IPG Photonics Corporation

Good morning, and welcome to IPG Photonics' second quarter 2024 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 Senior Director, Investor Relations, for introductions.

Please go ahead with your conference. Thank you, and good morning, everyone.

With me today is IPG Photonics CEO, Dr. Mark Gittins, and Senior Vice President and CFO Tim Monin. 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 31st, 2023, 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 on the SEC website directly. Any forward-looking statements made on this call are the company's expectations or predictions as of today, July 30, 2024 only. And 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 financial data workbook posted on our investor relations website. We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark.

Good morning, everyone. I'm excited to be here with you on my first earnings call as CEO of IPG Photonics. I look forward to meeting many of you and to talking more about our story and our plans at IPG. Before diving into our second quarter performance, I'd like to spend a moment on my background, why I took this role, and what I've been focusing on since I joined just over seven weeks ago. For the past 35 years, I've been actively involved with lasers and laser applications, leading different functions at Coherent and the Photonics Solutions Division at MKS Instruments. I joined MKS to integrate the Newport acquisition and significantly improve the performance of the business over five years. During my career, I've always admired IPG, its industry leadership, culture of innovation, and ability to drive fiber lasers into new use cases. I'm thrilled to have joined such an innovative and dynamic organization and see a lot of great opportunities ahead of us. Since joining in June, I've focused on diving deep into key aspects of the business. The dedication, creativity, and passion of IPG's team is truly inspiring, and conversations with employees have given me an even deeper appreciation of the team's knowledge and expertise. I'm especially excited about IPG's R&D pipeline. I believe we have a number of projects in process that will put us in a strong position to extend our industry leadership, provide further differentiation, and reduce product costs. I know that in the current macroeconomic cycle, we've seen competitors get more aggressive, particularly in cutting. Competition is expected, and as a leader, it's important to keep driving innovation. Our team has been focusing on multiple initiatives to increase technological moats around laser products and provide complete solutions and world-class support to customers, which cannot be easily replicated. We're clearly seeing these efforts bear fruit in the areas such as EV battery welding and 3D printing. We're also expanding into new applications and use cases for new fiber lasers in areas where we offer significant advantages relative to other laser and non-laser solutions, including efficiency, speed, and environmentally friendly solutions. In the coming months, I will be working with my management team to enhance existing strategies and develop new goals and objectives that provide a foundation for IPG's success in the coming years. On the operational side, we will be investing in our business where we can generate attractive returns while managing our discretionary costs. I strongly believe that by providing our customers with the highest quality solutions, the best service, and optimizing our operational efficiencies, we will be best positioned to drive shareholder value in the long term. Internally, we will prioritize continued focus on collaboration, growth, and continuous improvement. I look forward to being able to share more details about these strategies with you in the future. Moving on to the second quarter results, we continued to generate strong operating cash flow in a challenging demand environment as we executed on inventory reduction initiatives. Second quarter sales and earnings per share were above the midpoint of our revenue guidance overall demand conditions stabilizing at a low level, particularly in general manufacturing and EV markets. Revenue was relatively stable in Asia sequentially and improved in North America, helped by stronger sales in the emerging growth products, such as light weld and medical. Trends in Europe continued to moderate, with industrial markets facing persistent headwinds and macroeconomic uncertainty. Turning to the key applications that we serve, In welding, revenue decreased year over year, primarily due to lower demand and immobility, and partially offset by growth in handheld welding. However, I'm pleased to see that welding revenue was stable sequentially, and we were able to gain market share in Europe, winning EV customer accounts even in a challenging operating environment. IPG's strength is our unique knowledge of laser material interaction and process know-how that significantly increases speed and quality of welding. Putting this together with our real-time process monitoring enables meaningful yield improvements for our customers. Our laser welding processes and real-time weld monitoring have been widely adopted in EV battery manufacturing where faulty welds can have catastrophic results. We feel very good about our competitive position when investment spending in EV battery capacity resumes. And furthermore, we saw a strong pickup in sales of our handheld welding solutions. driven by our new partnership with Miller Electric, a leader in welding solutions. Continuous innovations driving improved efficiency, smaller form factor, and lower cost enabled the commercial viability of laser welding for metal fabricators and job shops, opening up a huge new market opportunity for IPG. Moving on to our second largest application, cutting, which is where I've seen the greatest impact to our business over the past several years from Chinese competition. The good news is that our China cutting OEM business now accounts for less than 5% of our total revenue. In our European, U.S., and Japanese businesses, we have a stronger competitive position and customers who value productivity and uptime. This business was impacted by our customers working down inventory as they managed to significantly lower end market demand. Now we're starting to see those customers' inventories normalizing. but the overall demand conditions in general industrial markets remain weak, primarily in Europe. We have strong relationships with all of the major global cutting OEM customers and are confident the decline is macro-driven. We're working closely with our customers to understand their needs, enhance our service capabilities, and reduce product costs. This approach ensures that our products not only stand out from the competition, but also deliver higher value to our customers. We're excited to announce the launch of a series of innovative products over the next two quarters, which are designed to foster win-win relationships and solidify our market position. I'm particularly excited about the new growth opportunities for IPG, where fiber lasers can replace incumbent technologies. There are areas where we can innovate to provide solutions to specific problems in a way that is much better for the environment, as we are replacing processes that are typically done with harmful chemicals or significant use of electricity. A perfect example would be cleaning and heating applications. IPG is extremely proud to provide the most energy efficient and environmentally friendly solutions in these areas. Medical is another exciting area for the company with significant barriers to entry. We have a strong growth pipeline in urology applications and are seeing robust demand in lasers for skin rejuvenation and lesion removal. We believe that new product launches in 2024 and 2025 will result in strong revenue growth opportunities for this business. Moving to the outlook, our second quarter book-to-bill was below one. We're seeing more stable demand sequentially in China, but macroeconomic uncertainty is still negatively impacting demand across general industrial markets and applications in Europe and North America. What we believe strongly in the future of EVs The well-publicized slowdown in EV adoption in Europe and U.S. has prompted several customers to delay further investment in battery capacity around the world. Our prior expectation for a rebound in demand in the second half seems less likely to materialize, and we currently are not expecting to see a meaningful recovery in our laser sales until sometime in 2025. Before I turn to the call to Tim to discuss financial results, I would like to thank Dr. Shcherbakov for his significant contributions to IPG and the laser community over the last 30 years. I would also like to thank the board for their trust in me. I look forward to leading this company, pushing the boundaries of innovation, and transforming the world around us by applying light in ways that improve life. With that, I would like to now turn the call over to Tim.

