IPG Photonics Q1 2025 Earnings Report

IPG Photonics EPS Results

• Actual EPS: $0.31
• Consensus EPS: $0.21
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $0.52

IPG Photonics Revenue Results

• Actual Revenue: $227.79 million
• Expected Revenue: $227.00 million
• Beat/Miss: Beat by +$789.00 thousand
• YoY Revenue Growth: -9.60%

IPG Photonics Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:00AM ET

IPG Photonics (NASDAQ:IPGP) develops, manufactures, and sells various high-performance fiber lasers, fiber amplifiers, and diode lasers used in various applications primarily in materials processing worldwide. Its laser products include hybrid fiber-solid state lasers with green and ultraviolet wavelengths; fiber pigtailed packaged diodes and fiber coupled direct diode laser systems; high-energy pulsed lasers, multi-wavelength and tunable lasers, and single-polarization and single-frequency lasers; and high-power optical fiber delivery cables, fiber couplers, beam switches, chillers, scanners, and other accessories. The company also offers integrated laser systems; LightWELD, a handheld laser welding system; 2D compact flat sheet cutter systems and multi-axis systems for fine welding, cutting, and drilling; welding seam stepper and picker, a fiber laser welding tool; high precision laser systems; specialized fiber laser systems for material processing applications; robotic and multi-axis workstations for welding, cutting and cladding, flatbed cutting systems, and diode markers; and laser and non-laser robotic welding and automation solutions. It serves materials processing, communications, medical procedures, and advanced applications and communications markets. The company markets its products to original equipment manufacturers, system integrators, and end users through direct sales force, as well as through agreements with independent sales representatives and distributors. IPG Photonics Corporation was founded in 1990 and is headquartered in Marlborough, Massachusetts.

IPG Photonics Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Morning, and welcome to IPG Photonics First Quarter twenty twenty five Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fetotov, IPG's Senior Director, Investor Relations for introductions. Please go ahead with your conference.

[Eugene Fedotoff, Senior Director of Investor Relations at IPG Photonics]

Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Doctor. Mark Gittin and Senior Vice President and CFO, Tim Mame. Let me remind you that the statements made during the course of this call that discuss management's 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, Senior Director of Investor Relations at IPG Photonics]

These risks and uncertainties are defined in our Form 10 ks for the period ended 12/31/2024, and our reports on file with the Securities and Exchange Commission. Any forward looking statements made on this call are the company's expectations or predictions as of today, 05/06/2025 only, and 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.

[Eugene Fedotoff, Senior Director of Investor Relations at IPG Photonics]

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

[Mark Gitin, Director & CEO at IPG Photonics]

Thanks, Eugene. Good morning, everyone. We had

[Mark Gitin, Director & CEO at IPG Photonics]

a solid start to the year with continued signs of stabilization in the business and modest upticks in demand across some of our markets. I'll begin today with a quick look at our first quarter results and the overall demand environment, then walk through the progress we're making on our long term strategy, what's working, where we're focused. Also, I will talk about where we're adapting to global trade dynamics and touch on the steps that we're taking to minimize risk and maintain flexibility in a shifting environment. After that, I will turn it over to Tim to provide financial details, and then we'll open the call for questions. Starting with the first quarter, revenue came in above the midpoint of our guidance, reflecting business conditions generally consistent with the past few quarters, helped by early traction in key areas that are central to our strategy.

[Mark Gitin, Director & CEO at IPG Photonics]

Our bookings improved sequentially and book to bill was the strongest we've seen in more than two years. Welding revenue continued to show signs of stabilization with share gains in e mobility. While cutting revenue remained challenged, orders increased as business in Japan, Europe and The U. S. Started to normalize.

[Mark Gitin, Director & CEO at IPG Photonics]

We also saw strong results in some other materials processing applications, including cleaning, which benefited from the Clean Laser acquisition and solid growth in additive manufacturing. I'm very encouraged to see the momentum that we're starting to build in our medical, micromachining and advanced applications. We're gaining traction with key customers across several of these initiatives and we're beginning to see a positive impact on revenue. In our medical business, we added a new urology customer this year, which contributed to the strong revenue performance in the quarter. Urology is a multibillion dollar market where our superior solutions are well positioned to replace legacy systems.

