings Call

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