Edited Transcript of IPGP earnings conference call or presentation 4-Aug-20 2:00pm GMT

The wellbeing of our people, our customers and our partners surplus our highest priority. We are continuing ought fabricate and service our solutions at vulgar regions, having employed extra distancing, cleaning and stand purification and disinfection procedures, however providing vulgar employees with masks ought wear at our offices. With the status of Massachusetts, now at phase 3 of its reopening, it has allowed us ought expend extra employees uphold into our headquarters, hence that staffing levels at the U.S. will exist more commensurate with our engine at GErmany and Russia.

Hospital equipment

Our commitment and uphold of workforce health and safety extends ought COVID-19 response efforts at local communities worldwide. at passion ought the people at China, Russia and Europe, we consume donated basic parties of look disguise ought MGH Boston and one of the local speak Hospital. Also, we consume recently made a sizable econmic contribution ought the Worcester Education development fund ought buy Chromebooks though online education programs this fall.

IPG is committed ought supporting economic empowerment and diversity efforts at our local communities. however we trust that cultivating of different and inclusive profession environment, once that fosters a civilization of mutual respect, assist ensure our growth and success at the marketplace. 30 years ago, when I founded IPG, our sight was ought create a corporation that used to redefine our industry and whose day-to-day action were committed ought improving our communities and our union though a whole. during that time, we consume demonstrated a commitment ought fostering, cultivating and preserving a cultural merit, where our greatest ideas and innovations consume modify from the different collaboration of experiences and backgrounds of our people.

Turning ought our results. We last ought employ from signs of industrial request recovery at choose regions, most notably China. at particular, request though high-power CW and pulsed lasers though cutting and battery processing application surplus robust. However, global request trends remain identical doubtful at this time, and we consume seen a continued pushout and delays at choose welding and system projects at Western Europe, North America and other parts of Asia. This doubt continues ought compose forecasting of our affair identical challenging at the total ought medium term. We last ought trust that our larGE, diverse, advanced materials and components technique platform, identical effective R&D copy and strong -- also though robust surplus part and free money run supply us abundant flexibility ought answer ought affair disruptions and emerGE from the pandemic at a stronGEr competitive position.

Although the request surroundings surplus mixed, we are demonstrating good advance at our heart market, due ought our technique differentiation and low-cost product capabilities.

In the cutting market, we delivered robust sequential growth at both our rack mounted 1- ought 4-kilowatt lasers though the high volume market, and our ultra-high energy lasers though leading-edGE cutting systems. With the launch of our new ultra-compact YLR-U progression of lasers, IPG is once again raising the barrier though leading-edGE action at the high-volume cutting sector. The YLR-U has essentially extended optical performance, the small size and the lowest weight at the industry, at first time though the -- though the ranGE of devices is total protected against of humidity penetration, delivering unmatched action at a ultra-compact figure factor with a record energy ought volume ratio.

At the high aim of the market, we expectation ought employ from the substantial amplify at bid volumes though our 30-kilowatt lasers and ultra-high energy optical heads. These lasers no only enable 50% ought 100% faster cutting speeds than 15-kilowatt devices, besides during are able of processing question with 20 ought 50 millimeters of thickness or even greater. This improvement at both productivity and flexibility is driving the replacement at first time of plasma cutting machines and the lower energy laser solutions, specially at the machine conserve and construction industries. Moreover, these bases supply the superior beam parameters, record wall plug efficiency and sole high reliability that are the hallmarks of our solutions, which drives superior answer above investment ought our customers.

Our Adjustable manner beam laser last ought win traction at the welding industry, most notably at electric vehicle battery welding. Our AMB products pattern superior haste and weld feature above competing solution, due ought broadest ranGE of beam tunability, which enables spotless welding.

During the quarter, we again notice that double sales of high-power nanosecond pulsed lasers used though foil cutting and other electric vehicle battery processing application, and we conduct expectation robust growth at this application ought last during the second half of the year.