Thank you, Mark, and good morning, everyone. My comments generally will follow the earnings call presentation. which is available on our investor relations website. I will start with the financial review on slide five. Revenue in the second quarter was $258 million, a decline of 24% year over year. Foreign currency headwinds reduced revenue growth by approximately 2%. Revenue from materials processing applications decreased 28% year over year, while revenue from other applications increased 24%. Gap gross margin was 37.3%, a decrease of 610 basis points year over year due to lower absorption of manufacturing costs as a result of lower revenue and our continued effort to reduce inventory, which reduced gross margin by over 700 basis points. This was despite achieving a $23 million decrease in manufacturing expenses as compared to the prior year. Higher inventory provisions added another 200 basis points to the headwinds in the quarter. I'm happy with the progress we're making on the inventory side, but more work needs to be done before we get back to more normalized levels. These negative impacts to gross margins were partially offset by a decrease in import duty and shipping costs. Operating expenses came in at the low end of our expectations due to reduced variable compensation, but increased year over year, primarily due to increased investment in research and development and sales and marketing. FX headwinds also had a negative impact on revenue and gross profit in the quarter. If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $6 million higher and gross profit to be $3 million higher. GAAP operating income was $12 million and operating margin was 4.7%. Net income was $20 million or 45 cents per diluted share. The effective tax rate in the quarter was 19% and benefited from certain discrete items. Foreign currency transaction losses as a result of re-measuring of foreign currency assets and liabilities to period end exchange rates had a negative impact on operating income of $3 million or 5 cents per share. We continue to optimize our footprint. and had a gain on sale of assets in the quarter, which increased operating income by $1 million and increased diluted EPS by one cent. Moving to revenue performance by region on slide six, sales in North America decreased 2% year over year. We saw a strong growth in medical, 3D printing, and advanced applications which was offset by lower revenue in cutting, welding, and cleaning applications. Sales in North America held up relatively well, but macro headwinds have continued in the general industrial markets as well as led to reduced EV investments. In addition, continued inventory management by cutting OEMs is leading to more uncertain outlook in the region. sales decreased 27% compared to the prior year. Similar to the trends we saw in North America, cutting sales were impacted by large OEM customers reducing purchases as they managed their inventories. Economic conditions in Europe seem to be deteriorating further and impacting investments in industrial and automotive markets. Easy investment is also delayed, current projects are being pushed out into 2025. Revenue in China decreased 34% year-over-year as demand declined in general industrial and e-mobility markets, negatively impacting sales across cutting and welding applications. On the other hand, sales to cleaning and 3D printing applications continued to increase in the region. China revenue improved sequentially and we are seeing some stabilization there. Moving to a summary of our balance sheet and cash flow on slide seven, we ended the quarter with cash, cash equivalents, and short-term investments of $1.1 billion and no debt. We continued to manage inventory, reducing it by $31 million from the prior quarter. We're targeting further reductions in inventory over the course of 2024. Cash provided by operations was $53 million, and capital expenditures were $24 million during the quarter. While maintaining a strong balance sheet, we have been returning a significant amount of capital to shareholders through opportunistic share repurchases. We spent $122 million on share repurchases in the second quarter and $212 million year-to-date. Since the beginning of 2021, we have returned over $1 billion to shareholders through share repurchases. Moving to our outlook on slide 9, for the third quarter of 2024, we expect revenue of $210 million to $240 million. The third quarter gross margin is estimated to be between 34% and 37%. We anticipate delivering earnings per diluted share in the range of zero cents to 30 cents with approximately 45 million diluted common shares outstanding. As discussed in the safe harbor passage of today's earnings press release, our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release, and is subject to risks outlined in the Safe Harbor and the company's reports with the SEC. With that, we will be happy to take your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. 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. Our first question comes from Jim Rusciutti with Needham & Company. Please proceed with your question.

