Good morning, and welcome to IPG Photonics Fourth Quarter 2025 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 Fedotoff, IPG's 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 Gitin; and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary of our fourth quarter and full year results as well as the overall demand environment and then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details. Let me remind you that statements made on this call that discuss our 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 our Form 10-K with the period ended December 31, 2024 and our reports on file with the Securities and Exchange Commission. Any forward-looking statements made on this call are the company's expectations or predictions as of today, February 12, 2026, only. And the company assumes no obligation to publicly release any updates or revisions to any such statements. During this call, we will be referencing certain non-GAAP measures. For more information on how we define these non-GAAP measures and the reconciliation to the most directly comparable GAAP measures as well as 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.

Thanks, Eugene, and good morning, everybody. Fourth quarter revenue came in above our expectations, increasing 17% year-over-year and 9% sequentially. Revenue growth was driven by further stabilization in industrial demand, new opportunities and a disciplined focus on our growth initiatives. This focus led to strong results in medical and advanced applications this quarter. Materials processing revenue was up 6% sequentially and 17% year-over-year driven by stable general industrial demand and increased demand in battery and additive manufacturing applications. Sequentially, welding revenue was stable while demand for cutting applications increased. Cleaning was another strong performer, and we're starting to see increased revenue synergies with the cleanLASER acquisition. Medical sales had a solid finish to 2025, increasing sequentially and year-over-year as new products gain traction. And we also saw strong sequential and year-over-year growth in semiconductor applications, which drove high revenue in advanced applications. Turning to full year results. Revenue grew 3%, our first full year revenue growth since 2021. Materials processing sales were flat with lower cutting sales being fully offset by growth in other materials processing applications, including cleaning and additive manufacturer. Our welding revenue was flat as lower demand in the general industrial and traditional automotive markets was offset by higher demand in battery manufacturing. In particular, we saw a strong increase in sales of our welding products in Asia as battery investments rebounded in China. Demand is shifting from electric vehicles to stationary storage, which is a positive shift for IPG as stationary storage batteries often require more sophisticated welding processes. In addition, we're beginning to see increased demand for our solutions and process expertise in battery manufacturing for consumer and medical devices. In 2025, we made meaningful progress expanding our business beyond materials processing applications. The portion of our business outside of materials processing accounted for approximately…

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'll start with revenue trends by application on Slide 4. Revenue from materials processing increased 17% year-over-year in the quarter driven by higher sales in welding, marking, cleaning and additive manufacturing applications, partially offset by lower sales in micromachining, which is impacted by the timing of customer orders. Cutting revenue was slightly lower year-over-year but improved sequentially and was generally in line with the stable revenue we've seen over the last 4 quarters. Revenue from applications other than materials processing increased by 15% driven by higher sales in medical and advanced applications. Sales of our emerging growth products increased sequentially and year-over-year and accounted for 54% of total sales on higher revenue in the quarter, up from 52% in the prior quarter and matching our record high achieved in the second quarter. Moving to the revenue performance by region on Slide 5. Sales in North America increased by 21% sequentially and 23% year-over-year driven by higher revenue in cutting, cleaning, medical and advanced applications. Sales in Europe increased 8% sequentially and 7% year-over-year driven by higher revenue in additive manufacturing as well as cleaning, which saw strong growth resulting from the acquisition of cleanLASER. This growth was partially offset by decreased sales in cutting and welding applications. Revenue in Asia continued to improve and increased 5% sequentially and 19% year-over-year driven by higher welding sales in China due to strong demand and new business in battery applications. Revenue in Japan was relatively stable year-over-year but improved sequentially. Moving to the financial performance review on Slide 6. Revenue was above our expectations at $274 million, up 9% sequentially and 17% on a year-over-year basis. Foreign currency increased…

