IPG Photonics Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Third Quarter Results: Third quarter revenue was at the top end of expectations, flat sequentially and up 11% year-over-year excluding divestitures. Strong demand in battery production boosted welding sales. Adjustable mode beam laser, weld monitoring and beam delivery solutions won orders with large battery and automotive manufacturers. General industrial demand was stable, cutting revenue flat. Shipped new generation high-power rack-integrated lasers to cutting OEM customers globally. Additive manufacturing applications demand strong. Cleaning continued to grow with cleanLASER acquisition. Received FDA clearance for next-generation thulium medical laser systems, expected to start shipments by end of fourth quarter. Financial results improved with higher gross margin, managed operating expenses, adjusted EBITDA and adjusted earnings per share at top end of expectations. Order activity healthy with book-to-bill of approximately 1.
• Long-Term Strategy: Over 17 months, transforming organization to team-led operating model. Strengthened executive leadership team. Core industrial applications like welding and cutting strengthened. Moving up value chain by integrating fiber lasers into differentiated subsystems. Making progress in non-industrial applications such as medical, micromachining and directed energy. In medical, thulium lasers for urology applications making progress. CROSSBOW directed energy solution showing interest from defense and commercial customers.

Segment Performance

• Material Processing: Revenue from materials processing increased 6% year-over-year, driven by higher sales in welding, additive manufacturing applications, cleaning and micromachining, partially offset by lower sales in marking and divestitures, while cutting revenue remained nearly flat. Emerging growth products performed well year-over-year but declined slightly sequentially, accounting for 52% of sales in the third quarter, down from 54% in the prior quarter.
• By Region: North America sales decreased 16% sequentially but were up 8% year-over-year; Europe sales increased 11% sequentially and 4% year-over-year (excluding $7 million divestitures); Asia sales increased 5% sequentially and 15% year-over-year, driven by higher welding sales in China, Japan and Korea.

Guidance

• Fourth Quarter 2025: Expect revenue of $230 million to $260 million, adjusted gross margin between 36% and 39% (including potential 140 basis points tariff impact). Operating expenses expected to remain between $90 million and $92 million. Anticipate adjusted earnings per diluted share in range of $0.05 to $0.35 with approximately 42.5 million diluted common shares outstanding. Adjusted EBITDA expected to be between $21 million and $38 million.

Risks

• Uncertainty in demand environment. Tariff impact continuing. Operating expenses investment leading to higher expenses than last year.

Question and Answer

Q: Ruben Roy asked about the outlook for Q4, including how to get to the lower or higher end of the guided range.

A: Mark Gitin responded that book-to-bill is about 1 globally, showing strength in regions like Asia, Europe and North America. Encouraged by early signs of industrial expansion, PMIs tracking higher. Benefiting from differentiation in technology, product quality, reliability, applications expertise and global support infrastructure. New product like rack-integrated platform out and qualified by most OEM customers. Seeing share gains in welding, additive manufacturing and cleaning.

Q: James Ricchiuti inquired about the CROSSBOW opportunity looking to 2026 and the new urology system.

A: Mark Gitin said CROSSBOW has good interest from military and civilian airspace, with leads being worked through. Expecting revenue in 2026 but taking time to qualify leads. New urology system launched in Q4, FDA cleared, with features like StoneSense and unique pulse modulation. First of a road map of new products in urology, expecting significant revenue growth in a $2 billion TAM.

Q: Scott Graham asked about tariffs and fourth quarter operating expenses.

A: Timothy P.V. Mammen explained tariff impact is net of countermeasures, taking time to see benefit from pricing changes. Operating expenses in fourth quarter not lower as investing in key programs like medical, urology, micromachining and CROSSBOW, and in organization with recruited top talent.

Q: Keith Housum asked about fourth quarter budget flushes and the new facility in Huntsville.

A: Timothy P.V. Mammen said seasonality in fourth quarter variable. Mark Gitin explained Huntsville facility is for manufacturing, customer testing, validation and being near cleared airspace for drone testing.

Q: Mark Miller asked about margins for defense-related opportunities and semiconductor business.

A: Mark Gitin said defense-related opportunities like CROSSBOW have margins above corporate margins. Excited about semiconductor business, working with key suppliers in metrology, inspection and lithography space, getting design wins recently.