[Mark Gitin, Director & CEO at IPG Photonics]

We're currently developing the next generation of our Thulium fiber laser urology systems with a launch plan later this year, positioning us for additional growth in 2026 and beyond. We also launched a new product in micromachining and secured new business that nearly doubled our revenue in that area this quarter. This is a large market with significant long term potential, and we're actively working on a strong product road map to continue gaining share. In advanced applications, we reached a major milestone with one of our key customers, six months ahead of schedule. We look forward to sharing more on this program in the future.

[Mark Gitin, Director & CEO at IPG Photonics]

Many of these wins are a direct result of our differentiated technology, product expertise and the team's ability to address customers' most difficult requirements. Given the operating leverage in our financial model, revenue from these programs is expected to drive a meaningful bottom line impact in the years ahead. These are early wins and while they're not yet large enough to fully offset the headwinds in our more mature cutting applications, they are solid first steps. These and other strategic programs are targeting $5,000,000,000 in TAM and offer hundreds of millions of dollars in revenue opportunities for IPG over the next several years. Turning to the near term outlook, our first quarter book to bill ratio was solidly above one.

[Mark Gitin, Director & CEO at IPG Photonics]

We were encouraged by improving trends across several markets and regions heading into the second quarter. In fact, our revenue guidance today would have reflected sequential growth if not for the impact of recently imposed tariffs. The guidance reflects approximately $15,000,000 in potential shipment delays customers. These are not cancellations. We will fulfill these orders as we optimize production across our global footprint.

[Mark Gitin, Director & CEO at IPG Photonics]

We're continuing to evaluate the dynamic operating environment and are leveraging the flexibility of our global manufacturing and supply chain to minimize the impact of tariffs. We've demonstrated this agility before, most notably when we successfully navigated the loss of access to our Russian operations following the invasion of Ukraine. Looking ahead, our strong manufacturing base in North America positions us well, especially as reshoring drives renewed investment in local automated industrial production. We continue to benefit from strong relationships with customers around the world. During my recent trip to Asia, I met with many of our top customers.

[Mark Gitin, Director & CEO at IPG Photonics]

And in those conversations, one message came through clearly, a shared commitment to deeper collaboration. Our customers place a high value on IPG's technology as well as our quality, reliability and global technical support, which they view as critical to their own success. As a valued partner and a global leader in fiber laser solutions, we remain focused on investing in R and D and applications expertise. Our engineering teams are developing innovative solutions, including lasers, subsystems and systems to meet evolving customer needs across materials processing, medical and other strategic opportunities. One example is our recently announced partnership with Axonobel to apply laser technology to cure powder coatings.

[Mark Gitin, Director & CEO at IPG Photonics]

This novel solution provides advantages in energy efficiency, process speed and space utilization with the potential to replace large industrial curing elements. As we navigate near term headwinds, we're staying agile and leaning into the foundational strengths that set IPG apart. We have one of the strongest balance sheets in the industry with over $900,000,000 in cash and no debt. This financial strength gives us the flexibility to move quickly and strategically, a key advantage in today's environment. It allows us to pursue acquisitions and enhance our market position, expand our technology portfolio and accelerate our entry into high growth markets.

[Mark Gitin, Director & CEO at IPG Photonics]

A great example is our acquisition of Clean Laser late last year, which is already contributing to our growth. We will continue to look for targeted, high impact acquisitions that align with our strategy and create long term value. In closing, while tariff related uncertainty remains, we're energized by the progress we're making against our strategic priorities. We're encouraged by the early signs of momentum and remain confident in our ability to navigate the current environment while staying focused on the significant long term opportunities ahead. With that, I will now turn the call over to Tim.

[Timothy Mammen, SVP & CFO at IPG Photonics]

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 the financial review on Slide four. Revenue came in above the midpoint of our guidance in the first quarter at $228,000,000 which is roughly consistent level for the third consecutive quarter. Revenue was down 10% year over year due to lower revenue in materials processing and the impact from the divestiture of our Russian operations, offset by growth in medical and advanced applications and a contribution from the Clean Laser acquisition.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Foreign currency reduced revenue by approximately $5,000,000 or 2% this quarter. Revenue from materials processing decreased 14% year over year, primarily due to lower sales in cutting and welding, partially offset by higher revenue in additive manufacturing and micromachining. Revenue from other applications increased 25, driven by higher sales in medical and advanced applications. GAAP gross margin was 39.4%, an increase of 70 basis points year over year. Adjusted gross margin was 40% above the top end of our guidance range.