Hi, thanks. I'm wondering if you could talk a little bit about whether you're seeing much variability in the book to bill by region. It looks like North America seems to be holding up, although I'm sure you've seen some pockets of weakness in some of those industrial markets that you talked about. But maybe that's my first question.

Yeah, hi, Jim. Yeah, on the book to bill for the quarter, it was below one. The weakness continues to really be in Europe. So that was down compared to the first quarter. North America altogether was relatively stable, but we saw some headwinds around the industrial and other businesses. We actually had a strong quarter on bookings for medical. And then Asian bookings actually, as we've alluded to, are really much more stable than Europe. So we're actually quite pleased with the performance of underlying bookings in Asia as a whole. both China, Japan, and South Korea as well.

Yeah, ex-cutting in China. I don't know how to think about what you're seeing in China, frankly, just because of what we're seeing now and the weakness on the EV side. How would you characterize the business in China, excluding the legacy cutting?

Hey, Jim, this is Mark. How are you?

Hi, Mark. Welcome, by the way.

Hey. Thanks very much. Yeah, so China is still a very important part of our business. It's about 25% of the business. And we've been able to, over time, really diversify that business. So the China cutting market, as you said, that's now become a very small part of our business. It's less than 5%. And we've been diversifying into areas like EV, the welding area. We've been very successful in that region because of the capabilities that we have in not only the, you We talked about the AMB lasers, the special mode for being able to weld without spatter. But that, combined with our scanning capability and our sensing capability, actually measure and look at the weld in situ. To be able to do that has been really critical. That's a quality control for the customer and really a a safety prevention issue as well. So that's been really important in EV and we've kept a significant market share there. And then also in the area of, you know, another example would be 3D printing where, you know, our lasers are really unmatched there because we have very high power single mode lasers that are, you know, have low noise as well. And that's really important to these very high speed machines that that need very high performance and key to those devices. Those are a couple areas where it's really been important. Again, we have a significant business in China and continue to drive there. It's an area also where in China, you know, they're first to take some of the new technologies. So it's been important for us as we bring out from our roadmap new technologies. China's a great place because they're willing to start with those on an early basis. So, again, been able to diversify the business in that region, and it's an important region for us.

Thank you. I'll jump back in the queue and let somebody else in.

Our next question is from Ruben Roy with Stifel. Please proceed with your question.