Thanks, Tim. In closing, we are pleased with the progress we made in 2025 and encouraged by the early results of our strategic initiatives as well as the scale of the longer-term opportunity ahead. We remain confident in our ability to generate robust revenue growth with our differentiated solutions, which have continued to drive demand even in a subdued industrial environment. As general industrial activity recovers, this puts us in a good position to outgrow the market. Our market leadership, deep applications expertise and ability to deliver complete solutions enable us to accelerate laser adoption, supplant incumbent technologies and expand our addressable market. Growth initiatives in medical, micromachining and defense are already showing meaningful progress and driving incremental revenue. While we are cautiously optimistic about the demand environment in 2026, we are continuing to transform the company to create long-term value for our customers and shareholders. With that, we will be happy to take your questions.

[Operator Instructions] Our first question comes from Ruben Roy with Stifel.

Mark, nice to see, by the way, the return to growth on a full year basis. So great to see the hard work paying off here. Mark, thanks for the overview on the strategic update and your kind of comments just now on sort of how to think about longer term, how you're thinking about the strategy. I guess first question, since we're entering a new fiscal year and I'm looking at some of the segment detail, if we look at cutting, for instance, we're down below 20% of revenue now. And I'm wondering, when you look at some of these sort of core markets relative to your areas of investment, how are you thinking about where cutting is? Do you think that we're stable at the current level? Or do you think there could be some further downside there that might offset some of the new growth businesses? And I guess the point of the question longer term is if we could start to think about targets for growth for the areas that you're investing in from a, I don't know, 2, 3-year perspective, sort of how you're thinking about the TAM opportunity and longer-term growth.

Ruben, so let me start with your questions about cutting. So first of all, if you look at our revenue now for the last several quarters, cutting has been quite stable. Actually, it's been pointing up in the last quarter. We have core OEMs, and those core OEMs, their inventories have now stabilized and they see the benefit that we bring not only in the laser. Remember that we brought out our rack-integrated platform last year, higher power, smaller form factor, lower cost. That's really helped in that market as well. So we've seen that piece stabilize, and then that's allowed us to also see growth in the other parts of the industrial market. And so that's still pointing up for us. The industrial, we're continuing to invest in those core markets, cutting as well as if you look at areas like additive manufacturing, welding. Those are core markets for us as well that are growing. And then you asked about the other areas that we're making investments. We've talked about core investments in medical and micromachining, areas like directed energy. Those are addressing a new TAM for us that's several billion dollars. And what we've said to date is that we expect to see growth in that area of hundreds of millions of dollars over the next several years.

Yes. That's helpful. And I guess if I could just follow up on that point, Mark. Given the directed energy investment in the facility in Huntsville, has anything changed in terms of -- I mean, you've gotten acceptance, and it's great to see the system solution, CROSSBOW, out there. How would you assess that opportunity from here? Are you getting more interest now that you're out in the marketplace? It sounds like you would be given the investment in Huntsville. But any update on sort of how you're thinking about that market, if that's changed, your view on that market over the last few months?

Absolutely. So thanks very much, Ruben. So let me just review for a moment that CROSSBOW is a product for us. It's a full system with all the pieces that can stand on its own for both military and civilian type applications. You've seen the recent issues at airports especially. The system itself, again, we've been targeting the group 1 and group 2, the smaller class drones. We brought the product out in the fall. So this was released first at the DSEI show in London and then followed on at the USAA show in Washington, D.C. And actually, we had a show, the Singapore Airshow, just about a week or so ago. We've had very, very good customer interest in that area because of the key differentiation that we bring. Again, this is based upon our single-mode high-power lasers that we make in volume for industrial applications, along with the surrounding photonics components that we make in volume and systems. So we can really do this at scale. So this offers the customer really a disruptive cost, volume, quality. And it's a commercial product with a part number. So this is getting very good interest, and we have a great customer list now. And we're working to convert that interest into orders.

