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spk03: Good morning, and welcome to IPG Photonics' third quarter 2020 conference call. Today's call is being recorded in webcast. At this time, I would like to turn the call over to Angelo Lopresti, IPG's Senior Vice President and General Counsel for introductions. Please go ahead, sir.
spk04: Thank you, Operator, and good morning, everyone. With us today is IPG Photonics Chairman and CEO, Dr. Valentin Kopantsev, Chief Operating Officer, Dr. Eugene Shcherbakov, and Senior Vice President and CFO Tim Maugham. Statements made during the course of this call that discuss management or the company's intentions, expectations, or predictions of a 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 include the impact of the COVID-19 pandemic on our business and those detailed in IPG Photonics Form 10-K for the period ended December 31, 2019, and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the investor section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website. Any forward-looking statements made on this call are the company's expectations or predictions only as of today. October 30, 2020, the company assumes no obligation to publicly release any updates or revisions to such statements. For additional details on our reported results, please refer to the earnings press release and the Excel-based financial data workbook posted to our Investor Relations website. We will post these prepared remarks on our investor relations website following the completion of the call. With that, I'll now turn the call over to Valentin.
spk02: Good morning, everyone. We demonstrated excellent execution in the third quarter and delivered the result above our guidance range despite continued challenges from the COVID-19 pandemic and general economic Our outperformance was driving by two factors. First, strong revenue in China, which improved slightly from a strong second quarter and increased meaningfully from the third quarter of 2019. And second, a sequential improvement in Europe. which recovered from their low point in the second quarter 2020. Economic indicators show improvement from the significant contraction in activity in the second quarter, and this helped to drive improved performance in the third quarter. Sales of high-power lasers above 6 kilowatts increased more than 15% compared to the third quarter of 2019. Revenue from other applications increased by 24%, primarily from higher revenue from advanced applications, which was driven by revenue from high-power single-mode fiber lasers and medical procedures. We're demonstrating good progress in our core markets thanks to our technology differentiation and low-cost production capabilities. In the cutting market, we delivered strong year-over-year growth in both our rack-mounted 1-to-4-kilowatt automators for the high-volume markets and our ultra-high-power lasers for leading-edge cutting systems. Ultra-high-power lasers made up more than 58% of total high-power sales. Our customers are working on integrating the new ultra-compact rack-mounted U-series of lasers into the low cost cutting systems and we expect to receive the first volume orders in the coming months. The new U series has extended optical performance with the smallest size, most weight in the industry and record power to volume ratio. For the first time this range of devices provides for protection against humidity penetration, which is extremely important in the field use. At the high end of market, we are benefiting from an increase in odor volume for our 20 and 30 kilowatt ultra-high power lasers and optical heads. These lasers not only enable 50 to 100% faster cutting speeds, than 15 kilowatt device, but are capable of processing materials with 20 to 50 millimeters of thickness or greater. This improvement in both productivity and flexibility is driving the replacement of plasma cutting machines and low power laser solutions. This is particularly true in machine shops and construction equipment manufacturing. Moreover, this laser provides superior beam parameters, record holdback efficiency, and unique high reliability that are the hallmarks of the IPG brand. They also drive a superior return of investment for our customers. Our adjustable mold beam lasers continue to gain traction in the welding industry, most notably in the electric vehicle battery welding. Our AMB products offer superior speed and weld quality. Our competing solutions sense to the broadest range of beam tunability. This enables spotless welding. In addition, we continue to expect strong growth in our high-power nanosecond pulse lasers used for foil cutting and cleaning in electrical vehicle battery processing, as well as for ablation and cleaning in other industries. Product innovation remains core for two IPG success. During the first quarter, emerging product and application sales were 21% of total revenue, increasing 5% year-over-year despite softer demand trends due to COVID-19 in several new product categories, including systems. Sales of medical lasers increase more than 30% year-over-year as we continue to sell our gold standard thulium laser solution and consumable fibers for urology and other soft tissue applications. Advanced applications revenue increased 50% year-over-year in Q3, driving by strength in government and semiconductor applications. Despite the impact of COVID-19, sales of green ultraviolet and ultrafast pulse lasers into emerging microprocessing applications show strong growth year-over-year. In addition, we have a very strong backlog of green lasers and improved backlog for UV and ultra-fast pulse lasers as a result of orders received in the last quarter. Our green pulse lasers are enabling significant improvement in solar cell efficiency. We continue to target more than 50 new projects for these lasers across a wide range of applications. This includes processing