At this time, I would like to turn the call over to your host, Eugene Fedotoff, IPG Senior Director of Investor Relations, for introductions. Please go ahead with your conference.

Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Eugene Scherbakov, and Senior Vice President and CFO, Timothy P.V. Mammen. Let me remind you that statements made during the course of this call that discuss management's or the company's intentions, expectations, or predictions 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, 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 the SEC's website directly. Any forward-looking statements made on this call are the company's expectations or predictions as of today, February 11, 2025, 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 will now turn the call over to Mark.

Thanks, Eugene, and good morning, everyone. For today's call, I will provide a high-level overview of the quarter and share progress we have made on our strategy to drive long-term sustainable and profitable growth. After that, I will turn it over to Tim to provide more of the financial details, then we will open the call for questions. Starting with our fourth quarter, revenue came in at the high end of our guidance, up slightly from our third quarter and consistent with the business environment that continues. Gross margin improved in the quarter, helped by our efforts to reduce inventories. Our operating expenses were also better than expected and down both year-over-year and sequentially. Our progress on expenses reflects the hard work the team has already undertaken to reduce our cost structure. We will be deploying the savings towards strategic investments in the business. Our free cash flow remains strong, reflecting higher profits and the positive working capital impact. We maintained a very strong balance sheet. Although our results do not yet reflect our full potential, I am proud of the progress we have made in navigating a challenging business environment that is impacting us on two levels: one, the tough macro conditions in general industrial and automotive markets, including EV, and two, a more competitive environment in cutting. Over the last few months, we have undergone a comprehensive review of our strategy, markets, technologies, and competition. We then developed a plan to strengthen our current products, penetrate new applications and markets, introduce novel solutions, and set the foundation for a return to growth and better performance. Our leadership team and board are aligned around our strategic plan, and we are hitting the ground running. We are addressing the challenging near-term demand environment and increased competition by reducing costs, accelerating…

Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation, which is available on our Investor Relations website. I will start with the financial review on Slide Four. Revenue came in at the top of our guidance in the fourth quarter at $234 million, up slightly on a sequential basis despite the full quarter impact from the disposal of Russian operations and only a modest revenue contribution from Clean Laser. Revenue was down 22% year-over-year and down 18% excluding divested operations. Foreign currency reduced revenue by approximately 1% this quarter. Revenue from materials processing applications decreased 24% year-over-year, primarily due to lower sales in welding, cutting, and marking applications, while sales increased in additive manufacturing and micromachining applications. Revenue from other applications decreased 6% due to lower sales in medical, partially offset by increased sales in advanced applications. Gross margin was 38.6%, an increase of 40 basis points year-over-year and above our guidance. Driven by lower product costs and a decrease in import duty and shipping costs, partially offset by lower absorption of manufacturing expenses as a result of lower revenue. Continued effort to right-size inventory resulted in a more moderate impact from inventory provisions. Operating expenses were below our guidance range because of a one-time benefit from stock-based compensation expense, and we were down both year-over-year and sequentially due to the disposition of our Russian operations and controlled spending. Currency translation had a minor impact on revenue and gross profit in the quarter of approximately $2 million and $1 million, respectively. Foreign currency transaction gains had a positive impact on operating income of $1 million. GAAP operating income was $14 million, and reported net income was $8 million, or $0.18 per diluted share. The effective tax rate was 64% in the quarter due…

At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. 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 Ruben Roy with Stifel. Please proceed with your question.

Thank you. Hi, Mark. It's Tim. I wanted to start, Mark, if I could, on maybe drilling into some of the details around your review of the business a bit. And specifically, you know, as you look at some of these new opportunities and then balance that, I guess, with what's going on in cutting, I would love to maybe get some thoughts on how you are thinking about cutting, investments in cutting, and, you know, how you see cutting kind of play out over the next several years as you invest in some of these other growth areas?

