IPG Photonics Corporation

Good morning, and welcome to IPG Photonics' fourth 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 Fedorov, 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, Tim Mahmoud. Let me remind you that statements made during the course of this call that discuss management of 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 end of December 31, 2022. 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 SEC's website. Any forward-looking statements made on this call are the company's expectations or predictions as of today, February 14, 2023 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 the investor relations website following the completion of this call. With that, I'll now turn the call over to Eugene Shcherbakov.

Good morning, everyone. I am pleased to report that we continue to see strong momentum in our focus areas such as immobility, welding, and medical in the first quarter and finishing the year with revenue above our guidance range, despite of challenging operating environment and currency headwinds. Our strategy to diversify the revenue as evidenced by performance of our emerging growth products and applications is paying off. As we move through the year, we continue to see record sales in e-mobility, medical, and welding, including the hand-welded welding applications. Our team has done an outstanding job diversifying the business and finding the growth opportunities. Emerging growth product sales were 46% of total revenue in the first quarter. Demand for many of these products was driven by global investment in e-mobility and renewable energy. IPG is well positioned to benefit from accelerating global EV battery capacity expansion, and our EV sales contributed close to 20% of total revenue of 2022, up from around 10% a year earlier. We believe that the battery capacity built out will accelerate in North America and Europe and will continue to increase in China in the next several years to support growing EV sales. More recently, customers shifted investment into the U.S. to take advantage of government incentives, which draw higher level of activity in the region. Our leading position in fiber lasers with a broad range of solutions, including welding, cutting, cleaning, and processing monitoring, has allowed us to capture the growth in these markets. We have recently introduced high-volt plug efficiency laser drying solution for use in battery foil manufacturing, the largest CO2-producing process step of battery manufacturing. This solution replaces less efficient infrared bulbs and environmentally unfriendly gas-fired pharmacies. It can significantly reduce energy costs and increase drying speed for our customers. We are particularly pleased with our growth in welding applications in the first quarter. Welding is now accounting for 30% of our material processing revenue. and grew approximately 40% year-over-year, surpassing in size flat sheet cutting revenue, a milestone for us. This growth was driven by strong demand for our welding solution in immobility and medical device welding, continued adoption of laser welding in general industrial markets, growth in the laser-based system, and the rollout of light weld. EV battery manufacturers have quickly adopted laser welding as it provides high quality and high speed welding with real time processing monitoring capabilities. The rest of 20 billion welding market is still early in the adoption of laser technologies. But we are starting to see a more meaningful shift towards acceptance of laser and believe that this will continue. A large portion of the welding market is using traditional manual welding, primarily with MIG or TIG devices. Traditional welding is very limited in types of materials. It's kind of a giant and requires highly skilled welders to do the job. Light weld addresses many of these challenges an ability to join a broad range of materials including some cracked to weld metals like aluminum alloys, copper, titanium, and zinc foils. Light weld can also increase welding speed up to four times and does not require extensive training. According to American Welding Society, there is a deficit of 375,000 welders. Light weld is easy to use and comes with presets for different types of materials, which can result in faster training for unskilled welders required to fill the employment gap. We are working with a number of training schools to increase awareness and adoption of laser welding. We also continue to build a light wheel organization and to have established distribution partners to support international sales It should drive the growth of light wells cells in 2023. Our laser cleaning solutions have been gaining traction and we have a strong backlog of customer orders for new systems that we are providing the fully automated cleaning and can significantly reduce the time and use of harmful materials for surface preparation as well as rust and paint removal. This process typically uses harmful chemicals such as acids or solvents that are being banned around the world. Our laser can do surface preparation quicker and with less harm to the environment. Finally, our medical business delivered record revenue in the first quarter, finishing a very strong year on a high note. Full year revenue grew over 60% in medical, driven by higher adoption of our Tulium laser used primarily in orology applications. Our consumer fiber business now accounts for a sizable portion of revenue, and we expect it to increase further as we grow the installed base of the devices. We continue to expand medical space internationally, and we are working on the next generation of these devices, as well as the new medical applications for our fiber lasers. While 2022 was a challenging year for IPG, we successfully navigated the Chukchi waters. We faced continuous soft demand in the high power cut in China. Currently, due to the strong US dollars, supply chain disruption, as well as the restriction on shipment of components from our manufacturing facility in Russia. IPG's performance in 2022 is a tribute to a dedicated team of employers and partners throughout the world and their efforts to overcome supply chain constraints and the complex regulatory environment of device production and customers. And while this is still uncertainty in the operational environment with fears of slowdown in North America and further weakness in Europe, we believe that IPG is well positioned to benefit from investment in e-mobility, renewable energy, and automation. This is reflected in our report backlog, which gives us a reason to be optimistic for a year. We are hopeful to see a recovery in the demand in China this year as the COVID-related restrictions are being relaxed. We believe customers are choosing our lasers and systems because they are customers' energy and are more sustainable solutions with less environmental impact than competing processes and technologies. With that, I will turn the call over to Tim to discuss financial highlights in the quarter.