Good morning, and welcome to IPG Photonics' second quarter 2026 conference call.

Today's call is being recorded and webcast.

At this time, I'd like to turn the call over to Eugene Fedotov, IPG's Senior Director and Investor Relations, for the introductions. Please go ahead with your conference.

Good morning, everyone. With me today is IPG Photonics' CEO, Dr. Mark Gidding, and Senior Vice President and CFO, Tim Lomit. On today's call, Mark will provide a summary of our second quarter results, as well as the overview of the 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 during 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 for the period ended December 31, 2025, 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, August 4, 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 of such measures to the most directly comparable gap 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. Good morning, everyone. Second quarter revenue was above the midpoint of our guidance, increasing double digits year over year and growing sequentially. Both industrial solutions and advanced solutions grew quarter over quarter, and adjusted gross margin and adjusted EPS came in above our expectations. Bookings also improved in the quarter, and book-to-bill remained above one. Growth in both revenue and bookings points to sustained demand for our products across our markets. Revenue growth was led by strength in industrial solutions, primarily in welding applications, as we continued to benefit from increased demand and business wins for our solutions in battery manufacturing. Cleaning and additive manufacturing also contributed to the year-over-year growth. Advanced solutions revenue improved sequentially, driven by strong growth in semiconductor applications as we were making progress with large semiconductor equipment manufacturers. We are also seeing strong interest in our directed energy defense system, Crossbow. Overall, in advanced solutions, we continue to execute on our long-term strategic initiatives and believe that we have numerous opportunities for growth. The growth we achieved in the second quarter also demonstrates that we are making progress on our two clearly defined strategic growth initiatives. The first is strengthening our leadership in industrial solutions by expanding laser adoption, displacing incumbent technologies, and further moving up the value chain with differentiated system and subsystems. Welding drove much of the industrial solutions growth in the quarter. Demand in battery manufacturing remains strong across both electric vehicles and stationary storage, which supports data center energy requirements. Following our strategy to further move up the value chain, I'm excited to report that our subsystems revenue increased significantly this year. Our unique combination of adjustable mode beam lasers, advanced beam delivery, and real-time process monitoring enables unmatched welding speed and quality. We are also making these subsystems easier to integrate and adding computer vision and artificial intelligence into the system. These advantages help drive recent wins with two major global automotive manufacturers. Additive manufacturing revenue remained strong in the quarter and grew significantly year over year. Demand is accelerating as our newest solutions enable the displacement of conventional metal machining. Winning here takes precise laser parameters, partnership with OEM customers, and deep applications. Our latest generation of lasers with proprietary beam shaping capabilities increases process speeds by approximately 1.5 to 2 times, translating directly into higher productivity and lower total cost per part. Our second strategic growth initiative is expanding our leadership in laser and photonics technologies in attractive markets and applications in advanced solutions, including medical, directed energy, micromachining, and semiconductor. We are leveraging core capabilities to target applications where precision, agility matter most, and are pursuing those opportunities both organically. Let me tell you about the progress we are making and the encouraging signs we are seeing. On July 16th, we entered into a binding offer to acquire LumiBird Medical, a global leader in diagnostic and treatment systems. We believe this acquisition will allow us to achieve four things. First, it accelerates IPG's strategic evolution by meaningfully expanding our advanced solutions revenue into attractive, higher-margin medical markets, strengthening the quality of our business, delivers on our commitment to improve profitability through the addition of a high-margin business. It creates escape combining our leading urology business. And fourth, it expands our long-term by combining complementary excited about this opportunity. In our medical business, bookings and backlog remain strong, and we expect shipments to increase in the second half of the year. Looking forward, we remain confident in long-term demand growth for our urology system. Also advancing our innovation roadmap with new product approvals and introductions expected. Our strongest performance within advanced solutions was in semiconductor applications as we continued to win new business with large semiconductor equipment manufacturers due to the differentiated value that we deliver. Our solutions for lithography, metrology, and inspection are gaining traction, increasing our exposure to this high-growth market driven by an acceleration of AI-related demand for GPUs and high-bandwidth memory chips. We continue to advance our product development by working closely with customers on design and opportunities supported by the clear performance advantages of lasers and photography. In our defense business, we began shipping Lockheed Martin's order for crossbow this quarter. We will be shipping more units in the third quarter and continuing to engage with potential customers working to convert their interest into orders. We recently participated in a defense event at White Sands Missile Range, demonstrating crossboat capabilities to multiple agencies in demanding real-world environments. The system continues to be broadly tested in various scenarios domestically and overseas, and has proven to perform reliably in harsh conditions. We remain optimistic about the current developments in the directed energy market and believe that our systems provide effective solutions with a favorable cost exchange ratio to address the increasing threats from Group 1 and Group 2 drones. Along with making progress on our strategic growth initiatives, we are also transforming into an organization positioned to maximize the growth and profit opportunities ahead through the one IPG operating model. We are streamlining operations, strengthening decision making, and accelerating product development, translating into better performance and greater consistency across the business. In summary, the global IPG team delivered another quarter of sequential and year-over-year growth as customer demand for our unique solutions has strengthened across our markets. Orders also grew, keeping our book-to-bill above one, and we reported significant increases in adjusted gross margin and adjusted EPS. We are making meaningful progress on our strategic objectives, positioning us to continue to deliver profitable growth and create sustained shareholder value. With that, I will now turn the call over to Tim.

