IPG Photonics Corporation Q4 FY2025 earnings call

• Revenue in Q4 was above expectations, up 17% year over year and 9% sequentially, driven by stabilization in industrial demand, new opportunities, and focus on growth initiatives. • Medical sales grew 21% in 2025 to a new record, with a new customer win and FDA clearance for a next-generation urology system. • Directed energy saw progress with the rollout of the Crossbow laser defense system and establishment of IPG Defense, including a new office in Huntsville, Alabama. • Clean Laser acquisition provided revenue synergies and environmentally friendly solutions, with integration exceeding expectations. • Received a Prism Award for the 8-kilowatt single-mode laser and demonstrated a compact 148-nanometer vacuum ultraviolet BUV laser source, opening new opportunities in advanced applications. • Progress made in streamlining operations, strengthening decision-making, and accelerating product development towards a team-led operating model.

Materials processing revenue in Q4 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 was stable while cutting applications saw increased demand. Cleaning showed strong revenue synergies from the Clean Laser acquisition. Medical sales had a solid finish in 2025, increasing sequentially and year over year with new products gaining traction. Semiconductor applications drove growth in advanced applications. Full-year revenue grew 3%, with materials processing sales flat (lower cutting offset by growth in cleaning and additive manufacturing). Welding revenue was flat, with lower demand in general and traditional automotive markets offset by higher demand in battery manufacturing, especially in Asia. The portion of the business outside of materials processing accounted for approximately 14% of total revenue in 2025, with micromachining, medical, and advanced applications increasing by double digits.

• Q1 2026 revenue expected to be $235 million to $265 million with seasonality. • Adjusted gross margin expected between 37% and 39%, including a potential 150 basis point tariff impact. • Operating expenses estimated $90 million to $92 million in Q1, with moderate increase during the year. • Adjusted EPS expected $0.10 to $0.40 with ~42.5 million diluted shares outstanding. • Adjusted EBITDA expected $25 million to $40 million. • Tariff impact likely to persist in 2026 or be slightly moderated.

• Tariff impact remaining a headwind, reducing gross margin and potentially persisting in 2026. • Macroeconomic uncertainty that could affect actual results differing from forward-looking statements. • Operational challenges related to fully absorbing fixed costs and optimizing operations to achieve margin targets.

Q: Regarding cutting revenue being below 20% of revenue, how is cutting positioned relative to new growth businesses and longer-term growth targets?

A: Cutting has stabilized with core OEMs' inventories, and the RI integrated platform has helped. Cutting is a core market continuing to grow, with investments in other industrial markets like additive manufacturing and welding also driving growth. Longer-term, investments in medical, micromachining, and directed energy target several billion dollars of TAM with hundreds of millions of dollars in growth expected over several years.

Q: How is the directed energy opportunity progressing, especially with the facility in Huntsville?

A: The Crossbow laser defense system for group one and group two drones has received strong customer interest. The Huntsville facility is for R&D and small-scale production of directed energy, and also provides a footprint to apply industrial technologies to the growing region. The product has been showcased at various shows and has good customer lists with efforts to convert interest into orders.

Q: On margin commentary, how to achieve gross margin targets?

A: Under-absorption impacted Q4 gross margin by 150 basis points. Revenue improvement beyond current levels should drive absorption and increase gross margin above 40%. Ongoing initiatives include product cost reductions (e.g., higher-power diodes, BOM optimization), pricing initiatives, and optimizing operations to drive efficiency even at moderate revenue levels.

Q: Plans for directed energy product offering extension?

A: There is a roadmap to increase the power level of the Crossbow system, with plans for 6- to 8-kilowatt products. The focus is on a commercial product for smaller class drones, leveraging existing single-mode, high-power lasers and photonics components for scale.

Q: Expectations for new medical products in 2026?

A: A new urology product with StoneSense launched in Q4 2025, and additional products planned in 2026. The medical business is expected to double or triple in the next year, driven by a new major customer and ongoing product innovation.

Q: Inorganic opportunities and areas of interest?

A: Focus on tuck-in acquisitions in the $50 million to $200 million revenue range to augment adjacent markets and accelerate growth in target markets. Clean Laser was a successful tuck-in acquisition with good integration and synergies.

Q: Welding sales drivers, including battery storage vs. EV?

A: Welding sales benefit from battery demand, with electric vehicles (20% year-over-year growth) and stationary storage (50% year-over-year growth) as key drivers. Differentiated technology applies to both EV and stationary storage batteries, including areas like foil cutting, specialized welding, and cleaning within battery manufacturing.

Q: Huntsville facility usage beyond directed energy?

A: The Huntsville facility is for R&D and small-scale production of directed energy, but also provides a footprint to apply industrial technologies to the growing region in Huntsville, which is a growing area for military and defense industrial activities.

Q: Micromachining and additive manufacturing applications?

A: Additive manufacturing involves sintering powdered metal to build parts, enabling production of complex parts not machinable traditionally. Micromachining involves precision cutting, drilling, and material removal for areas like microelectronics, displays, and solar cells, where precise material manipulation is critical.