of thick glass especially, ceramics, composite materials, numerous crystals, circuit boards, OLED film, batteries, and solar cells. We are investing in a number of next-generation solutions with significant disruptive potential that we plan to launch over the next six to 12 months. Customer evaluation of our handheld laser welder has been very positive. and they have cited improvement in weld quality diversity of materials that can be joined and programmed to welding parameters for different types and thickness materials as advantages. The multi-channel QCV lasers for high-speed spot welding application have the potential to be disruptive in displacing very inefficient neodymium yak waste. This is due to significant cost savings they can bring due to the increase in welding productivity and decrease in electrical consumption. Our kilowatt-scale pulse laser for ablation and cleaning application are also continuing to gain acceptance. Beyond material processing, we continue to develop new soft tissue medical treatments mid-infrared lasers for molecular-level resolution online spectroscopy, inspection, sensing, and biomedical research applications, and new high-speed transceivers for telecom and datacom markets. I want to conclude. by thanking our employees for their strong execution during one of the most challenging periods in our company's history. The diligence of our employees to keep each other safe has enabled us to return our operation back to normal within safety guidelines. Of course, the well-being of our employees, their families, our customers, our partners, and our community remains our highest priority. With that, I will send the call out to Eugene Sherbakov.
spk01: Thank you, Valentin, and good morning, everyone. I will begin by discussing the effects of COVID-19 on our production. All three of our major production facilities in Germany, the US, and Russia remain open and operating normally, and we haven't seen any disruption of our manufacturing or service capability in the regions where we operate. Our global facilities are operating on a largely normalized basis, albeit with social distancing and enhanced cleaning and filtration measures in place. In addition, we were back to normal operation promptly after we reported the ransom attack in September. The incident didn't have any material impact on our business operations, financial conditions, or on our ability to report financial results. As we discussed earlier, we carry cyber insurance to cover this type of risk. Nonetheless, IPG is conducting an analysis to improve the security and resiliency of our systems. We continue to benefit from our vertical integrated production model, which enables key technologies, technological and cost advantages, or a competition while minimizing the supply chain disruption. The current constraints on our business primarily relate to restrictions on travel that affect our sales team and customer visits related to applications development. Logistics were less impacted in the third quarter, and we did not encounter any meaningful disruption of our ability to ship components and finished products around the world. The percent of sales shipping costs were slightly lower than they were in the second quarter. We continue to benefit from reductions in cost of devices and from expense reduction initiated undertook in the second half of 2019. Gross margin improved to 48% this quarter. The total CG&A and R&D expenses increased by 2.8 million to 78 million in the third quarter, compared to the 75.3 million in the second quarter while sales revenue increased by $22 million. Operating expenses continue to track well below the peak level of $84 million incurred in the second quarter in 2019. Examining our performance by region, revenue in China increased 22% year-over-year, representing approximately 47% of total sales. New orders booked in China were slow at the beginning of the quarter but picked up in September. However, China continued to have significant backlog given the exceptional level of orders booked in the first half of the year. While we face aggressive competition in the region for lasers at 6 kW and below, we continue to maintain share at key accounts while anticipating a strong mix of lasers at 10 kilowatts or greater in the future. In Europe, revenue decreased 10% year-over-year due to the effect of COVID-19 on many countries in the region. Similarly, revenue in North America decreased 26% year-over-year, with strong growth in the medical and advanced application not being sufficient to offset declines in lasers and system sales for material processing. While North America revenue was weak in the third quarter, it was notable that order bookings were exceptional and benefited from several large orders from advanced applications and for our unique green lasers used in renewable energy. Sales in Japan decreased 41% year-over-year, while COVID-19 infections in the region are below other countries. The recurring stop and restart of economic activity has delayed many significant projects within our welding and cutting businesses in Japan. Sales to the rest of the Asia increased 6% year-over-year and recovered from the second quarter through the and also benefited from shipment of high power lasers for advanced applications. Sales in Turkey increased 15% year-over-year and by more than 100% as compared to the second quarter. Global demand trends remain uncertain, and we have seen continued delays of projects globally, which makes the execution of the third quarter all the more notable. We continue to believe that our large and diverse advanced materials and components technology platform Our efficient R&D model and our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruption and image from pandemic and stronger competitive position. With that, I will turn the call over to Tim to discuss financial highlights in the quarter.