Great. Well, thanks a lot for the question, Ruben. It's good to talk to you. So yes, I've now spent, you know, six months doing a deep dive into all of our technology capabilities, execution, and, you know, really all of the R&D programs. And, you know, entering the new year, then we've really aligned on a three-year strategic plan now to drive differentiation and profitable growth. We'll talk about that with respect to cutting as well. So, you know, we're launching new high-power fiber lasers that I talked about on lower-cost platforms with smaller form factors, and these are really competitive in today's market, and these provide a competitive edge now for our OEMs to compete in the market because just to speak about cutting for a minute, remember that cutting in China has really been the biggest issue from a competitive aspect. And that's less than 5% of the business now. As we go to other markets, we're starting to see, as Tim mentioned, some of our cutting OEMs seeing Chinese systems play into some of their markets, and we're providing now these new high-power, higher-power, smaller form factor lasers at lower cost to allow them to compete. So that's where we're playing on the cutting side. And then we're driving now to really move towards differentiation in the marketplace and launch profitable growth in some other key areas that I talked about. And the key areas that I'm talking about there are, you know, urology, micromachining, and advanced applications. And these are programs that target markets exceeding $5 billion in TAM and offer IPG really hundreds of millions of dollars in revenue opportunities over the next several years. And, you know, it's important to also mention that we're, you know, in these areas, we're working collaboratively with key customers, and we already have, you know, purchase orders in place for some of these programs. We expect to see benefits from these later this year and really kicking in in 2026 and 2027. So now just to bring back to that, so these are differentiated areas that we're driving. That's what's really going to drive the growth of the company. Cutting will continue to, you know, provide differentiation where we can, but the, you know, again, the real growth from the company is going to be from these key areas that I mentioned. And we've got, you know, key programs in place now to drive these, and we've got customers engaged, and that's where the growth is going to come. We'll see some of that later in 2025, but the real growth from those differentiated programs is going to be in 2026 and 2027.

Okay. Thanks for all that detail, Mark. I guess just to make sure I'm understanding correctly on Dennis' comments about competition, you know, starting to, you know, boil up here and there outside of China. Are you saying that the, you know, sir, Mark Tim mentioned that you're working with customers to maintain their market share. I assume what you're talking about there is more on competitive differentiation rather than price. Is that the way to think about that? Or is it, you know, something else that you're looking for?

Yeah. So the way that I would talk about it here is, again, we're launching, and we already launched at the Photonics West show, so people saw this. A, you know, very high power. So, you know, 40 kilowatts based upon our newest higher power diode platform. So that gives the OEM a smaller form factor with higher power at lower cost. So now think about that from them competing in the marketplace. That allows them to put, you know, a higher power laser into their system, you know, in that same kind of form factor. So the form factor would give you an idea a 40-kilowatt laser is now in a form factor that years ago was a 4-kilowatt laser. And again, at a better dollars per watt level, so they can then put those in their systems and compete with the Chinese players that may be encroaching in some of their markets with their systems.

Okay. And then just one last question. You mentioned, Mark, you know, sort of, you know, a lot of, you know, these areas of focus and investment and expectations for a return to growth in 2026. You know, with, you know, this mindset of bouncing along the bottom, book-to-bill a little bit under one, can you give us a little bit of detail about how you're thinking about visibility or the second half of the year? You think revenues are sort of steady state here, can things get worse, maybe a little bit better? What are the sort of puts and takes as you think about the rest of 2025?

Yeah. I mean, we're not, you know, we're not guiding to the full year. What I can say, you know, again, we're seeing book-to-bill, you know, is around one or a little bit below one. The industrial markets have still been under pressure. And, you know, you can see varying forecasts of what's going to happen to the industrial markets. There's a little bit of uptick in some of the PMIs that gives a little bit of a good indication. We're seeing some of our customers are coming to more normalized inventories. But, again, it's really going to depend on what happens later in the year in those industrial markets. Yes. And how that plays out.