[Timothy Mammen, SVP & CFO at IPG Photonics]

The year over year improvement in gross margin despite lower revenue was driven by a decrease in inventory provisions and unabsorbed costs, partially offset by higher cost of products sold. I am pleased to see that our effort to right size inventory in the last year is reflected in our margin and our level of gross margin reflects the value that we deliver to customer. Operating expenses were above last year's level and our guidance range, primarily due to the investments we are making in key areas that are central to our strategy, which Mark highlighted earlier on this call. Sequentially, 7,500,000 of the increase in operating expenses is due to an increase in stock compensation, normalized variable compensation accruals as well as employee benefits, which are typically higher in the first quarter. GAAP operating income was $2,000,000 and our adjusted EBITDA was $33,000,000 at the top end of our guidance.

[Timothy Mammen, SVP & CFO at IPG Photonics]

GAAP net income was $4,000,000 or $09 per diluted share. Adjusted earnings per diluted share, which includes stock based compensation, but exclude amortization of intangibles, other acquisition related charges, foreign exchange loss and discrete tax items were $0.31 in the first quarter, also above the midpoint of our guidance range. Looking at the revenue trends by application on Slide five, we saw demand stabilizing in Welding and saw growth in demand for handheld welders and increased sales in e mobility applications in China. Cutting revenue was weak both year over year and sequentially across most regions, but customer inventories continue to normalize and purchasing activity showed some improvement with the introduction of our new high power, low cost rack mounted platform. Mark already highlighted strong results in our key applications in the quarter, so I won't go over them again.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Our emerging growth products performed well in the quarter, increasing to more than 50% of sales driven by a wide variety of products. Moving to the revenue performance by region on Slide six, sales in North America decreased 7% sequentially and were down 12% year over year. Materials processing revenue was down year over year, but more stable sequentially. Medical revenue increased year over year, but it fluctuates on a quarterly basis and was down sequentially. We expect Medical to be strong in the second quarter and the overall outlook for this key strategic area is positive.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Sales in Europe declined 11% sequentially and 28% year over year, where higher revenue in cleaning driven by Clean Laser acquisition and growth manufacturing was more than offset by lower cutting and welding revenue as well as divestitures. Revenue in Asia increased 5% sequentially and 8% year over year, benefiting from stronger sales in additive manufacturing, micromachining, advanced applications and medical. As I mentioned, we also saw some recovery in e mobility demand in China during the quarter. 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 $927,000,000 and no debt.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Cash provided by operations was $13,000,000 and capital expenditures were $25,000,000 during the first quarter. As a reminder, our cash flow generation is usually lower than first quarter due to the payments of variable compensation and the timing of tax payments. Moving to our outlook on Slide nine. For the second quarter of twenty twenty five, we expect revenue of $210,000,000 to $240,000,000 As Mark mentioned, our revenue guidance range is approximately 15,000,000 lower than it would have been due to the timing of shipments affected by the tariffs. We anticipate adjusted gross margin to be between 3638% with approximately 150 basis to 200 basis points impact from tariffs included in this guidance.

[Timothy Mammen, SVP & CFO at IPG Photonics]

We are addressing this impact with adjustments in our supply chain, optimizing our manufacturing to serve different regions and selective pricing actions, which will substantially offset the impact of tariffs in the future. As we previously communicated, investments in the growth of our business and strengthening the organization will continue to drive elevated levels of operating expenses through 2025. In the second quarter, our operating expenses are expected to be between $86,000,000 to $88,000,000 We anticipate delivering adjusted earnings per diluted share in the range of minus $05 to $0.25 with approximately 43,000,000 diluted common shares outstanding. Our adjusted EBITDA is expected to be between $16,000,000 and $31,000,000 In closing, we are pleased to see signs of demand improvements in key areas As a broader recovery takes place and we begin delivering on our new product strategy, we believe we have significant operating leverage in our model. In the meantime, our continued cash generation and strong balance sheet are a tremendous advantage in the current environment.

[Timothy Mammen, SVP & CFO at IPG Photonics]

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 in the question queue. You may press 2 if you'd like to remove your question from the queue.