Thank you very much, and Mark, welcome. Thank you for providing some, I guess, a preview on some of the areas of focus and, you know, how you're thinking about things here at IPG. I guess, Mark, a question for you. You made a comment on, you know, cutting still, obviously, a big market, small in China, smaller in China, but Still a big market for IPG. And you made a comment, I think you were talking about Europe, where you were talking about the decline is macro-driven. And I assume you were implying that not a competitive issue. In the past, IPG management has talked about cutting ex-China as a potential area of growth longer term as, you know, overall cutting in other geographies is still, you know, on the comet. It really hasn't. gotten to critical mass in some areas. I guess as you think about cutting and R&D into cutting, maybe if you could give us a little more perspective on how you're thinking about that market specifically and IPG positioning in some of these markets outside of China, that would be helpful.

Yeah, absolutely. Thanks very much for the question. As you mentioned, cutting is still an important piece of our business, although welding is now the largest part of IPG's business and as you said, the competition for us has really been in China and that part of the business is less than 5% now. In Europe and Japan and the US, the OEMs, we have great relationships with them and they really understand the value that we provide. This is quality uptime on the systems. And that's very critical for those customers. And we talk to them all the time. That's an area where we're not losing share because of that. It's the service. It's the support. It's the full package with those OEMs. And yes, we are continuing to drive in that area. It's an important area. So you've heard us talk about our roadmap in cutting. So very shortly, we'll be releasing very, you know, new high-power lasers that are at the high end are very, very big change in the volume of the lasers. So, you know, smaller form factor and then lower cost, you know, saving 15% to 20% in the cost. So, again, very key. And we're also, you know, constantly working with the customers on, you know, I mentioned the support infrastructure. So we've invest a lot in our service infrastructure to support those OEMs, and that's very key as well.

That's helpful detail. Thanks, Mark. And then as a follow-up, around the discussion on EV, I think most of us understand that adoption has slowed and there's a lot of macro impacts, interest rates and otherwise kind of creating issues for the market. But when you talk to your customers, it sounds like you're pushing out you know, any expectations for improvement out into somewhere in 2025? What drives that improvement? I mean, are we close on the inventory level? You know, are you seeing some signs from your discussions that there will be some capacity added, you know, as you get into 2025? Any detail on, you know, actual customer feedback would be helpful.

Yeah, I know what I can tell you, you know, thanks for the second follow-up question. You know, We're in a very good position in the EV. I mentioned earlier, you know, the kind of detectable solution that we provide in EV being able to lock up both the A and B laser plus scanning plus the capability to measure those welds. So that puts us in a very good position both at the component, subsystem, and systems level in that EV market. Now, I'm talking with the customers, you know, at You know, last quarter, they told us they thought things were going to be coming back, you know, in the second half of the year and that we'd see some of those projects start to come back in in the second half. What they've been telling us recently is that they just see things really pushing to the right into 2025. So that's what we're hearing and that's what we're seeing right now.

Okay. Thanks, Mark. Just really quick for Tim on the model. In terms, Tim, of, you know, some of the new lasers coming out and, you know, the cost downs on some of the high power stuff, how is that looking from a timing perspective? Just wondering how you're thinking about gross margins, you know, given the reality of where revenues are into year end here and maybe even early 25, you know, is sort of how you're thinking about, you know, sort of a potential bottom for gross margins, some of those new products roll out or, you know, any color there would be helpful.

Sure, Ruben.

On gross margin, really the underperformance continues to be related to underabsorption, even though we've managed to take out a lot of manufacturing costs. So the product gross margin, when I look at that on an isolated basis, is holding up very well. So what I would expect as we get some of those cost production initiatives actually rolled out into product towards the end of this year into next year, we'll start to see the margin of the product improve potentially a little bit because we're going to keep some of those cost reductions in hand. And then as we start to grow the business again, you'll start to recover some of the under-absorption on the fixed cost basis. Now, I think at this level of revenue, if we can start to recover a little bit from here, you are talking about gross margin being kind of at a trough level. The other thing that's impacting us is the need At the time, we've got the headwinds around revenue is to continue to take inventory down, right? So that is also driving some of the under-absorption. As we get closer to target level of inventory, I said we've got more work to do on that in the second half of the year. But I expect that situation to ameliorate certainly into 2025, the sort of double whammy of lower revenue and getting inventory down really should – we hope to turn that on both the So that will drive some improvement in gross margin as well.

And then, you know, Reuben, as Tim was saying, this is largely an under-absorption issue. So, you know, we've been investing or continuing to invest in our product roadmap, driving differentiation. We've got a lot of exciting things in a number of areas. You've heard us talk about the heating and drying applications. We've been very successful on the medical products. Those are growing. And, you know, you've heard us talk about light weld and the combination with – with Miller, those are all areas that are going to drive growth and as that growth drives, of course, that's going to improve the absorption and we'll see the gross margins improve. So that plus the cost balancing that Tim was saying are important areas.

