NASDAQ:IPGP IPG Photonics Q4 2021 Earnings Report $58.15 +0.21 (+0.36%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$57.36 -0.80 (-1.37%) As of 04/25/2025 05:51 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast IPG Photonics EPS ResultsActual EPS$1.21Consensus EPS $1.20Beat/MissBeat by +$0.01One Year Ago EPS$1.19IPG Photonics Revenue ResultsActual Revenue$364.50 millionExpected Revenue$353.63 millionBeat/MissBeat by +$10.87 millionYoY Revenue Growth+8.30%IPG Photonics Announcement DetailsQuarterQ4 2021Date2/15/2022TimeBefore Market OpensConference Call DateTuesday, February 15, 2022Conference Call Time6:28AM ETUpcoming EarningsIPG Photonics' Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by IPG Photonics Q4 2021 Earnings Call TranscriptProvided by QuartrFebruary 15, 2022 ShareLink copied to clipboard.There are 12 speakers on the call. Operator00:00:00Good morning, and welcome to IPG Photonics' 4th Quarter 2021 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 Fedorov, IPG's Director of Investor Relations, for introductions. Please go ahead, sir. Speaker 100:00:19Thank you, Rob, and good morning, everyone. With us today is IPG Photonics' CEO, Doctor. Eugene Cherbakov And Senior Vice President and CFO, Tim Momin. Statements made during the course of this call that discuss management's or the company's intentions, 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. Speaker 100:00:51These risks and uncertainties include the impact of the COVID-nineteen pandemic on our business and those detailed in IPG Photonics' Form 10 ks for the period ended December 31, 2020, and our reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investors section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website. Any forward looking statements made on this call Are the company's expectations or predictions as of today, February 15, 2022 only? The company assumes no obligation to publicly release any updates or revisions to any such statements. Speaker 100:01:39For additional details on our reported results, please refer to the earnings press release, earnings call presentation and the Excel based financial data workbook posted on our Investor Relations website. We will post these prepared remarks on the Investor Relations website following the completion of this call. With that, I will now turn the call over to Eugene Scherbakov. Speaker 200:02:05Good morning, everyone. We are pleased with our 4th quarter performance. We delivered revenues that was 8% higher than a year ago and above the top end of our guidance range. Our full year revenue was record, Slightly above our prerecorded revenue reported in 2018. These strong results were driven by solid demand for our lasers in Europe, North America and improved demand in Japan, which more than offsets the demand in high power cutting application in China. Speaker 200:02:41We saw increased sales in welding, high power cutting outside of China, marking, 3 d printing, foil cutting, cleaning, Semiconductor and number of other products and applications that all contributed to our growth this quarter. Overall, sales outside of China grew to 69% of total revenue, a level we have not seen in many years Sales of high power lasers benefited from increase in order volume in cutting application in Europe, North America and Japan as well as a strong welding revenue, which was offset by lower demand in China high power cutting market. This was due to general market softness and increased competition in low cost portion of this market. We continue to successfully protect our market share in areas which focus on reliability, technology and service. Our high powered lasers and optical heads can deliver significant productivity improvement, Electrical efficiency, flexibility and ease of use and integration as well as the lowest total cost of ownership and global support unmatched by other lasers and non laser tools. Speaker 200:04:08At the same time, we are introducing the ultra compact Rock Mountain, New Cities lasers, which power up to 6 kilowatt, to be more competitive in low cost cutting system. We are also pleased with the growth and we are seeing a medium power and QCW lasers this quarter, This are primarily driven by higher demand in emerging applications. I I would like to also highlight our exceptional growth in welding this year, driven by higher demand of AMB lasers Houston EV battery manufacturer and introducing LightWealth, our handheld welder. Both products are examples of IPG focused on innovation and ability to deliver solutions to our customers that expand our total available market. Our AIM devices provide a broad range of beam tunability that enables superior speed, Better weld quality, ability to weld disparate materials and sputterless welding, which is extremely important in the EV battery manufacturing process. Speaker 200:05:21Another driver behind the strong welding results is Light weld. Compared to traditional MIG and TIG welding, light weld is easier to use, faster, More precise welds in wide range of material, better and incorporate surface cleaning capability. This quarter significantly reduced preparation processing and post processing times resulting in lower total operation costs for our customers. Growth in Welding is one of