spk10: Thank you, Eugene, and good morning, everyone. Revenue in the third quarter was $318 million, which declined 3% year over year, but increased 7% quarter over quarter. Revenue from materials processing applications decreased 5% year over year, and revenue from other applications increased 24%. Sales of high-power CW lasers were flat year over year, and represented approximately 58% of total revenue. Sales of ultra-high power lasers at six kilowatts or greater represented 58% of total high power CW laser sales. Pulse laser sales increased 3% year over year, with strong growth in green pulse lasers used in solar cell manufacturing, as well as higher sales of our new UV and ultra-fast pulse lasers which were partially offset by lower sales of lower power pulse lasers for marking applications. Systems sales decreased 37% year over year, as growth in systems for medical device manufacturing was offset by lower sales of other IPG laser systems and Genesis non-laser systems. Medium power laser sales decreased 1%. On continued softness in additive manufacturing, and the transition to kilowatt scale lasers in cutting. QCW laser sales increased 21% year over year from sequential improvement in consumer electronics applications. Other product sales increased 8% year over year, driven by growth in medical laser sales. Q3 gross margin was 48%, which increased 160 basis points year over year. Compared with the year-ago period, the increase in gross margin was driven primarily by lower cost of products, which was offset by an increase in inventory provisions as compared to the year-ago period. Third quarter gap operating income was $41 million, and operating margin was 13%. Goodwill impairment charges related to Genesis Systems Group reduced operating income by $45 million and reduced operating margin by 14 percentage points. The results of this business were impacted by lower capital investments from industries impacted greatly by the COVID-19 pandemic, such as aerospace and transportation, as projects have been delayed. We continue to be focused on numerous opportunities for Genesis, including transitioning to a higher percentage of laser-based systems, as well as expanding the international systems opportunities. We are hopeful that it will ultimately enable progress to be made on broader-based laser welding applications across many different industries. During the quarter, we recognized a foreign exchange gain of $11 million primarily related to revaluation of U.S. dollar cash and other assets held in Russia, given the depreciation of the ruble versus the U.S. dollar, and to the appreciation of the Chinese yuan. The foreign exchange gain increased Q3 operating margin by 350 basis points. Q3 net income was $36 million, or 66 cents per diluted share. The goodwill impairment charge reduced EPS by 63 cents, while foreign exchange gains benefited EPS by 15 cents. The effective tax rate in the quarter was 16%. If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $4 million lower and gross profit to be $3 million lower. We ended the quarter with cash, cash equivalents and short-term investments of $1.3 billion and total debt of $39 million. Strong operational execution resulted in cash provided by operations of $70 million during the quarter. As a result of COVID-19, we have reduced our planned capital expenditures for the year. Capital expenditures were $25 million in the third quarter, and we now expect capital expenditures will be in the range of $80 to $100 million for the full year. During the quarter, we repurchased 61,000 shares for $10 million. Bookings growth in North America and Europe was strong compared to the second quarter, while total orders in China were low. In North America, we had record bookings aided by several orders for advanced applications and emerging products. While total orders in China for the third quarter were lower, China continues to have a significant backlog given the exceptional level of orders booked in the first half of the year. In total, third quarter book to bill was slightly below one. Overall, it was also notable that order bookings improved markedly during September. It is difficult to predict whether the improvement in some macroeconomic indicators will be sustained given the resurgence of COVID-19 in Europe and North America and its potential impact on economic activity. These uncertainties continue to make forecasting our business challenging in the near to medium term. That said, we continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing, medical procedures, and advanced applications. We believe the strides we are making in higher power products within our core materials processing business and new solutions will enable us to emerge from the current downturn in a stronger competitive position. For the fourth quarter of 2020, IPG expects revenue of $290 million to $320 million. The company expects the fourth quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $0.75 to $1.05 with 53.1 million basic common shares outstanding and 53.7 million diluted common shares outstanding. Financial guidance provided this quarter is subject to greater risk and uncertainty given the COVID-19 pandemic and its associated impacts to the global business environment, public health requirements, and government mandates. As discussed in the safe harbor passage of today's earnings release, actual results may differ from our guidance due to factors including but not limited to goodwill and other impairment charges, product demand, order cancellations and delays, competition, tariffs, trade policies, health epidemics, and general economic conditions. Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our press release, and is subject to risks outlined in the company's reports with the SEC. With that, Valentin, Eugene, and I will be happy to take your questions.