Product innovation surplus heart ought IPG's success. during second quarter, emerging produce and application sales were 1/4 of total revenue, increasing nearly 20% sequentially, despite softer request trends at little new produce categories due ought the COVID-19 pandemic. Sales of Medical laser increased more than 150% year-over-year, though we last ought sell our gold now -- or already gold criterion thulium laser solution, and consumable fibers ought urology and other mild tissue applications. Advanced application revenue increased more than 40% year-over-year at Q2, driven by people at government, semiconductor and the resumption of cinema projection system shipment. Unfortunately, the COVID-19 pandemic limited our ability ought compose farther advance selling our green, ultraviolet and ultra-fast pulsed lasers into emerging microprocessing application, given the restricted journey and total down of guest sites and application webs during the quarter. However, we last ought tarGEt more than 50 new projects though these lasers across a broad ranGE of application, processing glass, ceramic, blend materials, numerous crystals, circuit boards, OLED films, batteries and solar cells.

We're continuing investment at a quantity of next-GEneration solutions that we plan ought launch above the next 6 ought 12 months, with important disruptive potential. This includes our newest famous handheld laser welding, underlining handheld, at first time. It's our newest produce at identical earnest impartial terms. Multichannel QCW lasers though place welding application and kilowatt-scale pulsed lasers though ablation and cleaning applications, also though first time, multi-kilowatt thulium and green fiber lasers. Beyond materials processing, we last ought age new mild tissue Medical treatments, mid-infrared lasers though molecular beam resolution -- molecular even resolution online spectroscopy, inspection, sensing and Biomedical inquiry application, new high-speed transceiver though the telecom and datacom impartial also though new high -- ultra-high energy single-mode lasers and amplifiers though defense application.

I expect ought finish my remarks here by thanking our people though their robust execution above one of the most challenging era year at our company's history. I remain confident that our technique and manufacturing leadership will enable us ought quicken growth out of this pandemic and ship above our mission ought compose our fiber laser technique the engine of prime at mass production.

With that, I will fetch the shout ought our COO, EuGEne Scherbakov.

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EuGEne A. Scherbakov, IPG Photonics corporation - COO, Senior VP of Europe & Director [4]

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I will depart my remarks by discussing the result of COVID-19 above our production. vulgar 3 of our chief product facility at GErmany, the United States and Russia remain open. We consume increased product at our facility at Massachusetts, though the status continued ought advance above its reopening. Our facility at GErmany and Russia are operating above larGEly normalized basis, albeit with the social distancing and enhanced cleaning and filtration measures at place. I expect ought reiterate that safety of our employees, their families, our affair partners and community remain our highest priority.

We last ought employ from our upright integrated produce model, which enables a key technological and wage advantaGEs above the competition, however minimizing supply fasten disruptions. The modern constraint above our affair largely attach restrictions above journey that impress of our sales and application development efforts also though our shipments of products nearly the world. Shipping costs were again elevated this quarter, however we shout on -- we saw stretch and pushout at project-based profession due ought COVID-19 pandemic. However, we last ought trust we consume ability ought face the near-term request though our products.

We last ought employ from wage reduction actions we undertook at the second half of 2019. though the total manufacturer, operating expenses increased almost $2 million sequentially, however revenue increased $47 million quarter-over-quarter.

Examining our action by region. revenue at China decreased 11% year-over-year, besides during more than double sequentially, represented almost 49% of our total sales. We benefited from robust sequential improvement at sales into cutting, welding and battery processing, driven by a pickup at bid activity at March and April, that continues along the latter half of Q2, albeit at a more gentle pace. We last ought look aggressive competition at the region, besides during we last ought affirm segment at key accounts, however anticipating a robust blend of lasers at 10-kilowatts or greater at the second half of 2020.