the many examples of successful revenue diversification strategy that IPG has been pursuing. We are also pleased with the performance of our Medical business. Speaker 200:06:04We recorded revenue this quarter As our gold standard ROASER lasers and disposable fibers continue to gain acceptance. Additionally, ITG is well positioned to benefit from global macro trends such as automation, miniaturization as well as a Focus on sustainability, renewable energy and energy efficiency. As you read ahead, Automakers and Supply Worldwide are investing enormous amount in U. S. Air Mobility Products. Speaker 200:06:41We expect these investments to continue in the next 3, 5 years or even longer. Our lasers are widely used in manufacturing of electrical vehicles. We are supplying laser solutions for battery welding I'm seeing full cutting applications, cleaning, air P welding in electrical battery and motor assembly as well as some body in wide applications. Demand in solar cell market can be cyclical, But strict emission targets are expected to drive significant investment in solar cell production In North America and China, in the next 3 out of 5 years, resulting in high demand for green lasers. These lasers are used to improve solar cell efficiency and reduce the amount of wiring needed to in solar cell design. Speaker 200:07:38Demand for our green lasers increased by 50% in 2021. Focus on sustainability and efficiency as well as some recent energy structures in China and high energy cost in Europe Are there even an increased interest in our eco lasers that provide overall efficiency of greater than 50% and can help To manually reduce environmental impact and energy cost for medium and large industrial manufacturers. During the Q4, emerging product emerging gross product sales were 38% of total revenue, Increasing 57% year over year. We were pleased This performance of number of products is actually key for our diversification of our revenue, including the Backlog for this product remains strong As we enter 2022 and we focus on successfully establishing large market with our Innovative Solutions. Let me share some our expectation for 2022. Speaker 200:09:09While we continue to have limited visibility and see uncertainty in the operational and geographical environment, we believe that The breadth and depth of our product offering, our innovative solutions, efficient R and D model, Strong balance sheet and free cash flow provide us ample flexibility to respond to the business disruption and support growth. We expect continued growth demand in welding and cutting market in North America and Europe and in Japan. Sales and Emerging Growth products should benefit from continued macro trend such as investment into EV batteries, Solar cell automation and miniaturization. However, this will be a transition year for IPG with growth in focus areas And continued diversification away from highly competitive portion of high power cutting market in China, leading to more moderate 3% to 6% revenue growth in 2022. With that said, we remain optimistic In our long term growth opportunity for IPG and continue to expect double digit revenue growth in the mid and long term. Speaker 200:10:26I will turn the call over to Tim to discuss financial highlights in the quarter. Speaker 300:10:33Thank you, Eugene, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our Investor Relations website. I will start with the financial review on Slide 4. Revenue in the 4th quarter was $364,000,000 Up 8% year over year, driven by growth in most of our key product lines and geographies, but declined 4% sequentially mainly due to lower revenue In high power cutting applications in China, revenue from materials processing applications increased 5% year over year And revenue from other applications increased 41%. 4th quarter GAAP gross margin was 45.5%, An increase of 190 basis points year over year driven by lower inventory provisions, which reduced gross margin last year. Speaker 300:11:27It was partially offset by increased shipping costs and lower fixed cost absorption. Sequentially, gross margin decreased due to slightly higher In order to offset some of the inflationary pressures we are experiencing, we have increased the selling price of some products. GAAP operating income was $85,000,000 and operating margin was 23.3%. Net income was $65,000,000 or $1.21 per diluted share. The effective tax rate in the quarter was 23%. Speaker 300:12:08During the quarter, we recognized a foreign exchange gain of $7,000,000 primarily related to the appreciation of the U. S. Dollar versus the euro and Russian ruble and appreciation of the Chinese yuan. Exchange rates relative to the U. S. Speaker 300:12:23Dollar Had been the same as 1 year ago, we would have expected revenue to be $3,000,000 higher and gross profit to be $1,000,000 higher. Moving to Slide 5. Sales of high power CW lasers decreased 19% and represented approximately 41% of total revenue. Sales of ultra high power lasers above 6 kilowatts represented 51% Pulse laser sales increased 32% year over year with Continued growth driven by high power pulse lasers used in EV battery manufacturing, which is partially offset by lower sales of green pulse lasers used in solar cell applications. Systems sales