[Operator]

Please proceed with your question.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

Thank you. Hi, Mark. Great to hear about the signs of stabilization and the bookings trends. I wonder if you could maybe dig into that just a little bit more and talk about end markets, where you're seeing strength, geographies. I guess, maybe touch on China.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

Tim mentioned the recovery in e mobility in China, but China obviously had a pretty good Q1, and I'm just wondering kind of what's driving that growth.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

I think it was

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

up 22% sequentially. So can we start there, please?

[Mark Gitin, Director & CEO at IPG Photonics]

Yes, no, thanks very much for the question, Ruben. Good to hear from you. So yes, we saw very strong bookings growth with a book to bill of very strongly above 1.1. Sorry, above one is what I meant to say. And we saw that in a number of areas.

[Mark Gitin, Director & CEO at IPG Photonics]

In China, we saw very good strength in mobility. So, this is where our, our, the AMB lasers are adjustable mode beam lasers and our LDD or laser depth dynamics together with our, with our scanning systems, we're able to drive good growth in e mobility there in China, as well as areas like micro machining areas also in additive manufacturing, good strength there. We also saw strength other places in Asia with in Japan, we saw some normalization of the inventories of key cutting OEMs in Japan and saw strength in bookings there. We saw strong bookings in medical and in The US. We picked up a new customer in medical, very key growth area our urology platform.

[Mark Gitin, Director & CEO at IPG Photonics]

And then also saw some stabilization in Europe. It was weaker, but we saw some stabilization. What's really great to see is that the key areas that we've talked about talked about last quarter, the key areas of our strategy investments. So in that area of medical, in area of micro machining, where we brought out a new product, And we're starting to see great take up there. Also in our advanced market, we also saw strength there.

[Mark Gitin, Director & CEO at IPG Photonics]

And as I mentioned in the call, you know, that's a very key area where we also saw some advancement and one got to a key milestone early in that area. So overall, great growth among our strategic directions that were showing up in that growth.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

Perfect. Thanks for that detail, Mark. And then, if I could follow-up with a question on the near term delays in some of your orders. Obviously, you mentioned no cancellations. I guess if you could maybe just detail kind of the moving parts in those delays.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

Is that a factor of you guys trying to proactively move productions to areas where you could lower your costs and not have to raise costs for your customers and maybe that's causing the delays? Or is it just customers waiting to see kinda what happens? Any detail on the extent of, or why those delays are happening, if you have some kinda thoughts on that. And then,

[Mark Gitin, Director & CEO at IPG Photonics]

I'm sorry, ahead.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

I'm sorry. I was just going

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

to finish by asking, on the gross margin side of it, if it's a cost related thing, does this extend into the second half? Thank you.

[Mark Gitin, Director & CEO at IPG Photonics]

Yeah, sure. So let me first start with delays. So the delays are simply a matter moving our manufacturing around. We're working very closely with the customers, the customers need the product, want the product. We're working closely with them on timing and we're in the process of shifting our manufacturing, you know, across our footprint.

[Mark Gitin, Director & CEO at IPG Photonics]

And that's one of the things I talked about last quarter when asked, you know, we do have this fungibility across our footprint, we have the capability, both inside of The US as well as outside of The US. So being able to move some of those manufacturing to address areas that have the tariff issue. And that's the timing piece. And we'll we expect to ship most of that actually in Q3.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

Thanks. Then just on the margin side, Tim, would this go into Q3?

[Timothy Mammen, SVP & CFO at IPG Photonics]

Maybe a little bit. I mean, we're working on the reconfiguring of the supply chain, right? We're doing that as quickly as we can. The reconfiguring of the manufacturing, we said we expect to be delivering this product as we get into Q3 and then pricing. So substantially, I can't say all of it will be done by Q3, but we expect to be significantly reducing the impact into Q3 and then probably have eliminated by the time you get to Q4.

[Timothy Mammen, SVP & CFO at IPG Photonics]

That would be the target on it. Just to add a little bit of color on some of the delays, by the way, one of the customers actually we've received additional orders from them in April. So this is not the customer. This is us working with the customers to ensure that they don't get impacted on the cost side for this product.

[Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp]

Right. Right. Okay. That's great. Thank you, guys.

[Operator]

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

[James Ricchiuti, Senior Analyst at Needham & Company]

Hi. Thanks. Good morning. Jimmy, caught a part. Hopefully, you can hear me okay?

[Timothy Mammen, SVP & CFO at IPG Photonics]

Better. We missed the beginning.