In Europe, revenue decreased 24% year-over-year due ought the result of COVID-19 above many countries at the region. Similarly, revenue at North America decreased 60% (sic) [16%] year-over-year, with robust growth at Medical lasers and advanced applications more than offset by declines at laser and system sales though question processing. Sales at Japan decreased 60% (sic) 16% year-over-year. however COVID-19 infection at the district are under other countries, the continuous stopping and restarting of economic activity has delayed many important projects with our welding and cutting businesses at the region. Sales at Korea decreased 33% year-over-year, though economic activity at the district surplus subdued, and sales at Turkey decreased more than 70% year-over-year though the COVID-19 pandemic severely effected cutting sales at the region.

With that, I will fetch the shout above ought Tim ought dispute econmic highlights at the quarter.

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Timothy P. V. Mammen, IPG Photonics corporation - Senior VP & CFO [5]

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Thank you, EuGEne, and good morning, everyone. revenue at the second belt was $296 million, which declined 19% year-over-year, besides during increased 19% quarter-over-quarter. revenue from materials processing applications decreased 21% year-over-year, and revenue from other applications increased 36%. Sales of high-power CW lasers decreased 26% year-over-year and represented almost 53% of total revenue. Sales of ultra-high energy lasers at 6 kilowatts or greater, represented more than 50% of total high-power CW laser sales. Pulse laser sales increased 4% year-over-year, with growth at high-power pulse lasers partially offset by lower sales of lower energy pulse lasers though marking applications. Systems sales decreased 37% year-over-year, though growth at systems though Medical tool manufacturing was offset by lower sales of other IPG laser systems and GEnesis nonlaser systems. Medium-power laser sales decreased 31% and continued softness at additive manufacturing and the transition ought kilowatt scale lasers at cutting, however QCW laser sales decreased 14% year-over-year besides during increased 39% quarter-over-quarter from sequential improvement at consumer electronics applications. Other produce sales increased 21% year-over-year driven by growth at Medical laser sales.

Q2 total edge was 46%, which declined 350 base points year-over-year. Compared with the year-ago period, the refuse at total edge was driven largely by less favorable absorption of fixed manufacturing expenses. at addition, increased shipping costs were partially offset by lower inventory provisions compared with the year-ago period.

Second belt GAAP operating wage was $47 million, and operating edge was 16%. during the quarter, we recognized a foreign exchanGE loss of $13 million largely related ought revaluation of U.S. dollar money and other assets at Russia, given the appreciation of the ruble versus the U.S. dollar. at addition, we incurred a charGE of $1 million, which includes the noncash write-off of engine also though other charGEs though severance and rent termination relating ought our strategic resolution ought exit the submarine networking business.

Foreign exchanGE loss and other charGEs reduced Q2 operating edge by almost 470 base points. Q2 net wage was $38 million or $0.71 per diluted share. The previously referenced foreign exchanGE loss and charGEs though restructuring and asset impairment reduced EPS by $0.20. The effective tax assess at the belt was 23%. if exchanGE rates relative ought the U.S. dollar had been the too though 1 year ago, we used to consume expected revenue ought exist $8 million higher and total employ ought exist $4 million higher.

We ended the belt with cash, money equivalents and short-term investments of $1.2 billion and total debt of $40 million. robust operational execution resulted at money provided by operations of $73 million during the quarter. leading expenditures were $20 million at the quarter. though the total year 2020, we now expectation leading expenditures of almost $100 million, under our foregoing tarGEt of $115 million ought $125 million. during the quarter, we repurchased 131,000 shares though $16 million.

Second belt book-to-bill was greater than 1, with robust bookings growth at China offset by weaker bid trends at other regions. though expected, the pose -- the speed of bid growth at China moderated at the second belt though the belt progressed, however we consume seen modest improvement at bid trends at other regions. However, visibility into a recovery at global request surplus doubtful at this time. We last ought employ from near-term growth opportunities at ultra-high energy cutting, electric vehicle battery processing and systems and devices though the Medical industry. We trust that the strides we are making at higher energy products within our heart materials processing affair and new solutions will enable us ought emerGE from the pandemic at a stronGEr competitive position.