spk03: Thank you. At this time, we'll now be conducting a question and answer session. Due to the number of analysts joining us today, we ask you to limit yourself to one primary question and one follow-up question. If you'd like to ask a question today, please press star 1 from your telephone keypad, and 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from the line of Jim Rusciutti with Needham & Company. Pleased to see you with your questions.
spk05: Hi, thank you. Good morning. I wanted to follow up on the comments you made about the bookings picking up in September. Can you elaborate on where you're seeing the activity and to what extent that may have been sustained thus far in October?
spk10: So, Jim, good morning. Yeah, the phasing of orders and the tone of orders in the quarter was a bit weaker in July and August and was really exceptionally strong in September and That strength was driven in particular by improvements in North America and China. Overall, the order flow in Europe was a bit more even. It was actually stronger than it had been in the second quarter. The North American bookings as we referenced benefited from significant orders for advanced applications. some of which are scheduled to ship in Q4, and some of which are probably going to be Q1. We may be able to get some of them into the fourth quarter as well. Very strong orders for some of the emerging products, particularly green lasers, and even better orders during the quarter for slightly better orders for UV and ultra-fast. In October, the first week in October, China was actually on holiday, so there was no activity in China. But since then, particularly in the last week and a half, The overall tone of order flow has actually picked up in China. It's been quite strong in Europe since the beginning of October, which is interesting. And in North America in the last four or five days, it's also improved meaningfully. We've had another order for green lasers from Southeast Asia as well. So we're actually quite pleased with the general tone of order flow in the business, given the disruptions that you're seeing in the markets.
spk05: Got it. And just on, I'm curious, we're hearing more and more of that pickup in the automotive market. Are you seeing any signs of that in the business, including, you know, potentially in the Genesis businesses?
spk10: Not so much in Genesis. I think automotive, there is certainly a little bit more strength to it. It's difficult to bifurcate it between traditional EV. There's a lot of investment going on in EV, and that's not just happening in China. There's significant orders we're waiting for in North America as well for this. There's an order we just took this week for EV. I'd say that the order flow in Europe around automotive is still a little bit weaker than So there's certainly a significant pipeline of automotive activity. It's a little difficult to bifurcate it between traditional applications and the emerging EV applications. Got it. Thank you.
spk03: Our next question comes from the line of John Marchetti with CIFOL. Pleased to see you with your question.
spk09: Thanks very much. I'd like to go back just a little bit to the order commentary again. The North American and European, I think, is understood to be a little bit more tied to those regions recovering a bit. But I'm curious, from the China perspective, having those orders get off to a little bit of a slower start and now coming back a little bit, if you can discuss maybe some of the dynamics that are going on there in that market and And then as we look out into 21, and I know you're not specifically giving guidance there, but should we expect that the China business may be back more towards the 19 type of levels, or do you think something has changed there as we're looking out into 21?