[Mark Gitin, Director & CEO at IPG Photonics]

I missed the beginning. Yeah.

[James Ricchiuti, Senior Analyst at Needham & Company]

Okay. Thank you. Just wanted to ask you about the partnership with Axonobel that you announced. What kind of contribution are you expecting from that? And maybe give us a sense as to how impactful that could be over the next year or so?

[James Ricchiuti, Senior Analyst at Needham & Company]

And then are you exploring a similar application partnership in The US?

[Mark Gitin, Director & CEO at IPG Photonics]

Yeah, thanks a lot. Good to hear from you, Jim. So we're excited with the partnership. This is an area where we're using our direct dial capability to cure these powder coatings and it happens when you do that, you're able to do it much faster and much more efficiently. Is replacing large convection ovens, large lines, large convection lines.

[Mark Gitin, Director & CEO at IPG Photonics]

We're excited with the partnership. This is a small starting, but has good potential over the years to replace the way that powder coatings are put on today. Yes, we are working with other players also around the world in that area. But we see it as a very interesting area for the future.

[James Ricchiuti, Senior Analyst at Needham & Company]

Got it. Maybe just sticking with the theme on the emerging side. Two quick questions. First on medical, you sound on the margin more optimistic about that, not only with the second customer. Don't know to what extent that'll be contributing meaningfully to the revenue in the back half.

[James Ricchiuti, Senior Analyst at Needham & Company]

But the new urology system, is that expected to be a contributor in the back half or is that more 2026?

[Mark Gitin, Director & CEO at IPG Photonics]

Yes, so thanks. Yes, we're very excited with bringing on this new customer. It's a large customer in the urology space. And, you know, over the next years, we expect that to be a key piece of our strategy going forward. If you remember that urology is a multibillion dollar market that we're making key investments in.

[Mark Gitin, Director & CEO at IPG Photonics]

And this is just one piece of the roadmap. We talked about a new product coming out later this year. That's one piece. We'll see some contribution on that later this year, but then larger contribution in 2026. And that's just a piece of the roadmap for growth in urology going forward.

[Mark Gitin, Director & CEO at IPG Photonics]

And we've, you know, we've talked about the customer that we, you know, we have named in the past Olympus, this is another key customer that we see growing with us over the next years.

[James Ricchiuti, Senior Analyst at Needham & Company]

Got it. And then just a quick one on the micromachining. It's again, it looks like you're seeing some nice momentum. What application was is driving that? I think you highlighted a newer application.

[Mark Gitin, Director & CEO at IPG Photonics]

Yeah, so so there are a number of applications in that area, we have not named the particular application that I was referring to, and we won't. But I what I will tell you is that our micro machining initiative addresses a wide range of applications, some of them in micro electronics and other areas. And we see a strong roadmap for growth there. And what we what I did say is we brought out a first new product in that area, and that's what's giving us the take up already, you know, doubling the micro machining revenue from a year ago. And it's just the first of a product roadmap for growth in that area.

[James Ricchiuti, Senior Analyst at Needham & Company]

Got it. Thanks very much.

[Operator]

Our next question comes from Michael Feniger with Bank of America. Please proceed with your question.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Hey, guys. Thanks for taking my question. Just so I understand the tariff impact, there's the impact of a delay in shipments to the top line that you guys helped quantify. I understand it's delay, not a cancellation. And then there's a gross margin impact from cost.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Is there any we should know about in terms of the your your COGS exposure, in terms of in terms of the footprint? What what tariffs are the impact? I I know that we feel like every few weeks there's a new headline on tariffs. I'm just wondering, is the assumption based on that April fourth liberation day with those rates? Are we expecting those to be lower?

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Just any context of that would be helpful.

[Timothy Mammen, SVP & CFO at IPG Photonics]

At the moment, the impact that we've articulated for this quarter, Mike, relates to the current rates of tariffs that are

[Timothy Mammen, SVP & CFO at IPG Photonics]

in effect. So

[Timothy Mammen, SVP & CFO at IPG Photonics]

if Liberation Day is enacted in full, think we're going be dealing with a more uncertain position thereafter. A lot of the stuff on the cost side is some product because you've got a very, very high tariff rate on metal parts and components coming into The US from China. The biggest impact in the near term relates to that. The 10% rates on other countries is less of an impact. And that's the part of the supply chain that we're really working on.

