Good morning, this is Tom Hayes with C.L. King. I appreciate everyone participating this morning. We have Tim Mammen and Eugene Fedotoff from IPG Photonics. We have about 35 minutes for the webcast here. Just as a reminder, if you are watching the webcast and you do want to ask a question, you'll need to type it into the Ask a Question box on the webcast page, and then I'll work it into the conversation. But Tim and Eugene, I appreciate you guys taking the time today. Maybe Tim, just kind of starting off and level setting us, you know, as we left Q2 and your Q2 earnings call and into Q3, maybe just kind of remind us how you saw the end markets and the conditions for IPG out there? Sure. So thank you, everybody. Yeah, I mean, actually, in Q2 into Q3, bookings have been a bit weaker than we would have liked to see. In Q2, normally, you have a book-to-bill that's above one. We've said it was slightly below one. That drove overall weaker guidance than we would have liked to see, and the street was expecting, so there was some negative reaction to that. So we were starting to see some macro headwinds related to, you know, spending on lasers. There was also a bit of softness on total EV investments in Q3. That's obviously gonna come back. But, you know, at a high level, things like the cutting business, which have performed very well, actually, in Europe and North America and Japan in the first half of the year, were showing some softness. You know, European PMIs were as weak as I've seen them in, I don't know, maybe 20 years. I think the European PMI read was at 39%. There are concerns about Germany being in recession. Other PMI data is a bit more robust, so the U.S. is, you know, bumping on slightly above 50, as is Japan. You know, allegedly, the China number is 48-49, but that depends on whether you believe it or not. So there is certainly some, you know, some areas of softness. You know, overall, though, you know, we still think we've got a tremendous opportunity, given some of the, the thematic investment cycles, the energy transitions, the ability of, of laser technology to continue to displace non-laser welding applications. Welding grew by 40% in 2022. The total size of our welding sales was equal to cutting. Coming into the end of the year, you're seeing some renewed interest in things like additive manufacturing. There's been, you know, some announcements. We don't have a lot of data on this or detail on it other than what's been publicly talked about, additive potentially being used on making certain consumer electronic devices. Cleaning has continued to perform, you know, very well across the world. Medical was a bit weak in Q2, but we're expecting that to come back in Q3. So, you know, medical is another business that if you can continue to diversify the application set, both within surgical and potentially within aesthetic, is an exceptionally large market that's still using very old laser technologies, right? There hasn't been a drive to change those laser technologies. And we think with our longer wavelength lasers and given our improved electrical efficiency and lasers, even in the two to five, two to 10 micron range, we could, you know, be very disruptive over time in that area, introducing improvement to the process. So, yeah, and as you know, clearly, Q3 was a weaker guide than we would have liked to see, and there's certainly some softness out there on some of the CapEx end markets from our perspective. Okay. No, that's great. I, I just wanted to kind of level set everyone since it's been a little while since you guys, you obviously released those numbers. So, shifting gears a little bit, Eugene and I, we had a really good meeting at FABTECH last year, last week, and I think, you know, the energy that I took out of the meeting was fairly positive. You know, one of the things that you guys had front and center... I'm gonna go through a couple different topics coming out of FABTECH, but certainly, you know, you had five LightWELD demos up and running, and that looked, you know, busy for the couple of days I was there. Maybe just kind of talk about, you know, through the progress that you're seeing on the product line and kind of where you see it going over the next, you know, year or two? Yeah, I mean, we're still exceptionally optimistic about the ability of that handheld welder to displace traditional welding technologies. It's got significant advantages in the speed with which someone can be trained to weld. The actual speed of the welding, which is significantly faster than traditional technologies, the different types of materials that can be joined, so you can join, you know, reflective materials, copper, aluminum together. You can join different types of materials together, so steel to copper, for example. We've introduced that device with higher power levels. We've introduced it with cleaning applications in it. You can also integrate it with a cobot. And then, when we first introduced it to FABTECH, I think we had, you know, one or two demos running, and it was totally overwhelmed. We couldn't actually, you know, not many people could get their hands on the device. Last year, we increased that to three, and this year, we increased it to five stations, and from what I heard, I couldn't go to FABTECH, but Eugene told me that all five of those stations were very busy. So, you know, the total market for handheld welders is maybe $2 billion. $1 billion of it is perhaps very, very low end systems, and about $1 billion of it is more addressable by our handheld solution. You know, our target is to try and get to, you know, 20% of that total market, which would represent a $200 million product line. We haven't given, for competitive reasons, exactly where we stand on progress, you know, in that direction, but LightWELD has continued to perform very well. We've introduced it more broadly in Europe this year after getting CE mark. The take up in Southeast Asia, and Japan, and Korea continues to be positive. We're not really selling that product in China. There are some competing products in China