We are expecting some contribution from some of the investments we're making towards the end of the year, I think. You know, positively cutting picked up a little bit in Q4. That reflects some of the sentiment that we're hearing from our OEMs that their inventory levels are back down to a much more normal basis, and the demand environment is definitely stable. On the book-to-bill, one thing I'll point out, the reason why it was just a little bit below one was because of all the geopolitical uncertainty in Korea, and our Korean bookings came in very weak versus expectations. Those orders are not canceled, and they are expecting to book a lot of those orders in Q1. Just given the uncertainty there, that impacted total bookings. Had it not been for that Korean impact, October would have been at or slightly above one.

Good stuff. Thank you, Tim. Thanks, Mark.

Our next question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question.

Hi. Thanks. Good morning. I just wanted to talk a little bit about the step-up you're anticipating in OpEx in Q1 from Q4. And I wonder if you can give us a sense as to how that plays out between sales and marketing and R&D. It sounds like you've got a fair amount of investment going on on the new product front, but I assume there's also market development. And maybe just to clarify, you're anticipating, Tim, I think you said further increase in Q2. And then are you expecting that OpEx level to somewhat level off in the back half? I may have misinterpreted what you said.

So let's do what I was in stages then. First of all, we have Q1 OpEx increases. First of all, Q4 benefited from about $3 million of stock-based compensation that related to PSUs that we're not going to vest. So you layer that back in to get to a more normalized level for stock-based comp. The second thing that really impacts it is that bonus levels do end up being accrued at more of a target level where they've been below target because we've been under to our budgets, and you then start to see some of the investments in the business start to ramp up. So, yeah, in Q2, we expect OpEx will increase further and then stabilize for the remainder of the year. I haven't got a split on SG&A and R&D for the first quarter, but a lot of the PSU and stock comp stuff would be mainly in G&A and selling, so SG&A, and then the increase in some of the bonuses is really spread across all SG&A and R&D as well.

And, Jim, you're right. Some of that is focused on the go-to-market. Right? So business development aspects of this, some more focused OEM sales as well as our service infrastructure. And these programs, as I mentioned, that we're doubling down on, these are programs that will really drive us into the future.

Got it. And then two quick ones, if I may. Sounds like you're anticipating growth in the medical business in 2025. Is that, are you seeing, Mark, some broadening out of the customer base? I know you've had concentration in this area of the business. And then the other follow-up just relates, I was struck by the increase you saw in Japan. And, Tim, maybe you can give a little color on that, whether that's sustainable. Thanks.

Yeah. Thanks, Jim. It was great to see you, Michelle. So following up on that, yes. We are expecting some uptick towards the end of the year because on the medical, we're launching a new product in our line of thulium lasers for lithotripsy. That's kidney stones. So that's where we're going to see the first part of the uptick, but we have a very significant roadmap that we're continuing to invest in that will drive further growth in 2026 and 2027. And the other piece of your question, yes. We have picked up another key OEM in urology, and that will also start to turn on this year and give us some updates.

Yeah. Japan, they had a good quarter. So overall, they actually had quite a reasonable year. Japan revenue can be a bit volatile from quarter to quarter and uneven just in the way that they run their businesses. So Q1 actually has got a reasonable guidance, not particularly strong. But they got a reasonable budget out there for the year. It's actually a good business because it's fairly diverse. Some of the feedback we've heard on an improvement in the cutting business comes from Japanese OEM customers and think there's a bit more of a positive turnaround in the Japanese economy as a whole.

Got it. Thank you.

Our next question comes from Keith Housum with Northcoast Research. Please proceed with your question.

Good morning, guys. I appreciate it. Hey, Ken. Just want to make sure I understood the manufacturing process for the high-powered lasers. Are you guys already implementing your cost-cutting measures there in terms of reducing cost sold for those, or is that still ongoing here?

You're talking about the low-cost, the new low-cost high-power lasers? Correct. Yep. So they are rolling them. There's a new cost high-power lasers when are they being rolled out, or are they fully reflected in the business model already? And yeah. So those are yeah. Thanks for the question. So we're just launching those. We've announced the we announced this actually at Photonics West this last couple weeks ago. Where we showed our high-power 40-kilowatt laser in a very small form factor. Again, this is all based upon our new high-powered diodes that then can give us higher power fiber lasers in a smaller form factor. And, yes, at a lower cost, and we're rolling those out in Q1 and Q2 of this year.