increased 28% year over year, driven by growth across laser systems and higher sales of Light World. Speaker 300:13:16Medium power laser sales increased 28% on growth in 3 d manufacturing and semiconductor applications. QCW laser sales were up 30% year over year due to higher demand in welding. Other product sales increased 81% year over year, driven by higher sales in medical, telecom, Advanced applications as well as beam delivery and parts. Looking at our performance by region on Slide 6, Revenue in North America increased 30% driven by growth in materials processing with strong cutting and welding revenue driven by higher demand We also saw record revenue in medical applications and improved sales in telecom. In Europe, revenue increased 37% as a result of higher demand across many products and applications, including cutting, welding, Marking and Semiconductor. Speaker 300:14:16The region is becoming a close number 2 in terms of revenue contribution for IPG. Revenue in China decreased 20% year over year as we continue to see lower sales in high power cutting applications, which was only partially offset by growth in Welding, High Power Pulse Cutting, 3 d Manufacturing, Marking and Cleaning Applications. We're seeing order activity stabilizing and cutting, so portions of the cutting markets that focus on price remain highly competitive. We're pleased to see a solid improvement in demand in Japan this quarter, driven by higher demand in cutting And Welding Applications. Moving to a summary of our balance sheet on Slide 7. Speaker 300:15:03We ended the quarter with cash, cash equivalents and short term investments of $1,500,000,000 and total debt of $34,000,000 Strong operational execution resulted in cash provided by operations of $85,000,000 during the quarter. Capital expenditures were $29,000,000 in the 4th quarter. We expect 2022 capital expenditures will be in the range of $130,000,000 to $140,000,000 2022 CapEx includes facilities and capacity expenditure to support our future growth as well as redundant capacity for critical components. During the quarter, we repurchased 345,000 shares for a total of $57,000,000 And have approximately $80,000,000 left under the May 2020 authorization. Last week, the Board authorized an additional 200,000,000 In share repurchases, including this new program, the Board has authorized more than $500,000,000 in stock repurchases over the last 3 years. Speaker 300:16:09Moving to outlook on Slide 9. 4th quarter book to bill was close to 1 and we're pleased with order flow across most geographies and products outside of China. Macroeconomic indicators have been moderating, but remain strong for the U. S. And Europe, while Japan continues to recover And China has indicated it will focus on stimulating economic growth in 2022. Speaker 300:16:36We're also seeing China high power demand start to stabilize, albeit at lower levels. We continue to benefit from growth opportunities in electric vehicle battery manufacturing, Rollout of Light World, Growth in Medical Sales. That said, there is still a great uncertainty in the operating environment and price competition in China That make forecasting our business challenging in the medium term, and our Q1 guidance remains subject to significant uncertainties, including the impact on global business environment Geopolitical events, COVID-nineteen, economic trends, growth from emerging product revenue, competition And the lack of long term binding order commitments. We are closely monitoring the situation between Russia and the Ukraine. As we have disclosed before, we supply components between our major manufacturing operations in the U. Speaker 300:17:29S, Germany and Russia. At this time, it's unclear if sanctions would be put in place and should they be, if they would cover components bought or sold from our Russian subsidiary. Sanctions could also target Russian banks and the banking system. In response to this uncertainty, we're developing contingency plans to mitigate possible Including increasing local inventory levels of key imported components and increasing production And other locations. For the Q1 of 2022, IPG expects revenue of 320,000,000 The company expects the Q1 tax rate to be approximately 26%. Speaker 300:18:14An increase in tax rate assumption is due to a decrease in the benefit expected from discrete items such as the excess tax benefit related to equity compensation. IPG anticipates delivering earnings per diluted share in the range of $0.85 to $1.15 with 54,000,000 diluted common shares outstanding. As discussed in the Safe Harbor passage of today's earnings press release, Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release and is subject to risks outlined in the company's reports with the SEC. With that, we'll be happy to take your questions. Operator00:19:00Thank you. At this time, we'll be conducting a question and answer session. One moment please while we poll for questions. Our first question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question. Speaker 400:19:34Hi, thank you. You may have talked about this. I joined a couple of minutes late. But just with respect to The overall cutting business, it looks like it was down for the year in around 17% high teens or so. When you talk