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 revenue trends by application on slide five. Industrial solutions revenue increased 16% year over year in the second quarter, driven by growth in welding, marking, cleaning, and additive manufacturing. On a sequential basis, revenue is up 4%, primarily due to strength in welding and cleaning. Advanced solutions revenue decreased 9% compared with last year as growth in semiconductor applications was offset by lower revenue in micromachining and defense. However, advanced solutions revenue improved 10% quarter over quarter on growth in semiconductor and sequential improvement in micromachining applications. Sales of our emerging growth products continued to increase and accounted for 58% of our total revenue in the second quarter, up from 53% in the prior quarter. Strong growth in our lasers and solutions for battery manufacturing processes drove the increase. Moving to revenue performance by region on slide 6, North American revenue decreased 2% compared with last year due to lower revenue in cutting, defense, and medical applications. Sequentially, revenue was up 1% due to increased marking and defense sales. European sales were up 5% year-over-year and 1% sequentially, driven by increased sales in cleaning and additive manufacturing, partially offset by a decrease in cutting. Revenue in Asia increased 19% year-over-year and 8% sequentially, driven by strong growth in welding applications, which benefited from higher demand in battery manufacturing. Moving to the financial performance review on slide 7, total revenue was $279 million, up 11% year-over-year, marking our third consecutive quarter of double-digit year-over-year sales growth. Foreign currency benefited revenue by approximately 2% in this quarter compared to the same period in the prior year. gap gross margin was 40.4% and adjusted gross margin was 40.7% above the top end of our guidance range. We recorded a benefit from tariff refunds of approximately $4.7 million that had a positive impact on gross margin of approximately 170 basis points in the quarter. Lower inventory provisions and product cost continue to provide a positive benefit, while manufacturing cost absorption remains below the level we are targeting in the medium term. Total adjusted operating expenses were $91 million, excluding $17.6 million in impairment of long-lived assets related to the sale of our Belarusian operations and other one-time items. Adjusted operating expenses declined sequentially and came in slightly below our guidance range as we benefited from a German R&D tax credit of $1.8 million in the quarter. Overall, we expect operating expenses to modestly increase going forward due to our continued investments to drive growth. GAP operating income in the quarter was $5 million, and GAP net income was $5 million, or $0.12 per diluted share. Adjusted operating income was $24 million, and adjusted net income was $25 million, with adjusted earnings per diluted share of $0.58. Adjusted EBITDA was $49 million. Both adjusted EPS and adjusted EBITDA came in above the top end of our guidance range. Moving to a summary of our balance sheet and cash flow on slide eight, we ended the quarter with $871 million in cash, cash equivalents, and short-term investments. We had $33 million in long-term investments and no debt. Cash flow from operations was $38 million in the quarter, improving significantly from the first quarter. In the second quarter, we spent $21 million on capital expenditures, bringing year-to-date CapEx to $37 million. Our CapEx outlook remains $90 million to $100 million for this year, including investments in our major fiber manufacturing facility in Germany. Excluding the German investment, underlying CapEx is running at about 5% of revenue, and we expect to maintain this level going forward. Moving to our outlook on slide 9, borders remain strong, with book-to-bill staying above 1. For the third quarter of 2026, we expect revenue of $265 million to $295 million and adjusted gross margin between 37.5% and 40.5%, factoring in the ongoing impact from tariffs of about 150 basis points. We estimate adjusted operating expenses in the range of $92 million to $95 million in the third quarter, and we expect to deliver adjusted earnings per diluted share in the range of $0.30 to $0.60, with approximately 43 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $35 million and $51 million. In summary, we are pleased with our second quarter results, with growth in revenue and bookings, as well as improvements in gross margin and adjusted EPS. We believe that we are well positioned to continue improving our performance. We are seeing solid long-term demand trends across our markets and are gaining traction on initiatives to expand margins, even as we continue to invest in the growth opportunities ahead. I will now turn the call back over to Mark.