That's great, Mark. A quick follow-up for Tim then to finish off here. Tim, on the margin commentary, and I get the leverage and excited about the leverage. But you've got the tariff impact. It sounds like that's going to persist through the year. Is there a way to think about sort of revenue levels that would be required to absorb the fixed costs to get back to the sort of longer-term targets on the margin side, so let's say, lower end of that target, 45%?

Yes. I think on the Q4 results, right, we called out that the underabsorption really impacted gross margin by 150 basis points. So if you take the 37.5% that we reported, you add that back, the 150 to 200 basis points, you're actually close to 40% at that point on $270-odd million of revenue. That's with a 200% tariff headwind overall. Our guidance estimates that the tariff headwind will be more moderate in Q1 at about 150 basis points, so more in line with what we had in Q2 or Q3. And so revenue improving beyond this level should continue to drive improvement in that absorption and get gross margins above the 40% level. It's clearly a target that we've got out there and want to do that. We're also looking at how to optimize operations even at more moderate revenue levels, right? There's a little bit of a task that, that takes, but we want to really drive some more operating efficiency even below $300 million during the course of this year. And I hope to be able to report progress on that. I think the other benefits that are still not coming through fully are that we've got product cost reductions still ongoing. So Mark mentioned the RI, the rack unit for the cutting market. But we're going to start rolling out the higher-power diodes across a much broader suite of the product line, and that should help with the cost reduction initiatives on the products and drive improved product gross margin. There are other cost reduction initiatives as well around the bond that we're working on, too. And then you've got some pricing initiatives too, where you're trying to offset some of the tariff impacts. So overall, I think we're making good progress even though gross margin was a little bit light for the revenue level we reported in Q4. But we're pretty confident about the direction that we can take at the moment on this.

Our next question comes from James Ricchiuti with Needham & Company.

So just given the early traction with CROSSBOW, I'm wondering, any plans to step-up investment in directed energy applications and particularly with the facility that you have now or possibly extend the CROSSBOW product offering?

Jim, thanks for the question. So what I can tell you is that what we've launched to date is what we call the CROSSBOW MINI. So that's a 3-kilowatt based system for kind of the shorter range. Again, this is for group 1 and group 2 drones. We do have a road map that will increase the power level of that. We've talked about a 6 to 8-kilowatt kind of product also on our road map. We're not heading towards the megawatt-type systems. We're not doing government contracting. This is really about a commercial product that we can deliver in volume really targeting the smaller class drones. We're excited about it.

Got it. And Mark, maybe sticking with the new product focus. What are your expectations around the new medical product in 2026?

Yes. No, thanks for that question. So just to review medical, we've developed a new road map for that. It's one of the key areas that we're investing in. We talked about the product that we got FDA clearance on in Q3 and then launched in Q4. So this was a new product in urology that has what we call StoneSense as part of it. So it can tell the difference between stone and soft tissue. That was the first of the road map. And I just want to remind you also that we also in the last year, we picked up a new major customer. So that combination, we expect to give us growth into 2026. And I'll say also that in 2026, we'll be launching additional products in that road map, and that road map continues on for the next couple of years. And what we said is that over the next years that we expect the business to double or triple.

And just one quick final question for me. You sound like you're encouraged by what you're seeing with cleanLASER. I'm just wondering if there's maybe a greater appetite on pursuing other inorganic opportunities just given the strength of the balance sheet. And if so, maybe what areas might be of interest?

Yes. No, happy to talk about that, Jim. So first, let me just talk about it in terms of capital allocation. So as I look at capital allocation, first and foremost for us is investing in our organic growth as we have a fantastic set of road maps and technologies that we're pursuing there. And next, in the M&A standpoint, it's really around tuck-in acquisitions. And cleanLASER was a great example where we can augment adjacent markets and get to some areas faster. And cleanLASER, just to dig into that for a moment. That's gone really well for the company and it's integrated very well and we have very good, combined road maps going forward. And it did better than our targets initially. So again, just to say, the areas that we're looking at, and we are actively looking at M&A opportunities again in the tuck-in size. We've talked about it as being in the kind of revenue range of $50 million to $200 million in revenue, and again, areas that can really allow us to accelerate in some of the markets we're going after, technologies, those areas, so really that kind of tuck-in type.