[Timothy Mammen, SVP & CFO at IPG Photonics]

I know our teams have already got up and running qualifying other suppliers that would be would not be susceptible or subject to that very, very high tariff rate. So most of the impact on the gross margin is near term on the expense side related to tariff. That will come down as we use suppliers in different parts of the world and even suppliers much more locally, for example, in The US. That's about it. Helpful.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

And just to follow-up, I remember it was last quarter, we we cut there was kind of some commentary around competition, in in certain areas from from low cost suppliers. Is that still out there? And I just I'm curious, Tim, when you think of mitigation efforts, you kinda listed. It seems like you guys are doing a lot of things, working with suppliers, moving moving some some manufacturing around to to mitigate this by q four. You also mentioned price.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

I'm just curious on the competitive dynamic out there. How you feel like those price increases would stick? Is it very competitive? Are you seeing the other competitors have to raise pricing as well? Just kind of any commentary on the pricing relative to what we heard last quarter?

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Thanks, guys.

[Mark Gitin, Director & CEO at IPG Photonics]

Yes, I'm happy to take that. As I mentioned last quarter, the real issue in price competition has been in China and it's been the cutting market in China. That's less than 5% of our business. The key, the other key areas, we have strong differentiation across the world, across the applications when we talk about areas like micromachining, areas like battery welding, the additive manufacturing, these are areas where we have very strong competitive positions. And we, you know, we believe there if we need to make strategic price adjustments, we would be in a position to be able to do that if needed.

[Mark Gitin, Director & CEO at IPG Photonics]

But again, the first things that we're going to be able to do is to address the tariffs because of the fact that we have, you know, we're manufacturing most of what we're manufacturing for, or all of what we what gets delivered in North America is manufactured in The US and the other pieces are manufactured outside of The US or our tariff exposure is also something that we can manage with moving manufacturing around as we've talked about. So that's the primary thing that we'll do. And then, again, if we have to, we believe we would have the position to adjust in other areas as needed.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Don't forget, Mike, that any of the low cost suppliers trying to bring product into The US is subject to 45% tariff on their product, right? So their costs are doubling on their inbound. That positions us pretty well given that we make everything for The US here have our diode and other manufacturing locally.

[Mark Gitin, Director & CEO at IPG Photonics]

That's right. And just to add to that for a second, also if any of that actually drives some of the onshoring, that's likely to be in automated lines because labor costs in The US and we have very good position in automated manufacturing. Our lasers are used widely in those applications.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Helpful. Thank you, everyone.

[Operator]

Our next question comes from Scott Graham with Seaport Research Partners. Please proceed with your question.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Hey, good morning. Thanks for taking the questions. Can you touched on a little bit, but I was hoping you can maybe put a finer point on the whole optimizing manufacturing thing as one of your mitigating strategies and qualifying suppliers, what have you. So is this essentially going to be changing how, where you import these parts from, away from China? Is that the big part of that?

[Mark Gitin, Director & CEO at IPG Photonics]

So, first of all, we don't do, we're not manufacturing in China. We have very low amount of materials that come from China. So, what we were talking about and moving things around first and foremost is the manufacturing footprint. So, we actually, Scott, have the ability manufacture to move the manufacturing across and optimize it in region. So, we've already started that process.

[Mark Gitin, Director & CEO at IPG Photonics]

We already have people that have that are transferring production in some of the some of the areas to optimize position and tariffs. And then we're also able to optimize the supply chain. And we've already moved some of that around so that we can not have tariffs incoming. Even in some places, have some vertical capability that we've already started it up. So, this is already in process.

[Mark Gitin, Director & CEO at IPG Photonics]

And as we talked about the shifts that we're talking about, we would be shipping most of that already in Q3 that we would move from Q2.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Okay, I think I might want to come back to you on that later. Nevertheless, so the 150 to 200 basis points, that's a grossed up number for the second quarter and it will decline from there. Is that what you're thinking?

[Timothy Mammen, SVP & CFO at IPG Photonics]

Correct. Yes.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Okay.