spk10: So there's a lot of different aspects to that question. The order flow in China has been a bit call it an anomalous this year, right? We've had this very, very strong order flow in the first half of the year. And we reiterate, we have a very strong backlog in China. What's been good to see is that even with that, order flow in China and the general tone of the business has been quite positive in September and October. So you can't really call it normal just because the backlog is strong, but also the tone generally tends to be a bit more positive at the moment. The feedback we've got from our China business is that Q4, the tone for business remains relatively good. Recent presentations from them for opportunities in 2021 are significant and meaningful. They're driven by things like EV, the transition to higher power, ultra-high power cutting applications. Within EV, it's battery welding, it's cleaning applications, it's foil cutting, so that helps us because of the higher power pulse lasers. There's actually some interesting demand that may come out even of some additive applications in China. So there seems to be a broader base potential for the application set in China, and there are a very significant number of opportunities that they're working on. They're even working on looking at displacement of CO2 lasers within traditional automotive industry where they've identified, you know, 1,000-odd CO2 lasers that still potentially could be reduced. So if the economic... Underlying economic stay relatively strong in China. I think you see that investment cycle continue there. I will reiterate on the order flow. North America was an extraordinarily strong quarter for us. And the good thing about that was just the diversity of applications. It wasn't materials processing on its own. It was also some of the advanced applications. It was some of the micro materials applications. We actually got another order for medical in October. So that wasn't quite Q3 yet. We called out the strength during the quarter from revenue and bookings on some of the semiconductors applications as well. So North America was really an exceptional quarter for us, and I think it was even a record booking level if you exclude some of the systems businesses.
spk03: Thank you. Our next question is from the line of Nick Todorov with Longbow Research. Please receive their questions.
spk06: Yeah, good morning, everyone. I just want to understand, again, going to bookings, you mentioned the China backlog remains very strong several times. Can you help us understand how should we think about seasonality? Obviously, this is not a typical period of the time, but as we go into the December and March quarters, typically, you know, the business in China goes down a little bit. But how should we think about that relative to the backlog comments and the comments of order pickup in September and October?
spk10: We're not going to give any commentary around Q1. It's too early to do that. I think the seasonality in China that's backed into our guidance is – Fairly in line, even though it is a difficult time to pick that. Revenue in China would be slightly lower, offset by strength in some other regions. China has been giving us good forecasts that they've been intending to get towards the top end of their range, and I think it just depends how the tone of the business holds up there. I think we've given a... Beyond that, I think there's an awful lot of commentary I've already given around orders and the tone of the business in these different regions.
spk02: Okay, and in the follow-up... Now we introduce this quarter some new, very exciting product, and we also think that they will have a very good new chance in China also, not only worldwide. This product is very exciting, and now we pass the test even in China, in West Syria, so other volume orders start to grow. only in this quarter. So we believe that for beginning next year for us would be a serious head to regular product in sales revenue in China and not only China worldwide.
spk06: Okay. Thanks. Just as a follow-up, I think, Tim, can you comment a little bit about the implied four-quarter gross margin? If my math is correct, it implies about mid-45%, where if I look at the revenue, you know, The revenue is about $15 to $20 million higher than the June quarter, where you guys had a 46% margin, and obviously September was very strong-minded by FX. Can you help us understand the implied gross margin and the puts and takes for December?
spk10: No, the implied gross margin is very similar, actually, to Q3. It's 45% to sort of 48% at the top end of the range. So as you tend towards the top end of the range, you're getting into the upper half of 45% to 50%. I'm assuming for operating expenses, something pretty similar at the top end of the range and slightly lower. So I'm not sure whether you're saying 45%. We can, you know, come back to that in a bit more detail later. So I'm assuming 45 to 48 operating expenses at the top end of the range, similar to Q3 at the bottom end of the range, slightly lower, and then a tax rate of 25%, which would exclude any discrete items that we can't really predict what they would be during the quarter.
spk03: Got it.
spk06: Thanks.
spk03: Thank you. As a reminder to ask a question today, you may press star 1. The next question is coming from the line of Michael Fainer with Bank of America. Pleased to see you with your question.