we're just not choosing to go up against. But yeah, the overall reception of the product continues to be quite positive. Okay. But you got to keep. There's a lot of work we're doing. We've got, actually launching some, you know, demo trailers that are gonna enable us to go out around the country and other areas, demonstrating the product and even ultimately training people on the product and even providing service and support as the total install base increases. We're looking at other distributors to work with. I think it's a product that's, you know, particularly well suited if you can ramp sales and put in place your e-commerce selling as well, you know, selling directly off your e-commerce platform. We started to do that, albeit in a limited basis. Okay. No, that makes a lot of sense. Would you say that the opportunity is roughly equal between North America and Europe, even though Europe's kind of a newer market entrant in this product for you? Yeah, we're basically going into all handheld welding type applications, right? Metal fabrication, job shops, ultimately also in the field applications and, potentially areas like construction and other areas. So I think that, yeah, the fabrication industry has always been quite regional, right? You're not, you're not- Right. ... fabricating metal parts and exporting them around the world. Even the fabrication industry is very strong in North America, it's strong in Europe, it's strong in Japan and Korea. You know, that kind of metal part was never really, to my knowledge, like, mass produced in China and exported. There are issues around weight, and you're often resolving very... I think you're designing and producing parts for a very much of a local market there. The benefits of a handheld welder, I think from a cost perspective, make that quite compelling to ensure that those fabricators continue to be very competitive within their local markets. It also solves the issue of there's a significant shortage of very highly skilled welders that are needed when you're laying down a lot of, a lot of wire, during more complex welding processes. And part of the reason we're trying to increase, not trying to, we have increased the power of the devices to do thicker materials as well. Yeah. So I'd second what Eugene said. It was—it seemed to be a very active display. Like I said, every time I walked by, all five seemed to be up and running. So that's certainly another positive. You know, something, Tim, you and I have talked about for years is just the inherent wall plug efficiency of fiber lasers. And you know, one of the stops on the IPG booth tour this year was your new 50% wall plug efficiency products. And then one of the things that they kinda came up with the tour was you being able to sell that wall plug efficiency as kind of another key catalyst, if you will, to reduce the carbon footprint of the end user. Maybe just talk about briefly, you know, the new products. Is that certainly a new threshold for Wall-Plug Efficiency and kind of what you think that brings to the market? Yeah, I mean, we've always called out from a ESG perspective, the benefits of fiber laser technology, and a lot of the total carbon savings of our customers is articulated in some of our ESG publications. More recently, you're right, we've the ECO laser for cutting has been around for a while. We've seen instances, particularly at higher power levels, where countries have either had shortages of power that you've seen some sales driven from that perspective. You've obviously seen sales. It's sometimes a little bit difficult to identify specifically someone who's choosing a 50% + efficiency cutting laser specifically for that reason, but it's certainly a benefit to... You know, the other system we've introduced at the moment is a very efficient drying diode laser for drying applications. So, part of that has got opportunity in electric vehicle drying of the foils, but you could also be utilizing that laser to dry other coatings. There's been some pretty eccentric applications out there, even utilizing it in cooking of cookies, which the speed for the processing of cookies was dramatically reduced. So you're replacing, you know, very energy inefficient infrared light sources, where often the infrastructure around, you know, those infrared light sources is quite cumbersome and large as well. Whereas, you know, with the intensity of the power that you could deliver the diode laser, you actually end up with a much more simple system. A lot of the infrared drying applications, I understand, and have quite long tunnels through which the parts that are being dried are moved, and with the laser, you can actually simplify that quite significantly. Maybe kind of shift, you know, sticking with products that we're about, because I think it is kind of a nice view for us on the industry. And one that we spent some time on, and you guys have talked about a little bit, is just the EV market. And one of the items that we spent some time, you know, talking about, well, and I'm not sure if it's exactly new, but it was kind of in the newer area, was the adjustable beam laser product kind of aimed at the EV market and kind of going against, you know, maybe some of your competitors with the green laser and, you know, the ability of not having to go down that technology for your customers of just getting you the traditional IR laser. I guess maybe just talk about where you see kind of the larger EV opportunity, and kind of see how that's playing out, because obviously it's been a lot around batteries. And you and I have talked about previously, obviously, welding some of the more unique metals that go into, you know, the body of the car. Maybe broadly speaking, just to take a couple minutes to talk about the opportunity in EVs. And the opportunities in EV are very significant, right? I mean, you've maybe got somewhere over a terawatt of installed battery capacity, maybe approaching 1.4 TW. If you, you know, expect the energy transition to happen just from a, you know, vehicle basis, if you get to 70% of vehicles being