IPG Photonics Corporation

Good morning, and welcome to IPG Photonics' first quarter 2022 conference call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotov, IPG's Director of Investor Relations, for introductions. Please go ahead, sir.

Thank you, Rob, and good morning, everyone. The guest today is IPG Photonics CEO, Dr. Eugene Shcherbakov, and Senior Vice President and CFO, Tim Mahmoud. Statements made during the course of this call that discuss management's or the company's intentions, expectations, or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties are detailed at IPG Photonics Form 10-K for the period at the end of December 31, 2021. 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 as of today, May 3, 2022 only. The company assumes no obligation to publicly release any updates or revisions to any such statements. For additional details on our reported results, please refer to the Earnings Press Release, Earnings Call Presentation, and the Excel-based Financial Data Workbook posted on our Investor Relations website. We will post these prepared remarks on our Investor Relations website following the completion of this call. With that, I'll now turn the call over to Eugene Shcherbakov.

Eugene Shcherbakov Good morning, everyone. We are pleased to report a strong start to the year with the first quarter revenue above the top end of our guidance. Revenue increased 7% year-over-year, benefiting from higher demand in Europe, North America, and Japan. We are particularly pleased to see that growth was driven by many emerging applications across all major geographies. As we stand back, we can identify several micro trends. such as automation and miniaturization, as well as a focus on sustainability, renewable energy, and energy efficiency, including the EV, which are driven with increased demand. In the first quarter, we saw strong sales in welding, marketing, systems, cleaning, 3D printing, semiconductor, and medical applications. Sales outside of China grew 65% of our total revenue. showing our progress in achieving the better geographic balance in our business. Our welding revenue was a record in the quarter and has become almost as important as our revenue from high power cutting applications in some regions or even outgrowing it as we saw in China. This was driven primarily by opportunities in electric vehicle batteries and automotive production that we are pursuing, as well as increasing the demand for laser welding in general manufacturing, medical devices applications, and adoption of our handheld laser for many welding applications. Laser enables faster, more precise welding for a wide range of materials, including the highly reflective materials like copper and aluminum that are difficult or impossible to weld with traditional MIG or TIG welding. The strong roles in welding, foil cutting, marking, and 3D printing applications nearly upset expected drops in high-power cutting applications in China, which stabilized at a lower level. As a result, high-power cutting applications accounted for a much smaller portion in our revenues in China compared to a year ago. There are different dynamics and the same applications elsewhere. In Europe and North America, we see increased adoption of laser for in-cutting applications as the global manufacturers redirect investment in local supply chains and increased adoption of automation and manufacturing processes. Markets and applications that value our commitment to quality, innovative technology, reliability, and global customer support are now IPG's focus. We are pleased with the growth that we are seeing in medium power and pulse lasers, which are primarily driven by high demand and emerging applications. These lasers are used in foil cutting, 3D printing, solar cell manufacturing, manufacturing of electronics and semiconductor applications. These applications require high beam stability, quality and stability, as well as a reliable laser characteristic for which IPG devices are known by customers. The first quarter emerging growth product sales were 36% of our total revenue. Many of these products are benefiting from global macro trends such as automation, miniaturization, as well as the focus of sustainability, renewable energy, and energy efficiency. Our lasers are widely used in manufacturing of electric vehicles. We are seeing increasing investment to automakers and suppliers in immobility worldwide and continue to see strong growth in demand for our high-power pulse lasers, adjustable mod beam lasers, and real-time welding monitoring capability. that together can provide a highly customized and engineered solution to address many challenges in this complex manufacturing process. We expect the investment and immobility to continue. Additionally, manufacturers are increasing spending and automation to address shortages of labor and wage inflation. Laser can provide great productivity, improvements, and significant return on investment. We are seeing an increasing demand for light weld because it's easy to use and only requires hours for training for inexperienced welders. This compares to the amount of training for typical MIG and TIG welders. We have managed a third generation of the device, including the extended range of welding and cleaning capability for more diverse materials. The focus on sustainability and energy efficiency play well into laser cleaning application that can reduce use of toxic materials. At the same time, high energy costs are driven demand and increasing interest in our premium that provides the full plug efficiency of greater than 50% and can meaningfully reduce energy consumption in high power applications. Before I turn the call to Tim, let me provide an update on impact that conflict in Ukraine, which I hope will come to a peaceful resolution soon. To help with this humanitarian crisis, IPG allocated half a million dollars to provide financial aid to our employers who helped refugees from Ukraine. We are proud to hear that many of our employers have opened their homes to refugees and provided clothes, food, and temporary housing. In response to the current situation, IPG stopped all new investments in Russia and already terminated some existing projects. As we announced on March 3rd, we are executing on our contingency plans, increasing the manufacturing and inventories of critical components in the United States and Western Europe. In the first quarter, we started hiring additional employers, allocating workspace for increasing production, and running second shift in the United States, Germany, and Italy. We have also been qualifying the third-party suppliers for some components. This activity, which accelerated during the second third quarter this year, would significantly reduce IPG reliance on Russian components by year-end. We are using this situation as an opportunity to introduce a new production technologies and automation to increase yield and productivity. We recognize the risk of cooperation in the region as an explanation of sanctions would potentially have a significant impact on our business because of large capacity of critical components that many of our allies rely on currently in Russia. As we are making this decision, we are doing our best to protect the interests of our employers and their families. I will turn the call over to Tim to discuss financial highlights in the quarter.