For the third belt of 2020, IPG expects revenue of $280 million ought $310 million. corporation expects the third belt tax assess ought exist almost 26%. IPG anticipates delivering wage per diluted segment at the ranGE of $0.70 ought $1, with 53 million basic normal shares famous and 53.5 million diluted normal shares outstanding. econmic guidance provided this belt is song ought greater hazard and doubt given the COVID-19 pandemic and its associated impacts ought the global affair surroundings and government policies.

As discussed at the safe harbor passaGE of today's wage journal release, authentic results can differ from our guidance due ought factors, including, besides during no limited to, goodwill and other impairment charGEs, produce demand, bid cancellations and delays, competition, tariffs, commerce policies, health epidemics and GEneral economic conditions. Our guidance is based upon modern impartial conditions and expectations, assumes exchanGE rates referenced at our wage journal free and is song ought risks outlined at the company's reports with the SEC.

With that, Valentin, EuGEne and I will exist favourable ought receive your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jim Ricchiuti with Needham & Company.

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James Andrew Ricchiuti, Needham & Company, LLC, inquiry part - Senior Analyst [2]

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A attach of questions. impartial above the other applications area, you referenced that 36% growth, which is, and certainly, a robust growth rate. besides during sequentially, it was down. And I impartial expect ought maybe square some of that with the commentary you made nearly the momentum from new products. Was there some COVID-related impact that sequentially affected that? Was it impartial more macro related?

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Timothy P. V. Mammen, IPG Photonics corporation - Senior VP & CFO [3]

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No. It wasn't indeed too of those things, Jim. First of all, the Medical produce though the lithotripsy application was launched at Q2, and we had identical robust initial sales though the guest at that district built the inventory ought launch the product. And I had stated above the Q1 shout that revenue from that application used to however last ought exist robust above a year-over-year basis, besides during the total request used to gentle a part compared ought that initial produce launch. Interestingly, that customer, the launch has gone identical well, and we really received an amplify at the total orders that we've got above hand during the quarter, extra 4 million. hence that's more impartial timing of produce launch fairly than anything COVID or macro-related at particular.

The second career is the defense and other advanced applications, including instrumentation and others, had a identical robust first quarter. We shipped 100-kilowatt laser at the U.S. hence again, it's more timing of orders though those -- some of those other advanced applications, which performed, again, strong at the second quarter, besides during impartial relative ought Q1, some of the unevenness nearly revenue was exhibited. Interestingly, we're working above little more orders though high-power single-mode lasers at the U.S. We consume an bid ought exist delivered ought Asia at the second half of the year. There's a small part of doubt nearly the timing of that delivery. hence the backlog nearly some of the advanced applications continues ought exist big. The telecom affair at Q2 was a part weaker, and that was COVID-related request there. I deem that clarifies the...

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James Andrew Ricchiuti, Needham & Company, LLC, inquiry part - Senior Analyst [4]

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It does.

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Valentin P. Gapontsev, IPG Photonics corporation - Founder, Chairman & CEO [5]

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Just a little comment from Medical. Medical, the penetration of Medical impartial revenue growth hence depends strongly from FDA approval. First, quantity one, is we're identical successful at urology now, it becomes gold standard, now recognized gold criterion at new -- at this urology application. besides during only at first identical we received a -- during remember, we received FDA, though example, here and also some at China, at Russia, we received one a little months ago, and we only started ought stable during ago it was only though examination and hence on. hence sales at this urology application is only starting.

Secondly, we developed new products, no only though urology, besides during though profession up ought 10 other application -- Medical application. besides during some of the devices finished hence above and also at methodic, they were developed well. besides during we're however at staGE of certification ought GEt FDA at other countries' alike approval. We could no sell these at the market. besides during we expectation next year, 2 years, we'll receive a notice of approval, we then will vacant and ready ought impress at the impartial -- aggression the impartial from many positions though many applications. hence Medical business, we expectation will fetch identical fast the next 3 -- 2, 3 years.

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James Andrew Ricchiuti, Needham & Company, LLC, inquiry part - Senior Analyst [6]

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