electrified and make an assumption on a gigawatt basis of total power that's needed per vehicle, you arrive at a capacity of somewhere around, you know, approaching 6 TW. And to that, you can add some of the storage capacity, as well, which would be incremental. It perhaps isn't factoring in other transportation as well. So we think there's a very significant runway for laser opportunity within, within EV. It is basically dependent upon the total amount of capacity that's being added each year, but you can also expand the number of applications. So for example, if you're adding a drying application or you're cutting different types of foils within that, you're replacing some of the mechanical processes. On the welding side, we think our infrared solution, the AMB, is exceptionally good at producing spatterless welds. We've introduced that with a single mode beam combined with a multi-mode ring. We combine that with the LDD, the Laser Depth Dynamics, real-time weld monitoring capability, high-speed scanners, other welding heads. So you're delivering a much more complete solution. We've often helping the customers, even in developing the welding processes for the different materials that they're doing. So there's a lot of capability. You're not just delivering the laser. In certain instances, we're also integrating that optical subsystem, if you like, with the laser, the LDD, the scanner, into a complete system for welding within EV processes. The combined solution, particularly when you're looking at the AMB combined with the LDD, which is the weld measuring technology, we've seen not just actually in EV, but in other areas, very significant improvements in yield. You know, one customer had maybe a 40% scrap rate on some of their battery production. They brought that down to 10%. In a non-EV application, someone was running at, like, a 2% scrap rate that came down to 20 basis points, and in dollar terms, it reduced their scrap value, you know, by almost $20,000 a day. And, you know, the payback on implementing the LDD system in there was exceptionally short. So there's a sort of, you know, pretty wide variety of applications. You know, the welding's the largest, foil cutting. There's also cleaning applications in EV, a lot of cleaning applications outside of EV, the drying application as well. And then, you know, you've got the non-vehicle batteries, as I said, storage applications. But then you've also got applications within the vehicle manufacturing that are not fundamentally different from an ICE vehicle. You lose some of the transmission welding, but you pick up a huge amount on battery that way offsets anything you lose on transmission. But the rest of the welding around things like seat bags or airbag detonators, or some of the Tailor Welded Blanks, or the Body- in- White applications continue to expand, as well. You know, there's another recall around airbags. Again, you know, the quality of welding on airbags is very, very critical, and we think we can bring some improvement to that with our suite of technologies and help some of the end customers resolve some of those issues. Okay. Issues there. Would you say, and there seems to be a good amount of news flow base. Are you seeing a lot of the new battery capacity come on domestically here? There's certainly been a significant ramp-up in battery capacity in North America, and the IRA has partly been driving that, right? There's been announcements of capacity that was gonna be added elsewhere, which is being now put into North America. But you're seeing, you know, investments in Europe as well. In the, you know, first half of the year, the China investment cycle was relatively. It was okay. It wasn't that, it wasn't that strong this year compared to last year. They got some capacity they're waiting to grow into. But that China capacity, this is expected to pick up next year, and then you continue to expect to see an acceleration of North American and European battery investment. Is there a way to think about the laser investment required for each terawatt of battery capacity? Yeah, I saw the data that was initially out there was somewhere per gigawatt, like $1 million of laser-based technology. If you look at the total capacity that was added last year and the fact that our sales were about 20% of our total sales, I don't think those numbers are far, far off. There's continued analysis going into that. We don't think, you know, changes in battery design probably. If a battery becomes more efficient, maybe you need fewer batteries, but the laser content may go up and, you know, on the welding and cutting applications and cleaning applications. But, you know, we've got to do. There's always ongoing work at looking at what that total opportunity is. Okay. One of the things that I found interesting at the Optech, again, was, and I think broadly speaking, the laser industry is transitioning to pick up an opportunity, is just on cleaning, whether it's removing paint, oil or grease. I think obviously, the sandblasting has, you know, its own environmental issues. And I think this is a bit of a newer area for you guys, but one that seems to be growing, of interest and importance. Maybe just touch on that a little bit. Sorry, just a quick question. It's not really a newer area for us. It's an area we've had, been working on for several years. Okay. We have got some OEMs that sell into the market. We have actually also developed our own cleaning, more complete cleaning systems. Okay. We've got booked last year, several orders for those. If you're selling to the OEMs, they're utilizing much higher power pulse lasers than you'd use even for, certainly for marking, engraving, and much higher power even than for foil cutting applications. So there's a unique capability that we have on, on that. As I said, we've introduced a handheld with some cleaning capability, both for pre-processing and actually cleaning the welds off it. But I think it's, it's potentially a massive opportunity. I mean, the cleaning market is even a bit difficult to quantify some of the numbers I've