spk07: Hi, guys. Thanks for taking my question. My first question, just on the high-power lasers, it was flat year-over-year. This was the first quarter that it wasn't down on a year-over-year basis in nine quarters. So I'm just hoping, Tim, you can kind of help me understand the impact. If we assume based on your guide for Q4 that high-power lasers are going to potentially accelerate on a year-over-year basis, like how do we think about what that does for your mix since it's been really down for the last nine quarters and now it seems like it's flat and moving in the right direction?
spk10: Mike, I think that's a great comment. I think high power was basically flat year-over-year, and given the circumstances, I think that's a pretty – interesting observation and a great performance. We benefited from clearly the shift towards ultra high power that we've called out where we have significant advantages in terms of just the quality, reliability, electrical efficiency capability of producing that product. Interestingly, the YLR lasers also perform quite well. We called out that they actually grew year over year as well. So I think that's continuing to demonstrate again, the overall quality and reliability of the product that we have versus the competition. It shows we're not losing share there. We referenced that we also sold some single-mode lasers for advanced applications. That helped a bit with total high-power laser sales in the mix there. We've got this very strong backlog for single-mode lasers. We actually took two of the orders taken in the U.S. for 100-kilowatt lasers, so that's for applications outside of materials processing. Yeah, I think the The performance of that high-power lasers was driven by those factors. I also call out that that's actually, you know, we've got the new ultra-compact U-series in the hands of customers, and they're evaluating it. The performance at the less than 4-kilowatt range was before significant orders being received for that product. So there's potential improvement in 2021 as that product ramps up at the low end of the market.
spk07: Makes sense. And, Tim, I want to ask about your inventories. If you look on a year-to-year basis, your inventories were down year-over-year much more than your revenues. We haven't seen this since 2017. You talked a lot about last year, you know, some of these inventory charges that were taken. And you look now, I mean, your inventories are kind of flattish while your sales were accelerating quarter-per-quarter. So, Can you just give me a frame of reference? How do you feel about your inventories right now? Do you need to increase production to maybe match demand where your inventories are now and where you think demand might be heading into 2021? Thank you.
spk10: I think that's a good operational question, Eugene. What's your view on inventory and the investments and the overall control and execution around that at the moment?
spk01: We already mentioned that in the We start to control much more precisely our inventory in different facility. I mean in Germany, United States, especially in Russia. And during this control, we can improve our position in this key area. I mean much more control. And from this point of view, I think we will continue to check, to control, and to keep our inventory on the exceptional level.
spk02: This inventory, our policy inventory helped us to pass this year, a very critical year, when all the sources, practically all components and parts supply outside sources have very serious problem and delay, and the average delivery time of new components is so increased, and sometimes without inventory created, enormous problem in manufacturing our products. But we have now inventory to pass without any problem this very tough time.
spk03: Thank you. Our next question is from the line of Mark Miller with Benchmark Company. Please proceed with your question.
spk00: Thank you for your question. Considering a possible change in the administration of the United States and possible impact on tariffs, any thoughts about that in terms of how it might impact IPG if such a thing would occur?
spk10: Mark, we can't get into discussing the outcome of the election. We'll have to see what happens on that. We're a global and international company that operates in multiple end markets. I think for us at the moment, it's more the underlying economic growth that's expected next year globally. So GDP is forecast to rebound quite strongly on a global basis. The most interesting and important thing for us would be whether that is actually sustained or whether the pandemic has an impact on that. I think the outcome of the U.S. election is more muted relative to those expectations. I think the other area that we're absolutely focused on is this diversification of the business, the new products at different wavelengths, different pulse durations, addressing different applications, and how we execute around those. And that, again, is on a global basis. So I don't want to get too hung up on the election results, and I think there's other more, in the near term at least, pertinent things that could impact whether global GDP growth is robust or not next year.
spk00: And just as a follow-up, could you estimate what percent of sales are coming from products introduced in the last two years?
spk10: The number we gave on emerging products, which is not quite the last two years, does include some higher power pulse lasers, but we're getting to higher powers on that. It was 21% we gave that number in the script.
spk00: Thank you.