Thanks, Tim. we are pleased with the strong start in the first half of the year, driven by sustained industrial demand and the progress we are making with our key strategic initiatives. Our announced acquisition of LumiBird Medical accelerates our strategic evolution and significantly expands our advanced solutions portfolio into higher growth and higher margin medical applications. We continue to execute on our growth strategy, supported by operational excellence, and an innovation engine that unlocks significant areas of opportunity. As we continue along this path, I am increasingly confident in our ability to achieve above-market growth, expand margins, and deliver lasting value for our customers and shareholders. 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. One moment while we poll for questions. Our first question comes from Reuben Roy with Stiefel. Your line is now live.

Thank you. Good morning. Hi, Mark. I wanted to start with a question on just maybe longer-term, Mark, on the bookings. You've had three quarters in a row now where the book-to-bill is above one. The Q3 guidance is, again, sort of roughly flat at the midpoint of the revenue guide. So just wondering if you could talk a little bit about, you know, building of shippable backlog against the revenue guidance and how you're thinking maybe about, you know, the next couple of quarters against, again, you know, what seems to be a nice backdrop for bookings.

Sure. Hey, good to hear from you. And so, you know, just to step back for a second, of course, as you mentioned, we're seeing double digit growth year over year. And this is the third quarter in a row for that. Book to Bill, again, was was strong, was above one for the third quarter in a row. And we're really seeing encouraging signs across the business. You know, on the industrial side, you know, we've seen, you know, very positive progress with the differentiated solutions that we've we've talked about in battery and additive manufacturing. cleaning, et cetera. And, you know, if you look at the PMIs globally, they've been expansive and stable. And we're seeing, you know, quite positive momentum in our advanced solutions. You know, we've talked about the key areas of advanced solutions that are giving us confidence in the long-term opportunity for the business.

Okay. Thanks, Mark. Maybe for a follow-up to uh drilling a little bit on the battery uh commentary so um you've now cited you know both ev and uh battery storage as drivers and i'm also looking at the china numbers so china back to 34 and change percent of revenue um quite a bit of growth the last several quarters well into the double digits from china so maybe if you could just kind of talk about two different things so on on um you know welding and battery specifically you know sort of how you're thinking about that in terms of sustainability or durability of that demand? And then also relative to what's going on in China, are you gaining share in China? What's the pricing environment like, you know, for that market in China? And how do you think about China as a percentage of revenue longer term? I know a lot in there, but, you know, clearly something that seems to be going well. Thanks.