Got it. Thank you, Jeff.

Our next question comes from Keith Haslam with North Coast Research. Please proceed with your question.

Good morning, thank you. And Mark, congratulations and welcome aboard. The investment in SG&A and R&D, I guess maybe look at the SG&A in particular, you know, after several years of, you know, down results, obviously, I appreciate the investment in SG&A, but is there a particular strategy or area that you guys are focused on in order to help drive growth into the future?

Yeah, I can take that. Thanks very much for the question, Keith. So as we said, again, we have a very exciting exciting roadmap and absolutely investing in R&D. We've got a lot of capability there. I have to tell you, I'm really thrilled coming. I, of course, was looking at the company very closely over a number of years. And then, you know, before coming to IPG, I looked very closely at, you know, what I saw as technology and product roadmaps. But, you know, now being here, seeing under the covers, it's even better than I expected. So really great innovation. There are great things to drive the product roadmap, drive differentiation. You've heard us talk about some of the new products. And it's beyond products now, just lasers and components. We've been investing into the applications and the process development side. That's a very critical piece for us because we're able to go and we're able to work with the customers. We now have these labs and these capabilities all over the world. We're working with the customers. We're seeing the problem that they need to solve. We're working with them. We're developing a solution and that's the laser, but it's also beam delivery, It's also, I talked about some of the sensing capability. So when you put all of those things together and wrap that process together and then be able to deliver to the customer a subsystem and a system, that's a whole other way to put a motor on the product. So that's another area where we're absolutely investing on that SG&A side that will continue to drive growth in the business.

Okay, so just so I understand, in terms of investing in the applications and solutions, are you expanding, are you going to start competing with them more with some of your OEMs and integrators or just developing beyond just the lasers and doing more of it for which they would have done themselves?

It's, it's, So what I would tell you is that we've got development on the lasers, development, again, on that delivery and the process side. And a lot of the processes that we're growing in are new processes, things like heating and cleaning, which those are big areas for us to grow in particular markets. That's something that we've done in the EV, for example, the cleaning application where we can – rid some of those processes of, you know, chemical kinds of processes and be able to do that with lasers. So there we're really driving improvements or new laser parameters that can do that by understanding the process and then being able to provide some of the wraparound pieces that really are unique because of our process knowledge. So that allows us to expand into, you know, unique new applications as well.

Great. Thank you. Good luck. Our next question comes from Michael Fenninger with Bank of America.

Please proceed with your question.

Hey, everyone. Thanks for taking my question. Mark, you kind of touched on this, but I'm just curious about the driving, the penetration of lasers in the industrial applications. Does IPGP have to think differently maybe on either pricing to help drive that adoption or Is it market applications or is it maybe the go-to-market strategy in terms of, you know, I know it was touched on before when it comes to some of these OEMs and distributors. I'm just curious if, you know, with fresh eyes, if you feel like getting that penetration up outside of China requires, you know, maybe a different approach.

Yeah, thanks very much. That's a very good question. You know, we are taking, you know, a deeper approach on some of these that's a little bit different. So, you know, even, you know, look at the handheld welding. You know, we've taken a different go-to-market approach there. We've partnered with our light weld with, you know, premier welding supplier in the, you know, in North America, Miller Electric that, you know, supplies today or had supplied to date was with a conventional Megan Kig, experts in the welding industry. They provide those systems, and they're working with us in partnership to take that on, to label it as a Miller product. So they're seeing that this is the right way to go in welding. And they're seeing that because you're able, with our light weld system, We build the process. Again, this is talking about that process development. We actually build it into the system. You can actually dial in, hey, I'm doing aluminum on aluminum or aluminum on copper, and the system will set itself, and you can go and do that welding. Where in standard processes, if you're a major TIG welder, you might have to apprentice for years before you can do those processes. You know, you can do that, you know, I've even welded with the system. So, you know, you can go from, you know, years to hours of being competent. So that allows us a different market, you know, go-to-market strategy, again, with Miller and putting that into the market. And then, again, pushing on that, you know, that application and that process development, again, taking and optimizing not only the lasers for a particular process, you know, let's take something, you know, like cleaning, we can, you know, that's, again, replacing a process that would potentially have been done with chemicals, right? So something better for the environment now using a laser, but you have to optimize the laser to be able to do that. So, you know, we're making high-power lasers with short pulses that are optimized for that. But then you also have to drive the scanning has to work as well. So we've actually developed, you know, case use scanners that are very high speed for that cleaning application to tie to that laser, to tie to the process, and then working with the customer, be able to provide the solution, right, either in a subsystem or a system level. So again, a different go-to-market strategy because we need to solve the problem in that non-laser space, right, and be able to provide that whole piece. So that's an investment that we've been making, as I mentioned, and that's a change and go to market that we're going to continue to invest in.