spk03: Thank you. Our next question is coming from the line of Tim Diffley with DA Davidson. Please receive your questions.
spk08: Yeah, good morning. Tim, you mentioned the gross margins of 160 basis point of improvement year-over-year driven mainly by cost. Does that infer that pricing has been relatively stable for you over that period of time?
spk10: On a year-over-year basis, pricing actually still came down. It was more in the 10% to 15% range. It's more reflected, but some of that is also changes in, sorry, 10 to 15% on an average kilowatt basis. In fact, if you looked at high power, average selling prices were down significantly less because of the transition to higher power levels. So you've still got competitive dynamics and pricing issues there. If you look at, interestingly, if you look at order flow and ASPs and the ASP analysis around orders taken in Q3 2020, There were actually slight improvements on that because of some of these ultra-high power lasers and single-mode lasers that we booked. But also the exchange rates have moved a little bit in our favor at the moment. So the renin-B is a bit stronger, the euro is a bit stronger, and that helps with the ASP trends a bit. So the other side of the equation is just it continues to reinforce the ability of the company to reduce costs on products. And this is, as I said, even before the new compact YLRUs are introduced, there's certainly some benefit coming from the YLSUs. But there's also the product mix benefits as you go to ultra-high power lasers, stronger sales of things like green lasers, stronger sales of ultra-high power or higher power nanosecond pulse lasers. These are all areas where we have a competitive advantage and where the value proposition delivered to the customer is exceptionally strong.
spk08: Okay, sounds good. And then on the booking strength, especially in North America, how much of that do you think reflects just some pent-up demand from a couple of quarters of COVID versus, you know, matching the true underlying demand level today?
spk10: The booking strength in North America is, you know, we referenced that It really came from newer products and newer applications in advance. So it wasn't necessarily driven by a rebound on the core materials processing applications. We started to see some more recovery of that I think probably in September and more recently in October where we started to see some of the cutting OEMs place some orders. There's a significant order on automotive we're waiting on at the moment. There was an order taken on automotive. So the real trend on Q3 was from these advanced applications and strength on some of the emerging products in green and UV and ultra-fast.
spk08: Okay. Thanks for your time.
spk03: Thank you. The next question is a follow-up from the line of Michael Fainer from Bank of America. Please proceed with your question.
spk07: Hey, guys. Yeah, thanks for squeezing me back in. I'm just curious, Tim, I mean, with your cash position where it is, I'm curious, like, you know, you took this impairment in Genesis. You know, what have you really learned from Genesis? And with this cash position, do you think IPG could be moving more aggressively in terms of acquisition to help drive that penetration on welding? You know, how are you guys thinking about that cash position as you head into 2021?
spk10: I mean, the cash position and the strength of our balance sheet has been a very significant advantage to the company during the last year, particularly given the volatility in the macroeconomic environment. It leaves us with a tremendous amount of firepower to look at potential acquisitions and investments in new technologies. I mean, the learning points on Genesis, Genesis has unfortunately been very impacted by COVID-19, right? So there was a lot of growth opportunities in things like aerospace that we were looking at, particularly on the laser-based and the aerospace industry is a, I mean, everybody knows it's just a complete mess at the moment. So it's not that we don't think Genesis is going to be successful. I think that it has just been impacted and it's going to take a bit of time to get that business to recover. On the overall acquisition strategy, we continue the successful acquisitions we've done have been around looking at technologies that really fit with our lasers. So the acquisition of LDD in Canada is driving significant revenue opportunities given the real-time world monitoring capability. The acquisition of OptiGrate in Florida really enhances the capability around ultra-fast lasers and also even in helping with some of the diode specifications. we're well positioned to look at, you know, strong technology acquisitions that benefit the business.
spk03: Thank you. Thank you. At this time, we've reached the end of our question and answer session, and I'll turn the floor back to management for closing remarks.
spk04: Thank you for joining us this morning and for your continued interest in IPG. We look forward to speaking with you over the coming weeks and will be participating in a number of virtual investor conferences this quarter. Have a great day, everyone. Thank you. Thank you.
spk03: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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