about that market potentially stabilizing at a lower level, how do we think about that over the course of 2022? Speaker 400:19:59You seem to be suggesting some signs of stabilizing in China, but on the other hand, it looks like that still has The potential to be weaker in the first half of the year, how do we think about the cutting market? Speaker 300:20:16So I think overall, Jim, China started last year very strong on cutting and then You're all aware it was weak in the second half of the year. Order flow in January for example seemed to be a little bit stronger there. They've just come back from Chinese New Year. So really, we want to see what happens in March April, particularly the next actually 3 or 4 weeks will drive some of that Tonal feedback that we get, but the January pointed to at least some stabilization. It It was very weak in the second half of last year. Speaker 300:20:51The real positives I think on cutting though are really where some of our more focus is now In other geographies, so we are pleased with the performance in cutting in Europe, in North America. We actually saw some recovery in that market in Japan as well. So we continue to hold a very strong position outside of China. The other thing we mentioned on the script just now was that We're actually increasing the power level of the ultra compact lasers that we're offering in China. So they've been primarily at 3 kilowatts, we mentioned that very soon we're going to 6 kilowatts and even towards the end of the year to 8 kilowatts. Speaker 300:21:28That's a very competitive device for us there. We're not going to compete on price with it, but it will enable us to price that device Speaker 200:21:35because it has a lower bill of material cost, Speaker 300:21:37a bit more competitively. And then the other side of this is the opposite end of the spectrum, the really ultra high power lasers. We're seeing some demand there as we mentioned in Europe for The echo lasers with higher energy efficiency. So, the China cutting market remains subdued. We're pleased with performance elsewhere. Speaker 300:21:56And the other thing that's out there is potentially some stimulus coming into China, which the government's really been in more a contractionary phase where everybody else has been Fiscally more expansionary, so that could also help to improve the tone of the business during the year. Speaker 400:22:13Follow-up question is just On gross margins, just given if we think about the year as being somewhat of a transition year with this much Yes, a more modest growth rate, 3% to 6%. In the past, you've talked about a range of gross margins In the 45% to 50% area. So in light of what you're seeing in the market, is there any update you can provide with respect to how we Think about gross margins. Speaker 300:22:42So overall, last year gross margins performed pretty well, right? They were in the midpoint of our range, just slightly above that. Clearly, Q4 is a bit weaker. It wasn't anything specific in Q4. It's a number of different things that we called out, product cost a little bit with mix, There's some inflationary pressures there, shipping costs, a little bit lower absorption. Speaker 300:23:02Overall though, given A relatively slower start to the year and that guide for the year of 3% to 6%, that actually requires revenue to pick up Meaningfully in Q2, Q3 and Q4, that's the first benefit we'll get on gross margin as we tend towards a higher slightly higher revenue level. And then in addition to that, I mentioned that we've started to increase the price of certain products. We're also focused Continuing to reduce the internal cost of components that the 3 kilowatt ultra compact moving to 6 and 8 is an example of some of the cost initiatives there. So Yes. Overall, as we get to a slightly higher revenue level in the second half of the not second half, but Q2, in the second half of the year, expect to see some Return to that upper half of our gross margin range. Speaker 300:23:51We're not stepping away from that Target of getting into that more consistently into that upper half of that range, Tim. Operator00:23:59Okay. Thank you. Speaker 200:24:01And also with such kind of margin, which There is IPG. IPG definitely is a leader in this industry. Nobody can reach such kind of results. Operator00:24:15Our next question comes from Patrick Ho with Stifel. Please proceed with your question. Speaker 500:24:21Thank you very much. Tim, maybe just as a follow-up to some of the comments you just made about gross margins, the supply chain and you talked about shipping costs being higher. Were there any challenges in procuring parts? Or were they just more that you had to pay more for those parts Because the revenues look pretty good for December, what are some of the supply chain challenges that you're experiencing today? Speaker 200:24:47Of course, there are some challenges, first of all, but taking in mind that IPG is a vertically integrated company. The main important components for our lasers, we are producing ourselves inside the company. This means it's not any problems to supply any time And I would reiterate also that at optimal cost for these companies. We are talking about Some components which are receiving from outside. Of course, there