Understood. And Tim, just curious on seasonality. Like if you look back, typically Q4 might be down a little bit versus Q3, depending on some years. But this year, obviously, because of some of the macro, some of the factors, it feels like Q3 is actually a little bit weaker seasonally than normal. I'm just curious, Tim, is there anything you want to flag towards like seasonal factors as we kind of think about, you know, this year, if it's different than what you kind of, you know, see in prior years when we think of the seasonality of the business?

Michael, it's completely different at the moment. I mean, any historic trends on seasonality right now can be sort of disregarded. We're in a pretty deep downturn, particularly in Europe. You've got a different dynamic to the China business and a weak demand environment, even though that business has stabilized. We'd often see Q3 and Q2 as stronger quarters given some of those, you know, demand dynamics you'd see out of those areas. At this point in time, I think seasonality is not – you can't pick anything from it. And, you know, what we've stated is we just don't see – we don't see any meaningful recovery until sometime in 2025 at this point.

Fair enough. And if I could just squeeze one more in, Mark. I think you really are emphasizing – sounds like really, you know, spending to drive the growth in investing the business. I'm just curious with with where the balance sheet is Mark is, do you feel like the growth can get revitalized? Just just by the organic growth profile and some of these markers you guys are trying to attack? Obviously, I think the macro is important as well. Do you think you get back to that double digit kind of growth profile that IPG is was kind of used to before? the softness we've observed, or do you think M&A has to be a bigger component of us talking about the growth profile going forward? Thank you.

Yeah, sure. Thanks for that follow-up question. So first of all, I just want to emphasize, again, the product roadmap and the technology here. So first and foremost is continuing to drive that. We've got a great lineup of things that we're working on that will be coming up. that will absolutely drive growth. You know, in the material processing side, you've heard me talk about the lasers and then, you know, some of the components like the fast scanning, tying those things together and driving growth, you know, with the subsystem and system capability. And then also, you know, in other areas like medical that we've seen that fantastic growth. And we've got a great roadmap that we're investing in that will that will give us great growth over the next years. Now, of course, I'm always interested in anything that could drive that growth faster, give us differentiation, faster time to market, put us into adjacent markets. So the M&A, I'm certainly always interested, always looking. But in that area, not looking for any

any giant transitional kinds of acquisitions.

Again, we have a really great opportunity to continue to grow that business.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Mark Miller with Benchmark.

Please proceed with your question.

I, too, would like to welcome Mark to IPG. And I had a question. General Motors and Ford recently reported strong EV sales. Just wondering what you're seeing in terms of EV-related sales in both North America and China.

Yeah, I can take that, Mark.

Thank you for the questions. You know, again, as I mentioned earlier in the call, we're in a really good position on the EV because of the solutions that we bring, not only in the laser, but also the wraparound process there. And so we have a great share in that. But what we've seen, you know, again, as we talk to the customers, You know, those projects are being pushed to the right, you know, where we thought they were going to come in in the second half of this year. You know, the customers in each of the regions are talking about those projects being, you know, more into 2025.

Mark, maybe just picking up on that, there's a couple of good data points, I think. You know, overall EV sales in the first half of the year are up 20%. China, they're up 30%. Europe's a bit flat at the moment. Of the smaller base, North America has actually performed quite well. So total battery capacity utilization, we think, has increased by about 20%. That's going to help drive higher utilization overall globally and I think supports the thesis that we start to see a recovery in 2025. Okay.

Last question is in terms of recently introduced products, what percent of sales? About 45%.

Forty-six this quarter. Thank you. We have reached the end of the question and answer session.

I'd now like to turn the call back over to Eugene Federoff for closing comments.

Thank you for joining us this morning and your continued interest in IPG. We will be participating in a number of investor events this quarter and are looking forward to speaking with you soon again. Have a great day, everyone.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.