seen out there. It runs, you know, obviously, to billions of dollars, the amount of cleaning that's done with chemical solvents, abrasives. You think about, you know, the oil and gas industry or shipbuilding, manufacturing processes, where you may have to remove a coating or you're cleaning storage tanks, vessels, molds. It's a, it's a really significant opportunity for the laser industry. There's other cleaning applications like dry ice cleaning, which has also got a huge energy input, where you're freezing carbon dioxide gas. You've also got an environmental issue, not, you know, with carbon dioxide gas as being the output from that process. Okay. And it's a much cleaner process from both in terms of trying to dispose of hazardous chemicals, but also from an operator perspective. Cleaning with a laser is, is significantly safer from a health and safety perspective of the operator. So we, we think it's a, a very significant opportunity. That, that performed very well in first half of this year compared to the first half of last year and, and grew significantly last year. I think you're starting to see some, a bit of an acceleration around cleaning applications for the laser industry. Okay, appreciate the color. Maybe shifting gears a little bit to kind of some, some geography-based questions. You know, obviously, with, with the challenges in, in Russia, you opened up some new production in, in Poland, an area where I don't believe you, you previously had production capabilities. And, and that's, you know, I, I think you mentioned on the Q2, that's still continuing to ramp up. You know, maybe any color there, and, and is the opportunity to continue to, move your best-in-class manufacturing around? Yeah, so, Poland was obviously a greenfield site for manufacturing for us. They've made great progress through the first half of this year. They're still meaningfully below the total production level that they want to achieve, and, and their yields are improving. But given where their yields are, their costs are higher than the target level. We expect to continue to make very good progress with that through Q3 and Q4. That's very important. The total cost of production, whether it be, you know, direct labor or even overhead, is, is certainly comparable to where our costs were in Russia. In other areas in Italy costs are higher than Poland, but lower than, lower than Germany. They've made very good progress of ramping up their production there. The other focus that we've been looking at is automation of different assembly processes of optical components. And we're starting to introduce some of that automation into production. That's obviously, you know, something that will take a bit more time to get cemented in, but we've actually got some basically developed systems. They're not being deployed quite yet, but very close to being deployed in some of the fiber block manufacturing, some of the fiber coupler manufacturing, and even the modules where you combine the fiber block with the diodes. There's some, you know, relatively easy ways if you're utilizing pick and place technologies to significantly reduce the labor input on some of those optical sub-assemblies that are currently quite labor-intensive. So progress in that area would be equally as good as just going to a lower cost manufacturing area. Often automation yields significantly better cost benefit and yield benefit than necessarily producing in a low-cost manufacturing area. If you could just remind me, because I know I believe that a lot of the product that you guys used to ship into China was made in your Russian facility. Is that now coming out of the Poland, Italy, or is it coming out of kind of a combination of your other plants as well? No. So, some of those products are being produced in Italy. By and large, a lot of the other product for China is coming out of Germany. The only thing that the Russian facility is continuing to supply is some medical product into China and India, some very low-power pulse lasers. We disclosed, I think, in the first half of the year, though, that total sales from Russia into China were below $15 million. China and India were well below $15 million compared to, I can't remember exactly what they were in the prior year, but they were, yeah, much higher than that last year. Okay. Maybe shift, shifting gears to China a little bit. Obviously, the cutting market's been a bit of a challenge, but certainly you've talked previously about, you know, the other markets within China, whether it's welding, additive, you know, even some consumer electronics. Maybe just kind of talk about where you guys are with China, because obviously it used to be the largest market for you guys as a percentage of revenue. You know, that's changed a little bit, but just kind of your thoughts going forward on China. Q2, China was, in total, only, you know, below 30% of total revenue. So the concentration in China has certainly come down a lot. A lot of that is going around the cutting business, and we said that the cutting business was less than 10% of consolidated sales, so obviously it's less than 30% of total sales in China. We've seen good performance out of these other areas: EV, additive, cleaning, consumer electronics. When that investment cycle is stronger, we see good sales of QCW lasers for, you know, fine welding applications there. You know, strategically, China obviously remains very important. They're early adopters of technology, often aggressive adopters of technology, but we'd like to see, you know, growth from all of these other areas, all of these other applications on a much more global basis. So we're very, you know, pleased with the performance, for example, of cutting in Europe in the first half of the year. That has run into a bit of a headwind on the macro basis. Cutting business in Japan grew strongly. You know, the welding business on a global basis has been a strong performer. But yeah, the, the strength we've seen in, in China has been around those emerging applications and growth areas as well, right? Whether it be