[Timothy Mammen, SVP & CFO at IPG Photonics]

And then Just

[Timothy Mammen, SVP & CFO at IPG Photonics]

to frame it in an example. So let's say you got $3,000,000 of product that you 're sourcing from China, right, for whatever part of our component base that is. At the moment, you're paying at 145%, you're paying $4,000,000 of tariff on that. If we move that source and we've got other suppliers, say, in Malaysia, or even if we insource some of that to our own machine shops in The US, you immediately and very quickly either reduce that tariff to 10%, which would be 300,000 versus the 4,000,000. Or if we actually are utilizing our own capacity internally in The US, you'd eliminate the tariff, probably having a slightly higher cost on a fully loaded basis, but on a direct basis, probably not much of an impact even doing it internally in The US.

[Timothy Mammen, SVP & CFO at IPG Photonics]

That's how you have to think about it, Scott.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Yep. I appreciate your saying,

[Timothy Mammen, SVP & CFO at IPG Photonics]

like on

[Timothy Mammen, SVP & CFO at IPG Photonics]

reconfiguring the manufacturing, just on reconfiguring the manufacturing, about 80% of what we make, for example, for China is already made outside of The US. There are some very specific products that we still make in The US, and those are the ones that Mark is talking about will be moved outside of The US. So now they will not have an inbound tariff into China, and they'll have a normalized cost to the end customer. So but relatively speaking, it's a small amount of the volume that we have. There's a it's, you know, a couple of product lines that we were making in The US related to China supply.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Yep. I was saying, appreciate you're saying that. I think a lot of companies gloss over the fact that if they're moving production around, they might be saving on tariffs, but the cost in that country is a little bit higher. So thanks for saying that. I think one the things I just wanted to understand a little bit more is about you seemed had a little bit more optimism around bookings with the book to bill.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

And I was hoping you could kind of give us maybe a little bit more on you serve a lot of general manufacturing markets where lasers are in place instead of machine tools and other forms of grinding and otherwise. I'm just hoping you can give us those customers perspectives, because a lot has gone on a lot of CEOs are, they're fairly cautious out there. Are you seeing that caution in markets where it's just sort of general manufacturing laser trade up markets?

[Mark Gitin, Director & CEO at IPG Photonics]

Yes, so I can take that, Scott. So, as we've talked about the last couple of years, the overall industrial markets and the macro have been tough, they have been slow and that's affected a lot of the general manufacturing. So areas like cutting and general welding and such have been affected. The book to bill and the things that we're seeing are a couple of things. First of all, we're seeing some stabilization in that.

[Mark Gitin, Director & CEO at IPG Photonics]

You can see that over the last three plus quarters, our revenue has now been stable. And then the other piece that you can see as we look at these new bookings, these are in new areas that we're getting, you know, getting growth. These are the key areas that we're driving investment, for growth. In fact, the strategic areas. So, you know, medical, we talked about picking up a new customer in medical.

[Mark Gitin, Director & CEO at IPG Photonics]

We talked about micro machining and the new products launched there and the fact that we're growing in micro machining at some of the advanced markets where we've seen the bookings grow. So, I would say that overall we're starting, we're seeing maybe some stabilization. Of course, there's uncertainty in the industrial market still, but we're seeing that to some stabilization there and then pick up in some of these other areas that are exciting us.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Hey, thanks a lot.

[Operator]

Our next question comes from Keith Housum with Northcoast Research. Please proceed with your question.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Thank you. Good morning, guys. Hey, I guess I was hoping you might be able to provide a little bit more detail on that book to bill. I understand you're saying solidly above one. I guess first off, is it perhaps able to give us a little bit more context there?

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

And then with the emerging growth lasers that you're experiencing there, is there a longer cycle there, not necessarily a quick turn as the traditional business might be?

[Mark Gitin, Director & CEO at IPG Photonics]

Sure, let me try to give a little bit more color. Again, the book to bill, we're seeing strength in a number of areas. And again, I can talk about some of the regions. So, first of all, we saw strength in Asia in the bookings. And I talked about some of the key areas there, talked about how in Japan, we're seeing the normalization of inventories, one of our key cutting OEMs and bookings turning on there.

[Mark Gitin, Director & CEO at IPG Photonics]

Talked about in China that we're seeing actually some return in the EV markets. And it's, I would say batteries in general, where we're getting, you know, we're gaining market share and we're also seeing some change in the, you know, in the, in the factory capacities are starting to hit capacity in some of the factories in China as well. And so we're seeing, you know, bookings increase in EV. Again, that's because of the core technology that we provide with our AMB lasers, our laser depth dynamics that does the in situ monitoring So, we're actually providing subsystems that have key differentiation.

