IPG Photonics Corporation

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.

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.

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.