welding- Right. Cleaning applications. There's quite a lot of investment going into additive manufacturing in China. A couple of the OEMs have developed some strong capability there. Medical in China are also starting to grow. But, you know, the growth, the applications that are growing are not dissimilar around the world. We tend to be, you know, strong globally on an application, and you'll get, you know, strong sales for that same application in China as well. Okay. Maybe a couple of balance sheet questions. I know you've been kind of working on inventory levels and targets, and maybe your kind of thoughts on where you are there. And then kind of on a similar note, just kind of an update on your capital allocation and thoughts of use of cash longer term. Yeah, we've seen some certainly taken inventory down a little bit through the first half of the year. My, you know, view, and I've done a lot of focus on this internally, is that, you know, ultimately you'd like to get down to, you know, back down to 180 days of your turning inventory, like twice a year. Those days are quite elevated still, even though inventory came down a little bit from the end of last year through June. So there's still, you know, there still remains work to be done on that, but we wanna continue to generate some cash out of inventory in the second half of the year. On the rest of the balance sheet, you know, the balance sheet remains very, very strong.... You know, most of our working capital is either in inventory to a lesser extent in accounts receivable. We continue to have over $1 billion of cash on the balance sheet, even after returning, buying back about $600 million of stock in the last 18 months. In Q2, we didn't buy back any shares. We did say that we put in place a new 10b5-1 plan, and we had approved another $200 million buyback. You know, we're not gonna probably be doing, like, quite at the level of $600 million again in the near term. We wanna, we haven't done any acquisitions recently, so really looking at inorganic opportunities that can add technological capability to some of these end markets that we're trying to address. We remain very cautious about, and do not think of ourselves as a consolidator within the industry. We're really looking for technology, complementary capability that could grow us into some of these other end markets that we've been talking about that we think are significant opportunities. So, we wanna preserve firepower for that, but, you know, obviously did approve another $200 million buyback in the April board meeting and said we'd put in place a 10b5-1 plan that had a bit of a cooling off period. Okay. We're gonna be opportunistic about buying back stock still. You know, as we're kind of getting near the end of our time together, maybe just two questions to kind of wrap things up. One, give me your thoughts on industry pricing trends. And then secondly, you know, I believe it's always been IPG's philosophy to continue to push prices down and, you know, preserve margins through your vertical manufacturing. You know, to that end, maybe could you just remind us, you know, what revenue run rate do you need to kind of achieve that, those gross margin targets? So, you know, on the pricing front, kind of what are things, what does the market look like now? And then, on the margin front, you know, what kind of revenue do you need to hit those longer term targets? Oh, even in Q2, Q2, if you, you know, we had still some elevated inventory provisions, given the level of inventory that we're carrying, they were about 350 basis points. If you, you know, got down to more normalized inventory provision level, I don't think it's necessarily gonna happen immediately, but if you can get down to normalized inventory provisions of like a 150 basis points, you would have actually been close to 45%. We still have some yield and scrap issues in these newer manufacturing areas. If you get that normalized, you're kind of getting back close to the bottom end of that 45%-50% range, even at that, you know, $340 million- $350 million. So if you're getting back above, you know, 370, closer to 400, you'd see some better performance relative to that. And then we're continuing to try to take cost out of product, right? We talked about the automated manufacturing, trying to improve yield. You know, obviously, an important part of this is trying to get more power out of the optical components, simplify the bill of materials, of, you know, continue to make progress on that. We're trying to maintain more stable pricing, because in our mind, you know, pricing came down so dramatically for a couple of years. There's a tremendous value proposition to be had from the existing price level that lasers are at. You know, the issues that within China, particularly around the cutting market, the Chinese competitors are, you know, significantly below where IPG is today. But, you know, you've seen what's happened, at least the companies who are public, they've really, you know, damaged their gross margins, even if they did see some improvement in Q2. But they've almost passed all the value on to the end customer rather than keeping any of the value of the technology and the processing capability and advantages them, themselves. So, you're really focused on the value proposition of the solutions and solving customer problems, right? If you're driving productivity and you've got relatively short payback periods with the technologies, you should be trying to optimize your pricing relative to that rather than just take it down, because you're reducing costs. You've got to become much more focused on the value proposition that you're delivering to the customer, as well as... I think that's really most of it. It's not just pricing, it's the value proposition and solutions that you're driving, delivering to the end market and the customer. Okay. I think we've reached the end of our time, Tim, meeting. I appreciate your time, as always. It was always good chatting, and I'll circle back if I have any follow-up questions, but I appreciate the time today.