Gotcha. Appreciate it. And part of the question, that's tough to answer, but I've got to ask that question. Obviously, a lot of moving parts with tariffs going on these days. You know, you guys sell to OEMs around the world. How are you guys thinking about tariffs as we stand today?

So first of all, I mean, if and then the worst-case tariffs would probably have a 150 to 200 basis point impact if we did nothing. Right? Continued to source and supply lasers, but we actually have quite a lot of flexibility in what we can do. So we can move manufacturing from one location to another and supply customers in different regions from different areas. So that does provide us with a lot of flexibility in relation to potential tariffs. I mean, it's not possible to say it'll have no impact, but we think that the impact, at least from a can be managed and will be relatively small. I think it's more difficult to identify how much uncertainty this drives into the near-term environment from a demand perspective. In the longer term, I mean, in the US, for example, tariffs are designed to drive reshoring of manufacturing, and that would largely come from automation and using flexible, efficient tools like lasers, so there'd be a longer-term potential medium to longer-term benefit from that. But from a cost side, we've got a relatively manageable situation and some flexibility on what we can do.

Okay. Oh, appreciate that. And just last question for you here. You know, we continue to hear a question on volume versus price. And, obviously, I understand the different parts of the business had different impacts. But maybe you can perhaps provide a little color in terms of, you know, where you see the biggest pressure on volume versus price.

Yeah. I think the place to talk about that is really in cutting, as I mentioned earlier. So, again, just to review, the biggest issue in competition and volume and price has really been in China with cutting. That's now less than 5% of the business. You go outside of China, you know, our OEMs, you know, we have a very good position with those OEMs because they know the performance and the reliability and the support and service that we provide. Now they're starting to see some pressures from cutting systems coming from China into their marketplace, and that's where that's, you know, driving some of that. And from, you know, now bringing out the higher power, lower cost, lower dollars per watt, you can say, in a smaller form factor, now those customers will be in positions to win against the Chinese players using, you know, higher power systems, higher power lasers within their systems at similar cost. And or in some cases, you know, driving some lower cost within their system from the lasers. And we would expect that from a volume standpoint, today, you know, it's been the cutting market's been depressed for some time. We're starting to see some of that destocking subside. And so as industrial markets come back and the volumes and volumes come back, we should see those things start to normalize.

Great. Thank you, Mark.

One moment, please, while we poll for questions. Our next question comes from Michael Feniger with Bank of America. Please proceed with your question.

Great. Thanks, guys, for squeezing me in. Just can you remind us just on the auto side and eMobility, just how big of that is as a percent of the business right now, and what you're kind of seeing currently with that, is that is there any expectation that we could see some of that come back in the second half? Just curious kind of how you guys are looking at that side of the business.

Yeah. I mean, I'm giving it. An EV number on that this year. An EV is basically it's gone down over the years, so it's less than 20% of total revenue was above 20%. And then you have other automotive business. I think that's got that number in hand. Michael, but you add that to the EV with probably still in the range of 25 plus percent for total automotive sales. EV environment, I think, remains uncertain and unclear. I mean, capacity utilization is picking up. There are a number of projects that we know that are out there that we're very closely working with the end customers on. So it's the business is we expect you to stabilize and potentially improve a little bit this year, but no massive momentum behind it.

The only thing I would, you know, I would add to that just to just to remind you, we've got a very strong position in EV batteries even with the it being down because, again, we have the combination of our adjustable mode laser plus the what's called the LVD or laser diode laser depth dynamics that actually will measure the weld in situ and provide quality control plus some of this scanning and system. So we have a very big moat around that area. So as the EV comes back, we will get our fair share of that business. And the other thing just to point out on, you know, because EV is often equated to batteries, there are other areas of batteries that are continuing to grow. For example, stationary storage is becoming a big area that's grown 100% year-over-year and continues to grow. And there are other areas of electrification where we play in the batteries because of these unique capabilities that we bring in the laser and the process.