Got it. And congratulations on the quarter.

Thanks.

[Operator Instructions] Our next question comes from Scott Graham with Seaport Research Partners.

Congratulations on the quarter and outlook. I wanted to maybe understand welding, the improvement in welding sales a little bit more. You mentioned battery. And I'm just wondering, is that all storage? Or is there some EV in there as well? And then what other drivers did welding benefit from this quarter?

Yes. Thanks very much, Scott. So yes, welding has been an important area for us and batteries, as you pointed out. So drivers for that area, EV is one of them. And just from a driver standpoint, electric vehicles have seen 20% year-over-year growth. And also then stationary storage, as you mentioned, is an accelerating area as well. That's seen growth of about 50% year-over-year. So those are the base drivers. We have very differentiated technology that applies to the whole area of batteries. We have specialized lasers plus the monitoring of the beam and actually the weld monitoring that's in situ combined with beam delivery in the process. So it's a very important piece to that battery area. And it's important both the higher end of EV and stationary storage. It especially becomes important as you have higher currents and thicker bus bars. Our technology is even more important there. And I should say battery for us goes beyond those as well. We also have important areas in consumer batteries as well as specialized areas like medical batteries. And it encompasses the areas that I told you, including areas like foil cutting and specialized welding, cleaning. All of those are key areas for us that apply to the battery processing.

Great. And then the other question was simply around Huntsville. Could you kind of tell us a little bit more about that? Will it only be for directed energy? Or is there an opportunity to add some other product manufacturing there?

Yes. Thanks, Scott. So just to point out, it's a small site in Huntsville. Huntsville is a very important area for a couple of reasons, one, because of the personnel available in that area. But also it's an area that has cleared airspace so we can do the testing there. So that's an important piece of that. First and foremost, it's around the R&D and small-scale production for the directed energy. But it also gives us a footprint in that region to apply some of our industrial technologies to that growing region as well. Huntsville area is a growing area for industrial for some of the military and defense arena.

Our next question comes from Rodney McFall with Northcoast Research.

I'm on today for Keith Housum. I was just wondering if you can maybe provide some updates on the competitive environment, especially in Asia. I'm wondering if you're seeing any pricing pressures start to seep out of cutting and into more advanced applications.

Yes. Thanks for the question. So in Asia, really in China, cutting is a very small part of our business. It's in a couple percent kind of range. The biggest areas that we're operating in that area are areas where we're highly differentiated. So we've talked about the battery area, additive manufacturing, some of the micromachining areas. So those are areas where we have key differentiation, and so our pricing is able to hold up in those areas.

Understood. And then just a quick follow-up to Scott's question. As you're seeing a shift from EVs to stationary storage, is that margin accretive? I mean, do you guys see like higher volumes of those devices just because these storage devices are larger? Just any color you could provide there would be great.

Yes. So the way I would look at it is so we're applying our technology across that area. So the battery factories are making batteries for EV and for stationary storage. The stationary storage ones tend to be on the higher end because capacities are higher, currents are higher, but they're similar to the higher end of EV. So our technologies apply to really across that area. And again, it's that differentiation that we provide with the combination of the very specific laser beam type, plus the monitoring of the weld, actually being able to see in situ if the weld is good or not, combined with the beam delivery and the process as well. That provides something that's highly differentiated. And it's important because it means that they can see quality control. They can tell whether the batteries -- whether you're overpenetrated or underpenetrated in the welds, and that has to do with quality and reliability as well as safety. So all of those pieces point to how we have a key place in that area. And as you mentioned, that higher end, it's even more important because the higher currents have thicker bus bars in the batteries, and that's true in the stationary storage as well as the higher end of EV. And that's an even bigger driver towards our solutions.