exist some explanations. Speaker 200:25:17First of all, price for some components increased dramatically. By the way, electronic components, for example, chips, in some cases, prices will increase up to 3, up to 10 times. Of course, it also influenced our will be influenced for our gross margin. Also, shipping cost Additional, yes, definitely. And the raw materials, some metals also, price for this metal growth, raw material capital 25%, 30%. Speaker 200:25:50Of course, it's influenced by our gross margin, but we are also working through optimization. Speaker 600:25:58Every time we are talking about this, Speaker 200:26:00we are making this optimization. This is why we would like to keep our margins high enough. Speaker 500:26:08Great. That's helpful. And maybe as my follow-up question, this diversification strategy that you're taking on and Obviously, trying to accelerate. As we look at 2022 as a whole, given that you have new products in your new markets And also just regional expansion, where do you believe the greatest, I guess traction you'll get among markets, products or regions, where is that diversification going to Greatly contribute to at least 2022 this year. Speaker 200:26:48I think the main our contribution will be definitely from United And also from Europe, different kind of application, including cutting market, it's definitely. But also our Medical business going Good enough and also we see the good opportunity, first of all for United States and Europe. And also there are some new products which we start to introduce now to the market. And our main Advantage for this year will be that we will not concentrate it on the cutting only market in China. We will concentrate our different applications for Speaker 500:27:32Great. Thank you. Operator00:27:46Our next question comes from Nick Toth with Longbow Research. Please proceed with Speaker 300:27:50your question. Yes, thanks and Speaker 700:27:53good morning everyone. I want to first double click on China. Is there any change in the strategy going forward? It sounds to me that you're going to be even more selective in participating in deals and maybe you're seeing an incremental I know competition has been formidable there for a while, but maybe the pricing aggression is penetrating even into the ultra high power space. Can you give us a little bit of an update on the China strategy? Speaker 200:28:26China strategy is very simple. Of course, we are not following this price We reached our competitors in China In some cases, it's not financial Basis for this, it's definitely they would like to get some shares in this market without any Our strategy is very simple. We are producing the best product It's high quality, it's high efficiency. In this case, we can keep also premium price for our product. It's without any problem. Speaker 200:29:10I mean for standard product. High power, we just I mean, it's power more than 15, 20, 30, 40 kilowatt. Definitely, IPG is leader and we also can keep good enough price for this product. By the way, the first First order for eco lasers, 20 kilowatt eco laser also received for China. Of course, it's also some demand in Europe and the United States, but first of all in China. Speaker 200:29:38And also for a good opportunity because nobody can supply such kind of laser with such kind of parameter like 50% volt plug efficiency, Also compact. There is different. I'm not talking about this on the high power. Also pulse laser Keep our portion of this market. And high power pulse lasers, which we're using for oil cutting and other applications, Green lasers, there is a lot of opportunities also to compete and to keep our part on the Chinese market. Speaker 700:30:13Okay. And as a follow-up, as you embark on this diversification strategy, how are you thinking about M and A? Traditionally, you've done some smaller tuck in deals. How are you thinking about potential larger deals maybe to accelerate The diversification plans? Speaker 200:30:33Definitely, we are discussing about this, there exists some opportunity, but we are very suspicious about this because One of the big problem is not only to take some company. The main problem is integrate and this is why we are looking for every time or for the new technologies, it will be also added to our Technology portfolio or to companies which is can we Easily integrate to our manufacturing process and also to integrate to our management system. This is our strategy for M and A. Speaker 700:31:15Okay. Last quick follow-up. Just, Tim, last year, I think you said EV sales were, I think, 9% of sales. Can you share an update how much EV related sales were for 2021 as a whole? Speaker 300:31:31I think we gave a specific number there. I mean EV sales can range from like 5% to slightly above 10% each quarter, And we haven't gone into more detail than that. So they were meaningful contributor across pulsed hyper, pulsed A and B, Single mode kilowatt scale lasers, even LDD. So overall for the year probably it was slightly above 10%. Nick, one thing I want to draw your attention to is like your comment about embarking on this diversification strategy. Speaker 300:32:03The company has been pursuing this diversification strategy for several years now, right? We introduced Light