Oh, sounds good. Let me break it down. And let me start with, you know, the batteries. You know, Again, we're seeing continued winds in that area in the battery welding, but also for batteries, just to remind you that there are also some other key applications there in specialized foil cutting as well as cleaning. You know, we're seeing strong pull and bookings in that area. And the demand here is really driven for us by the high-capacity batteries, where we have strong differentiation. So in high-capacity batteries, you have higher currents. Higher currents mean thicker bus bars, also more critical contacts. And the drivers there are now kind of two key areas. Of course, there's the EV piece, which I'll come back to. But what's becoming a bigger piece of this now is actually a stationary storage, which is being driven by data centers for AI and also some grid stability for solar and other renewables. And then on the EFE side, which is still continuing to grow, the high capacity is what's needed for the longer range side. So continue to believe in the long-term growth prospects there for batteries. And if we now shift to China and what's happening in China, first of all, just want to remind that China is a significant industrial market globally. And the fact that we have differentiated solutions, you can see the differentiation by the key design wins that we're getting there. And I just want to note that we're winning not only against the local Chinese players, but also against other Western players, because, you know, the key differentiation that we have there, and we've, you know, we've mentioned this before, but, you know, on the battery side with the combination of our, you know, A and B lasers, our adjustable mode beam, plus the beam delivery, plus the really key. And I want to also point out that in China, we have strong capability there, and we win in additive, talked about also in the prepared remarks, where we have new lasers. We work very, very closely with that sector. We've developed new lasers with special – improved the throughput of those. In some cases, one, really helping cost per parts reduced, and that's allowed the additive to grow from both in the areas, of course, aerospace and defense, where you had, you know, very high cost. Cost of part wasn't critical. It was just the importance of making those parts. To now, with the cost per part dropping, with some of the things that we're helping to drive, you're seeing medical devices and even into some – And in terms of, you know, pricing environment, you know, the areas where we have, you know, we have strong differentiation in these areas. So that gives us, you know, pricing power in those markets.

That's a lot of detail, Mark. I don't want to hog this up, but maybe just one quick one for Tim on the lower product cost that you just talked about. You know, if you can remind us, Tim, where you are on the structural cost out and how you're thinking about utilization leverage, you know, and the gross margins from here. That's all I have.

Sure. So, yeah, we've talked about this. We've got a number of different ways that we're driving improvements in gross margin. The first is that we're taking cost out of product by moving to higher power optical components, the most obvious of which is the diodes, right? The higher power of the diode. You have the fewer diodes you need, the smaller the form factor of the lasers. We're still at a relatively early stage of rolling the new generation of diodes out across the product platform. So we have further improvements to gain from that. The other side of that equation actually is where we've got the differentiation is optimizing pricing. And that's another initiative that's been driven by the sales team. And then you come down as you drop through the manufacturing and operations area. We are trying to drive meaningful improvements in absorption. We're still behind where we want to be on that. But we've got several initiatives that the team is working on across different areas that would drive manufacturing efficiency and, again, improve the cost of product and utilization. And with those initiatives gaining momentum over the second half of the year and into 2027, we're continuing to target improvements in gross margin and coupling that with an increasing scale of the business, which should help that.

Perfect. Thank you, Jens.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. Our next question comes from Jim Rusciutti with Needham & Company. Your line is now live.

Thank you. Good morning. Apologies if you touched on this. I may have missed it, but I was hoping to get a little bit more color on the decline in North America. And I think you alluded to a little softer medical business in the quarter. So I'm just wondering what you're seeing in North America and what your expectations are for the medical business going forward, apart obviously from the acquisition.

Yes. So absolutely. Good to hear from you. So, you know, specifically, I think you were asking about the medical demand. And we have very strong demand and backlog in medical, and we're confident that we're going to have another good year. We're continuing to advance in the innovation roadmap there with new product approvals and introductions that are planned in 2026 and 2027. And I've talked about those. Of course, Jim, we talked about the fact that we launched a key new product at the end of last year. we picked up a new key customer, the fact that we have both systems as well as the disposable fibers. So those are all moving strongly. And as I've talked about in the past, we expect to more than double the business over the next two to three years. So we have a lot of confidence in the medical business. And of course, we're also excited about combining that with Lumenberg medical.