Our next question comes from James Ricchiuti with Needham & Company.

Tim, I was wondering if you can give us any additional color on the bookings that you saw by region. Any variability? It sounds like the overall order activity was pretty healthy.

Yes. It was pretty broad-based. I mean, having come in with that kind of a number, you'd expect it to be. North America was very good on the back of medical and systems orders. So it's really good to see that pick up on the systems side. Europe actually performed a bit better. I'd say it's still a little bit of a weaker region, but we actually had a very good set of orders there. There was also some good systems orders particularly on the cleaning division with cleanLASER. There was actually a big order that came in from a major customer that we may not have won had cleanLASER not been part of IPG. So that was a very important part of the whole -- some the synergies that are being realized out of that acquisition. And then Asia was strong, both Japan, China. Korea had a good quarter. So I think it was pretty broad-based, Jim. I'd say Europe, it's starting to show some improvement, but it's a little bit weaker than some of the other areas still. I think that's reflected even in the PMI data where it's improved but still a little bit behind North America, China and Japan.

Got it. And Mark, you mentioned -- or at least in the presentation, you highlighted strong demand related to semiconductor. Remind us of your exposure there, how you're thinking about the growth there in 2026 just given the investment that we're hearing about across the semiconductor sector.

Yes. Thanks, Jim. So the places that we play there, it's really in the lithography, metrology and inspection part of the segment there. And we have new products that we've been developing that are now aligning well with road maps in those areas. And we've really focused on improving not only performance but quality in that area, and that's really helped with our engagements there. It's a relatively small area for us today, but it's an area where we have very good engagements. And really, it shows the differentiation that we have in these core technologies across the company that allow us to insert in those road maps. Because as you know, those road maps, you need the combination of very, very good and high-performance technology at the front edge, but you also have to have the quality and the ability to produce these things in volume and every unit has to be the same. So it's a very good mark for us to see that growing.

[Operator Instructions] Our next question comes from Scott Graham with Seaport Research Partners.

I was wondering, you talk freely about micromachining and additive manufacturing. Can you just maybe remind us what is in those areas, the applications or the end markets or both to just provide a little more clarity there?

Sure. Let me start with additive, Scott. So additive manufacturing, just to remind you, that's centering of powdered metal. So the laser actually creates -- where a printer would create a dot or a pixel, here you create what's called a voxel. So it's a volume element that's created. And then you build up the part. And so that's important for a number of reasons. You can actually produce things that can't be machined with traditional methods. So that's important. And some of the materials are also important. And I have to say that this is an area where we're highly differentiated. We have a key piece of that market because the lasers have to be single-mode, they have to have very high performance, and they have to have low noise and they have to have very high reliability. And these are all pieces that are important there. And we work together with these companies on their road maps and we have key next-generation products that also allow them to go significantly faster. And so from a market side, these are actually covering now -- it's an area that's been growing. And it's covering areas that go from aerospace all the way to consumer type devices, where they're able to make parts, again, that would be very difficult to machine. And they're making parts in a wide range of materials from titanium to things like copper. So our lasers play across each of those. And again, the market drivers are relatively broad. And we've seen that area growing and we've had good growth in that area throughout 2025. And again, indicators are good now. And then you asked about micromachining. When we talk about micromachining, that's really talking about very precision cutting, drilling, material removal. That plays a lot into areas like microelectronics where being able to make small changes in the materials are important in displays and things like multilayer circuits, being able to interconnect from layer to layer. These are areas that are important, areas like solar cells where you need to make interconnection from layer to layer or machine away small windows that improve the performance of the cells. So think about very small on the micron level holes or ablation, material removal, cutting, very micro welding. Those are all areas that we would classify in the range of micromachining.

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Eugene Fedotoff for closing comments.

Thank you for joining us this morning and your continued interest in IPG. We will be participating in several investor events this quarter and are 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, and we thank you for your participation.