World over a year ago. We introduced higher power pulse lasers, AMB lasers, the MQCL lasers for spot welding Accessories, the green laser has been in the market for a long period of time. We actually find ourselves having embarked on that strategy some time ago, Better positioned now than we would otherwise have been. So, there's a lot of work that's already gone on to that and we now want to really Accelerate that and remain committed not to just being drawn into a price war on certain parts of the China market. Speaker 300:32:43Even in China, there's a lot of diversity in revenue Last year compared to 2020 or even 2019. Speaker 700:32:53Yes, Tim, I agree. I think acceleration of that strategy is a more fair description. Thanks. Appreciate it. Operator00:33:02Our next question is from Michael Feniger with Bank of America. Please proceed with your question. Speaker 800:33:09Hey, gentlemen, thanks for taking my call. Can you touch on this earlier? I recognize this is a fluid situation with Geopolitical tension. In a scenario where Russia is kicked out of SWIFT, what does that mean exactly? And can you flesh out a little bit more Your plans to build contingencies right now, what does that entail exactly? Speaker 300:33:35So first of all, I'm not a banking expert, right? I mean, being kicked out of SWIFT is actually I don't think on the cards because They talked about Swift in 2014 and there's been a lot of pushback against that. There's probably like targeted sanctions against Russian banks, which would mean that You'd be limited in your ability to receive or pay cash out there. We also have international bank accounts in Russia. Now as around sanctions and the other areas, anything that we talk about at the moment is very speculative because there's a wide range of potential things that could happen. Speaker 300:34:07And A lot of what's been talked about in terms of sanctions doesn't target a lot of our optical components. It may target some of them. It depends whether there are retaliatory sanctions imposed or not by Russia. But at the moment, it's a very fluid situation. So And it's more positive, I think this morning even than it was at the end of last week. Speaker 300:34:32And we have obviously been Looking closely at it and trying to mitigate those risks by putting inventory in different locations and also in the medium to longer term looking at how to Reduce some of those risks a bit more. Speaker 800:34:47And just following up on that, Tim, you mentioned how I I think the inventories, your inventory levels were up 6% sequentially, yet I think sales were down a little bit sequentially, but the inventory to sales ratio kind of jumped. How are we thinking about your inventory levels kind of going forward? Is there a specific region you guys are charging there Are those inventories builds right now? Speaker 300:35:13So there's a lot of focus on inventory now. I mean there's some habitually there's some Things the way that inventory was managed historically within the company that had a lot of positives. So for example, right now when we talk about some of the risks whether it's supply chain or geopolitical risk, Some of the increases in Q4 relate to increasing inventory in different locations. Some of it relates to significant increase in electronic components, right? So You kind of got to pass this out a little bit between some of the strategic things we've done around inventory that mitigate risks and Enable us to maintain lead times to customers. Speaker 300:35:49And then also the fact that the company really is starting to look more Holistically around inventory planning and management and targeting that as an area where we want to improve Execution improved the processes in different areas. But at the moment, there's puts and takes around it. But our overall target this year, I don't want to talk about this on a quarterly basis, but would be to try and stabilize inventory at the absolute level it's at, Which would mean that we're not consuming cash on it and maybe even take a little bit of cash out of it. But we're not intending to Certainly grow it from the level it's at the moment. There's a lot of strategic inventory on hand there. Speaker 800:36:31Interesting. And just lastly, I know There's a lot of focus on the 2022 with revenue growth range of 3% to 6%. How much do you think we're embedding costs Going up in 2022, is it going up a similar amount of that revenue growth should we think about? Is it slightly below that revenue growth figure? Just Curious on what you're seeing on the inflationary cost side and how to think about that as we go through 2022? Speaker 800:36:56Thanks everyone. Speaker 300:37:01Yes, there's costs on like the sort of material side that Doctor. Sherbakov talked about, but we've also got Continue to have initiatives where, for example, if you get more power out of an individual component, the cost per unit of power goes down a bit. On the other side of it, for example, last year, we actually had a record year, right, and very strong revenue. So we had some of our variable compensation levels were Those will probably go down, not probably, they will go down at the budgeted level of revenue. And that would be a benefit both more on the operating expense side, that