IPG Photonics Corporation

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

Thank you, Rob, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Eugene Shcherbakov, and Senior Vice President and CFO of Team Moment. Let me remind you that statements made during the course of this call that discuss management 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 in IPG Photonics Form 10-K for the period ended December 31, 2021, and our 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 SAC's website. Any forward-looking statements made on this call are the company's expectations or predictions as of today, November 1st, 2022 only. The company assumes no obligation to publicly release any update or revisions to any size 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 the 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.

Good morning, everyone. We continue to see upward momentum in our emerging growth products in the third quarter. We saw the strong results in welding, cleaning, solar cell manufacturing, medical, and 3D printing applications. These were upset by several headwinds, including unfavorable currency translations weaker economic conditions in Europe, and COVID-related lockdowns in China. Softness and general industrial demand in Europe and China negatively impacted sales in high-power cutting applications. At the same time, we saw modest growth in North America, and we are pleased with this continued increase in e-mobility sales driven by new investment in electrical battery capacity across the oil geographies. Immersion growth product sales were 43% of our total revenue in the third quarter. Many of these products are benefiting from global macro trends, such as immobility and automation, as well as increased focus on sustainability, renewable energy, and energy efficiency. More specifically, we saw record sales in A and B lasers. driven by growth and EV battery welding. They also saw strong demand in our green laser for solar cell manufacturing applications. This market is rebounding, driven by increasing investment in renewable energy solutions globally. Additionally, the revenue for lasers used in cleaning applications, which provides sustainability benefits by reducing use of abrasives and chemicals, grew significantly this quarter. In August, we announced the sales of our telecom transmission business to Elementum, as the business required additional investment and was non-core to IPG. This divestiture had only a minor impact on sales, but will meaningfully reduce our operating expenses going forward. I believe that the sales of telecom business and decision to exist our cinema business will allow IPG to focus R&D and other resources on core growth opportunity such as immobility, welding and medical. Now I will go over each of these core opportunities in more details. We had another great quarter in EV applications as revenue and orders increased across all geographies. There are additional investments into EV battery plants in Europe and North America. And we are seeing increased activity in the US due to the recently announced government incentives. Third-party estimates suggest that the global lithium-ion battery capacity will triple by 2025 and may reach 6 terawatts by 2030, a sevenfold increase compared to the 2021 level. This growth in battery capacity presents a significant addressable market for our lasers. To focus on global EV opportunities, we implemented some organization changes and increased our sales and marketing capabilities. IPG has a leading position in welding and foil cutting applications for EV batteries. We offer a broad range of solutions to customers from laser sources to complete production lines for existing and emerging battery technologies. We sold several complete system and production lines to R&D and some experimental battery production in the quarter. We continue to introduce and are seeing the strong initial demand for our picosecond ultra and ultra-high power pulse lasers. IPG recently increased its production offering an e-mobility application with new QCW-AMB lasers, which offer excellent performance and displays green and blue laser solutions that cost more and are more complicated to integrate. We continue to explore additional opportunities in foil cutting and electrical motor assembly. The adoption of IPG beam delivery and real-time building monitoring software has been very successful in e-mobility applications. The related revenue accounting for approximately 20% of our total sales and quarter, up from 10% in 2021 sales. We expect that EV investment cycle to continue and the e-mobility sales to remain strong in the next three to five years, despite the less favorable outlook for the global economy in the near term. This was another record quarter for welding revenue that benefited from growth in electric wheel batteries, but also growth in light-wheeled cells. Light-wheeled is still On early part of growth tragically, rapidly increasing the sales and order globally in the market dominated by non-laser technology. We have received a market and started to selling the light weld in most the larger European countries in the third quarter. We have established distribution partners and continue to see the high interest from the welding community during the trade shows. Lightweight handled welder is superior tool for small and midsize replicators that brings easy to use for welding process. Additionally, NPJ is also working with automation companies to introduce a combo light-weld combination that helps customer to implement automation of welding processes at relatively low cost. Our medical business. also had another record quarter, with revenue increase of more than 70% year-over-year, ensuring the continuing growth in booking. Our petroleum lasers and consumable fiber for our urology applications, which are considered as a new global standard, continue to replace polymium laser, rapidly gaining adoption in the urology market. As we grow the number of installed units Recruited revenue from consumer fiber is also growing. I am pleased to see that we are well ahead of our target to double the business in two or three years, as our medical revenue should approach $70 million this year, up from $43 million last year. Before I turn the call to Tim, let me provide the update on our operations in Russia. During the first nine months in 2022, we managed to navigate the complex and evolving regulations, including sanctions without material disruption to our ability to meet customer demand. We are continuing to increase manufacturing capacity and build safe stock of critical components in the United States and Europe. In addition, we have started to purchase many less critical components from third parties that were qualified earlier this year. Recently, the EU has announced the new package of sanctions and new license requirements which place even more limitations on trade with Russia, essentially curtailing our ability to import components to our European facility and export items to our Russian facility, effective early January of next year. We believe that the contingency plans we are executing will enable us to eliminate our dependence on Russian production before the new European sanctions take full effect. We will continue to monitor the situation closely and with our Board of Directors are assessing the strategical options to our Russian facilities. I will turn the call to Tim to discuss financial highlights in the quarter.