So potential improvement in medical in the back half of the year, Mark, how do you think about the rest of the business in North America? What's the tone of demand that you're seeing out there?

Yeah, so, you know, again, in the area of revenue, we've been overall strong, even though we were slightly down there in North America, though. But our total bookings is strong, book-to-bill strong for the third quarter in a row overall. So, you know, continued strength. And I'll just point out, just to put it in context, that we're seeing also continued strength. As I talk about bookings in Asia, especially Japan and China, we're seeing some improvement in Europe. And we are, you know, absolutely seeing strengthening in medical as well.

And one final question. Just you sound more positive on PROSFO. And I know it's early days. But as you look at that opportunity in 2027, have your expectations changed at all?

You know, what I'd say, Jim, is we're very excited about that program. And, you know, for context, again, we're still seeing, you know, daily headlines for drone threats. You know, we think this is a really big opportunity. Of course, it's still emerging, but we're excited about it, both for military and civilian, as we've talked about before. And, you know, we have a really unique position because in order for this area to be, you know, strong, we need to be able to to address the threats you know in a sustainably affordable approach and you know that's why crossbow is so so strong because we have this very compelling cost exchange ratio you know we're leveraging the ipg you know our commercial scale the vertical integration the quality cost and volume we've talked about and we're seeing quite positive you know momentum Obviously, we've started shipping, you know, as we said, the production from Lockheed. So, you know, that's great. And we're also seeing the systems now being operated in very harsh conditions in the U.S. and multiple countries overseas. And I mentioned also in the prepared remarks that we've had successful tests at the White Sands Missile Range recently with multiple agencies. That's quite exciting. And there were a number of tests done. Just to give you a little bit more color there, there were multiple crossbow systems under test at the same time, really showcasing some cooperative engagement tactics with the units. They were validated over really extreme environmental conditions for really a multi-week deployment that had monsoonal rain, extreme heat. They had sandstorm testing, really validating Crossbow's environmental ratings, and even some testing of interoperability on government systems. So, again, a lot of good things happening there. We're really excited about the future of Crossbow, both in the, you know, defense and military area, but also we, you know, we have this view of the strength for civilian infrastructure, which is also a significant problem. You know, all of this addressing the drone problem.

Good color. And one final question maybe for Tim. Tim, were the bookings, was that book that bill fairly consistent across your major regions? Any real variability in that? Yeah.

No, not a lot. I think it generally reflects on the industrial side, the strengthening PMI data, which continues to be expansionary and pretty good. So we had good bookings in Asia, Japan and China in particular. We had good bookings in North America. And Europe was also pretty good, although I'd say Europe is probably the area where we continue to see some impact from the higher oil prices and the geopolitical environment, probably a bit more than elsewhere. But, yeah, in general, they were pretty good. Mark mentioned the medical bookings were strong. They'll continue to make progress in some of the other advanced applications, such as semiconductor and micromachine. They're still a small part of the business, but we're certainly getting a good beachhead across those areas too.

Thank you.

Our next question comes from Scott Graham with Seaport Research. Your line is now live.

Good morning. Thanks for taking the question. You know, with the additive manufacturing being up significantly, I think, Mark, you cited, you know, beam control and one and a half to two times efficiency. You know, I know you're trying to do this across your businesses, and I thought maybe you only cited it for additive. Could you kind of talk about what you're doing in your other businesses and your other markets to get customers to upgrade their lasers and maybe change out their machinery? Sure.