variable comp, a little bit on the manufacturing side, Looking really at aligning and managing capacity on the manufacturing side and making sure you're absorbing costs Would be a benefit that may offset some of the inflationary pressures. Speaker 300:37:50So it's even with merit increases at a higher rate Expected this year than they are historically, right? Historically, you can budget a sort of 3% increase this year. Your some regions at a higher Significantly higher than that and on average at 4% to 5%. There are some benefits to the operating expense side that Leave me with some degree that would actually create a total, for example, expense forecast Relative to our revenue budget, it shows a little bit of leverage in it. Operator00:38:26Okay. Thank you. Thanks, everyone. Our next question is from Tom Diffely with D. A. Operator00:38:33Davidson. Please proceed with your question. Speaker 600:38:36Yes, good. Thank you for the questions today. Tim, I was wondering if there's some way to quantify the impact of Russia, maybe the Percentage of bill of materials that are sourced out of Russia or something along those lines? Speaker 300:38:55Just at a high level, there's 2,000 plus employees in Russia. They provide a significant amount of components. They sell some of our lower cost lasers and make For China there, the headcount, if you approximate it is One third of total headcount that we have and it's more on the component side of things Optical the higher labor content optical components, but those are also the components that we think are Pretty unlikely to be impacted by sanctions. Some of the work we've done on that, Particularly from the U. S. Speaker 300:39:38And Europe side, European side, indicates that those basic optical components wouldn't be part of any Thanks. In any event, they're coming from Russia to our other manufacturing operations. Speaker 600:39:52Okay. That's very helpful. Thank you, Tim. And then follow-up question on China. How much is the softness that you're seeing today It's driven by just kind of depressed end market demand versus kind of a recently intensified pricing environment. Speaker 300:40:12The cutting market is both a combination of Weaker demand as well as this we're stepping or not stepping away. We haven't competed on price in China for 2 years, so particularly the higher end of that market for automated investments may be a little bit weaker. Certainly China has not been Stimulating they've been in a more contractionary phase. So it's a combination of Probably a weaker macro environment, definitely, some COVID impact. And then the pricing competition that continues to be Aggressive from the main manufacturers there. Speaker 600:40:58Okay. Well, thanks, Tim. I appreciate your time. Operator00:41:03Our next question comes from Paretosh Misra with Berenberg. Please proceed with your question. Speaker 900:41:11Thank you, everyone. First on your EV business, any color you could Provide us to what you're hearing from your customers on battery capacity build out this year. Do you expect incremental Capacity build this year to be same as last year or maybe higher? I'm guessing last year you probably had 200 to 300 gigawatt hours incremental capacity or demand. So just any color you could provide for this year? Speaker 900:41:38That would be my question number 1. Speaker 300:41:41When you look at the data out there around battery capacity, it basically kind of stabilizes in that 200 to 300 Gigawatt capacity each year, but it goes on being sustained for a multiyear period, right? This is a decades long Investment cycle, what we would see within that and would hope to benefit from is, for example, an increased diversity All applications, whether they be increase in cleaning applications, that's more welding done, Benefiting also not just from the battery side of it, but from increase in electric motor manufacturing and then as investments happen on So all of the data you kind of look at doesn't say that Battery capacity sort of jumps from 300 to 600 gigawatts a year in investment, but it is a sustainable long term Source of revenue for the industry. Speaker 900:42:44Got it. And then can you also discuss your backlog? I think firm went up by a lot, but then frame agreements declined. So what's going on there? Speaker 300:42:56So a lot of frame agreements come in China for the cutting application. So sometimes it's timing of that, but given the weakness in that end market, That would be an explanation for that. In addition, our total backlog in China is still quite strong. So we actually have quite a lot of orders On hand for cutting, which we're waiting to see when they get called off and if that market continues to stabilize or even Demand improves a little bit, you'd expect to see those orders called off. So there isn't a pressing need for new cutting orders. Speaker 300:43:26We've got It's more a question of them being called off. The other components of backlog, I think, if you look at the shippable backlog, that's up meaningfully Year over year, which again is a positive trend, some of that's driven by some of the changes in the business. So for example, we have a lot of visibility into the medical We're not just for systems, but consumable fibers. We actually