And, Mark, just to double click on that. Your the competition intensifying, it sounds like that's still more on that your customers are seeing. It's still cutting side. Is that correct? It's not showing up on welding or on the EV side?

That's right. The biggest issues in competition are in that cutting side. The other areas like welding, like EV welding, and some of the areas that talked about where we're investing in, these are areas where we have key differentiation. Remember, as a company, we have tremendous technologies in fibers and diodes and optics and scanning and, you know, a whole host. Plus, there's tremendous process and applications knowledge within the company. So you put those pieces together and then, you know, that really creates a moat. And so if you if we talk about that and even, you know, shift to where we're investing, we're investing for growth in areas where we have these key differentiations in medical, in micromachining, in some of these advanced areas where we can bring those pieces and really drive the growth and have, you know, real moats around the business.

Fair enough, Mark. And I think Tim addressed this, you know, in an earlier question, but I'm just curious with some of the tariffs, I mean, how much of the US revenue do you guys kind of import from Europe? I know you guys have the CapEx then you're set, you know, to invest in the capacity increase in Germany. I'm just curious with tariffs, do you have to think a little bit differently on, you know, you guys have moved a lot of your production footprint, obviously, out of Russia, and you guys have expanded in certain areas. I'm just curious if we are in a more tariff-driven world, you have to kind of think a little bit more about maybe your footprint. Is that more smaller or bigger changes to think about?

Yeah. Again, there's a lot of uncertainty on the tariff side. What I would tell you, and Tim mentioned this, we have a lot of flexibility in our manufacturing platform. We have a lot of capability in the US and in Europe, so there's, you know, there's the ability to, you know, to decide where we should build, and we have some of that flexibility. As we look at, you know, potential future tariffs and how that works. So, you know, I think we have a lot of capability to mitigate depending on what's happening.

Yeah. Mike, question we do not expect tariffs suddenly turn around. We don't expect a turnaround and say, we're going to have to increase CapEx by another $50 million. Right? We actually have a significant facility in the US that's just about to be completed. So that would enable us to ramp production in the US, if we don't want to import stuff from our German facility, that would in turn free up capacity in Germany to supply other countries around the world. Correct? And then when the German investments in fiber and the optical component manufacturing is completed this year, the replace Russia. That actually provides a lot of capacity within Germany as well. So the one thing I'm pretty I'll say it was about with some very good degree of certainty, we're not going to turn around and say, have to build another $50 million building somewhere because of tariffs. We really we expect free cash flow to improve significantly in 2026 once we're over this investment cycle.

Perfect. Thank you.

Our next question comes from Scott Graham with Seaport Research. Please proceed with your question.

Hi. Good morning. Thanks for taking my question. I wanted to explore cutting a little bit more. I know you ended the year with about 21% of sales from cutting in a week. Let's just say take out the China piece, call that 4 or 5%, you know, we're looking at, you know, in the upper teens, percent of sales basis. I know you're going to you're launching new products to help defend your market positions. But maybe help us understand what percentage of that sort of mid-teens cutting away from China is kind of under this competitive pressure you're talking about, and how much of that are you going to go out and try to really defend with new products?

So, again, from the from this side, it's the cutting percentage is a bit less than that again. Outside of China. And we will be defending that business with these new lasers. Again, new lasers provide a significant benefit in size, performance, and cost. So we believe that these will provide our OEMs a very good position to compete.

So just to clarify, Mark, just on that, the 15% that remains includes foil cutting, which in and not a specialized cutting. So haven't given this specific number on the flat sheet metal, but I think that it's less than the 15%. And that's where our customers are on a global basis, and we intend to defend that business vigorously over the coming year and beyond.

And, again, just realize too that, you know, we have very close relationships with these OEMs. We've been supporting them for years. And it's the lasers, it's the performance, it's the reliability, and it's also the support and infrastructure that we provide to service our customers and their customers. So that's a key piece of this. It's, you know, when it comes to these OEMs that are outside of China, it's a bigger piece than just, you know, than just power and dollars per watt.