Thanks very much for the question, Scott. Maybe the way to talk about this is just like an additive, what's really unique about IPG is not only the strength in the lasers and photonics, but the really deep understanding of the applications. So as I pointed out in additive, you know, partnering with the OEM customers, really understanding the needs there allowed us to develop these specialized mode structures that plugged into their systems, made their systems have throughputs that were significantly higher. And I mentioned when I talked earlier, that's allowed the cost per part to drop and actually allowed the expansion of those systems into broader markets. So if I take that in areas like semiconductor that I've talked about, again, we have this deep technology broadly in lasers and photonics and the applications understanding. And in semiconductor, you know, it's a great example, the semiconductor CAPEX areas where they're really pushing the limits in lithography, metrology, and inspection, we have core technologies that help them on the cutting edge. And so by working with them on their roadmaps and developing, you know, specialized solutions for our lasers, then we're able to, you know, become part of those roadmaps, get designed in. And that's why we're starting to see the benefits there. And we do that in a variety of markets. And in fact, just to give you a little bit more color, because I talked about the subsystems applications understanding to be able to design not only the lasers for the specific application, but also the surrounding beam delivery scanning capabilities and the actual application piece so that we can provide a full solution where it's needed. So we can provide the lasers where it's needed. We can provide a combination with specific other photonic components and even provide a full solution as a subsystem or a system. And we're able to do that in multiple markets.

Right. That's helpful. More clear. Thank you. The pricing, I know you implemented some price increases this year. just kind of wanted to know how they're sticking. Are they intended to cover inflation in full or just partially or maybe mostly offset it?

Yeah, so let me just speak, you know, generally about pricing. You know, that's an area, again, the strong differentiation that we have can provide, you know, much higher value for customer, where we can therefore take that in price. Of course, it depends on the particular area. We're able to, you know, do that again, where we add the most value, where we have the most differentiation. And we're doing that to, you know, to obviously be able to offset in some of those areas, but also to command the value that we deserve in the marketplace.

So, just is the goal there to fully offset, or is it just going to be a partial offset of inflation in these selected areas?

I think you try to offset like inflationary pressures, whether they be on material input costs or labor, but you've also got to stay ahead of the curve there, Scott, on bringing the cost of the product down as well, right? So making, as I mentioned, increasing the power that you can get out of different optical components, that changes the form factor of the product itself. It reduces your material input. So it's part of the strategy to offset that, but as with anything that we've done historically, taking cost out of product is the other arrow in the quiver, if you like, and then driving the improvements in manufacturing efficiency to see an overall improvement in gross margin and drop through to profitability.

Very good. Thank you both.

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 Keith Housam with North Coast Research. Your line is live.

Mark, just trying to understand a little bit more of the adjustable beam part of the business. I understand that's a driver of some of the growth here, especially over in China and the welding area. How big is the adjustable beam business for you guys? And is that growing faster than the overall business for you?

Yeah. So, again, to talk about the, you know, that area of adjustable mode beam, that's important for a number of welding applications. One of those is certainly the battery. So, as we talk about the battery demand and the continued winds and strong, you know, pull and bookings that we're seeing there, that is strongly the, sorry, the adjustable mode beam lasers are a key piece of that. And remember that that has high differentiation, and I'm just going to remind you why, that in those applications, it's critical to have that adjustable mode beam, and especially the fact that we've developed very high power single mode in that beam, and that's what's helping to drive that area of battery, but also broader welding. It gives you, you know, some significant advantages in that area. So one of the key drivers is absolutely the batteries. And, you know, as I mentioned before, the batteries are being driven by stationary storage as well as, you know, other renewables. So stationary storage for data centers, also for other renewables, and the longer-range EVs. So, again, that area of battery. but there are other welding applications. That has been a significant driver, and it's also something that you can see in the emerging growth products, as you saw the growth in that area, and that we're at a maximal point in that at 58% of revenue. That's one of the key areas that's driving that.

Okay. Appreciate that. And in terms of medical, your hope to double or triple that, or double that business in two to three years, Remind me how big medical is for you guys. Is that in the 7% to 8% range right now for you?

Yes, that's correct.

Okay, great.

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 several investor events this quarter and are looking forward to speaking with you again soon. Have a nice day, everyone.

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