[Mark Gitin, Director & CEO at IPG Photonics]

We're seeing booking growth there. We're seeing additive manufacturing, micromachining, and again, as part of the growth in Asia, we saw strong growth in bookings in North America. Part of that is the strength that we're seeing in medical. And we saw Europe has been weak. We saw some stabilization, I would say, there in bookings.

[Mark Gitin, Director & CEO at IPG Photonics]

Then you would, I think you would ask something specifically about emerging products. I think I covered some of that there, you know, again, and if you look at it from the emerging products piece, again, that was up, you know, 51% there. And that's that's talking about areas in our AMB lasers, micro machining is in that bucket. Also, we saw some growth quarter to quarter in handheld welding. So another area that's exciting for us with our light well.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Guess, Mark, I

[Timothy Mammen, SVP & CFO at IPG Photonics]

got it. Question was on the Keith, you got the question on the turns. Yes. So all of the product actually is still quite short term. So the micro machining product, we've been pushed to deliver it as quickly as possible.

[Timothy Mammen, SVP & CFO at IPG Photonics]

A lot of the uptick on the EV side was being pushed to deliver as quickly as possible. I'd say the one area where the turn on the backlog extends out is on the medical business. So the positive on that is that

[Timothy Mammen, SVP & CFO at IPG Photonics]

we have

[Timothy Mammen, SVP & CFO at IPG Photonics]

good visibility into it, given the order flow not only in Q1 but in April. But that does cover a lot of orders through the end of the year for the medical side. But the rest of it, it's not as though we received a ton of orders in Q1 and April that are going to be a delivery throughout the year, right? Medical is probably the biggest one that has a slower turn on and out of all of the order flow we prosecuted.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Yeah, hey guys, I guess what I'm trying to understand is you say solidly above one, are we talking like 1.05 or are talking 1.3? Just trying to understand a little bit and how that plays into the guide because the guide is essentially that $15,000,000 you're still roughly around the midpoint of where you are this quarter. So I was trying to understand how it turns out as a guide from the book to bill ratio.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Yeah, no, it was solidly above one. I mean, if you take the $15,000,000 that we reduced our guidance by, you get then an adjusted midpoint and relative to that, you'll come up with the overall bookings were a bit stronger even than the adjusted midpoint because of the turns, particularly on the medical side of it.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Okay. Thank you.

[Operator]

Our

[Operator]

next question comes from Mark Miller with The Benchmark Company. Please proceed with your question.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

You indicated you were gaining share in EVs. Is that in China or is that globally?

[Mark Gitin, Director & CEO at IPG Photonics]

Yes, thanks. So I was specifically talking about China in that piece there. Again, you know, we have a really unique position when you combine our adjustable mode beam laser together with the laser depth dynamics, that's OCT system that is measuring the depth of the weld in situ together with scanning so we can provide a very differentiated subsystem and that's been an area that's gaining a share. It's not just in EV but also stationary storage is a key area that's been growing now and is contributing there. Of course, we have gained share across the world in different pieces, but the place that I was talking about was in China.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

What about North America? Ford pulled its yearly guidance. Are you starting to see some uncertainty there?

[Mark Gitin, Director & CEO at IPG Photonics]

There's been uncertainty in EV now for some time, specifically in EV as it's economic plus political outbed, right? So that's moving around and hard to be quite hard to predict, I would say.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Okay. Thank you. And again, congrats on your bookings.

[Timothy Mammen, SVP & CFO at IPG Photonics]

Thanks. Thanks, Fahad.

[Operator]

We have reached the end of the question and answer session. I'd now like to turn the call back over to Eugene Federnoff for closing comments.

[Eugene Fedotoff, Senior Director of Investor Relations at IPG Photonics]

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

[Operator]

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Participants

Executives

• Eugene Fedotoff, Senior Director of Investor Relations
• Mark Gitin, Director & CEO

Analysts

• Timothy Mammen, SVP & CFO at IPG Photonics
• Ruben Roy, Managing Director - Equity Research at Stifel Financial Corp
• James Ricchiuti, Senior Analyst at Needham & Company
• Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch
• Scott Graham, Senior Equity Research Analyst at Seaport Research Partners
• Keith Housum, Managing Director & Research Analyst at Northcoast Research
• Mark Miller, Equity Research Analyst at The Benchmark Company LLC