Got it. Thank you for that. I appreciate it. The other question I wanted to ask, actually, I have one more after this, if you don't mind. But within the first quarter guide for adjusted EPS, could you tell us what your what the sort of add back is for amortization that you're, you know, you're changing your adjusted to an adjusted EPS. That's the first. So what is that going to be in cents per share and in full dollars so we can see the tax rate too?

Yeah. The amortization is about $2.3 million per quarter. And then on an EPS basis, it would be just over three cents on an EPS basis after tax. That's the only add back that we're incorporating in guidance on adjusted EPS. And then adjusted EBITDA, we said, includes the add back of stock comp as well as all of the depreciation and amortization.

Thank you for that. Last question. I don't know if you can answer it or if you will, but it kind of sounded a little bit more like, you know, setting the stage for 2026, 2027 sales growth was your comment. I mean, for 2025 or is it really just sort of hoping to get back to flat in the second half of the year at this point.

Oh, you know, we're not guiding for the full year. What I would tell you is that, you know, we've mentioned the fact that some of our new products are will be launching in, you know, towards the end of the year. So we know, I mentioned that we have a new medical product that will be coming out late in the year. Also mentioned that we have, you know, new customer coming online. There. And some of the other programs that I talked about where we're making these significant where we're making these investments in micromachining, in the medical, in these advanced markets. We'll start to see, you know, some early sales in that area. In those, you know, these are programs that we've, you know, we're engaged with customers, and we even have some purchase orders for some of the initial products that will start to come out. So, you know, combine that and then if we see some maybe maybe just pick up during the course of the year on the landing. On welding and some of the other cleaning. And then I mean, the tone we've heard from the cutting our end is a little bit more positive, but, obviously, we're going in there with lower cost lasers and defending their business. Pretty big or as we say.

Understood. Hey. Thank you.

Our next question comes from Mark Miller with The Benchmark Company. Please proceed with your question.

Besides your aforementioned lower cost high power lasers, what other measures are you taking to try to improve margins?

What other measures we take to improve margins? I think first of all, on, like, a talk about a little bit on the gross margin side, Mark, and talk about things like LDD where we're taking some cost out. But on the gross margin side, having got inventory much more under control, the impact of inventory provisions this year will decrease. We expect to see some benefit from the low-cost product as it's rolled out. We're definitely working on looking at how to improve operational efficiency even at these lower revenue levels to try and reduce further of the under absorption. We had a little bit of a benefit from that in Q4, but we're still under absorbed relative to an optimal level by about 600 basis points. So we need to sometimes preserve the investment in the manufacturing capacity. We've had a rebound in demand, for example, for a product that was running at very, very low levels last year, and that we dismantled that manufacturing, we would have been able to respond to the customer demand. But we certainly want to try and take out a few hundred basis points on under absorption this year. That would be the and then if the investments that's the product from the investment starts to gain some traction probably be a bit of mixed benefit on gross margin.

Mark, and I mean, exactly as you know, as I talked about, the investments that we're making are in areas where, you know, quite differentiated products where we can maintain and gain margin. So in each of these areas in medical and advanced and also in areas like micromachining where we're bringing out new products, the gross margins, the differentiation is very high. The moats are high, and we'll be able to expand higher margin with mix. And, you know, as Tim said, we're also continuing to work on gross margin benefits, you know, across the portfolio. We are working on also reducing costs on some other products. And as Tim said, we're working on operational efficiencies that will continue to help margins. So overall, we're working on a number of areas that over time will drive the margins up.

Your laser and non-laser system sales were down sequentially year-over-year. I'm just wondering what's going on there.

Non-laser and non-laser sales. Most of that is just timing of orders with customers, some of the larger automation systems. They've got a very strong pipeline of orders they're working on, but I think customers have been sitting on their hands even post the election, we didn't see a big pickup in orders. They've got still strong pipeline that they're working through on that. So we should see a pickup in that over the course of this year.

Thank you.

You've reached the end of the question and answer session. I'd now like to turn the call back over to Eugene Fedotoff for closing comments.

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

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