have from some of our semiconductor customers orders on hand That go out even for the full year and potentially even I think even into early 2023. So that would be an emerging business line. Speaker 300:44:00The Systems business, which is showing some recovery. We've got very strong backlog for medical device systems where the lead times are a lot longer. And then the other thing that I think is influencing backlog a little bit that's giving us a bit more than the normal 3 months trajectory into visibility is that given some of the supply chain issues, we are getting orders from customers In Europe and North America with slightly more visibility or longer lead times because they want to make sure that they're getting allocated Production. So there's sort of a number of different components of the makeup of backlog that have Changed a little bit. Speaker 900:44:44Got it. Thanks for the color. And maybe just the last one. On your share repurchase plan, Is there a time horizon over which you're looking to execute this? Just wondering if there might be some opportunity for some sort of accelerated buyback. Speaker 300:45:01We've not done ASRs before. We look at this more on the opportunity basis. So depending upon where the stock is trading Relative to our internal assessment of fair value, you'd see more shares repurchased. There is no specific timeline related to the new Repurchase that's been announced, but the last two quarters I think you've seen Some good level of repurchasing going on. Last quarter was almost $60,000,000 so that maybe gives you a timeframe over which that May get done. Speaker 900:45:35Thanks, Jim. Thanks so much. Operator00:45:39Our next question comes from Jamie Wang with Citigroup. Please proceed with your question. Speaker 1000:45:47Thank you for taking my question. Just a quick one. If I heard you correct You mentioned about the green laser demand for solar industry was also weak. So I was wondering, is that because of the industry growth slowdown or the competition in this sector was getting more intensified? Thank you. Speaker 200:46:11But we have mentioned in our presentation that this market is sickling. This is why maybe It's not too big. We don't have big enough orders this year, but definitely it will grow Because demand for solar in China and United States will definitely increase. It's why I anticipated that our green lasers will be used Definitely for this market, but not only for solar applications. Speaker 300:46:41Yes. It's not a competitive issue. Speaker 200:46:43It's the cyclical demand side of it, Jamie. Speaker 1000:46:50Okay. Thank you. Maybe just a quick follow-up sorry, the quick Second question from me. Is it possible to share with us the gross margin differences between China and non China? Yes, I found that after 2019, the revenue contribution from China has somehow negatively correlated with the Europe gross margin trend. Speaker 1000:47:14So I was wondering if there are no less revenue contributing from China is actually good for your margin? Yes. Thanks. Speaker 300:47:24There's no we don't give that granularity around it. I mean, what we've said is that We're not competing on price in China. Certainly, when you look at like ultra high power laser sales, whether they're in China or elsewhere, they have very, very Strong margin profile, the pulse lasers, hypo, pulse lasers have a very strong margin profile. So we don't yes, well, first of all, we don't break it out, but we've also said that we're really selling The value proposition that we deliver for the product. Speaker 1000:47:57Copy. No more questions for me. Thank you. Thank you very much. Speaker 300:48:01Thank you. Operator00:48:03Our next question is from Mark Miller with The Benchmark Company. Please proceed with your question. Speaker 1100:48:09Thank you for the question. You talked about green lasers, but What are the other drivers in terms of the Emergent product sales? Speaker 300:48:19Strong drivers in that are things like the high power pulsed For foil cutting applications as well as cleaning applications and other ablative processes, The AMB laser for welding applications, the new LightWeld product, which is the handheld welding application that displaces Traditional MIG and TIG and brings numerous advantages to that process including speed, quality of weld, ability to incorporate cleaning functions within it. Obviously, the green, the ultrafast pulsed, which we expect to start to more meaningfully contribute this year, Some of the beam delivery applications, so whether it's weld monitoring or high speed scanners, Cutting heads and welding heads that get delivered with the lasers, those would be the main and medical, sorry, I left out. Medical application for urology, the surgical medical application. Speaker 200:49:19But I would like also to add Some systems for EV applications, which we already started to supply this year, and we have a strong backlog for this system for this year. And I think it would give us good opportunity to produce and to supply to our customer not only components like lasers And optical threats and LDD monitoring, but integrated system subsystem for EV applications, first of all. Speaker 1100:49:49Just wondering, are any of your major customers experiencing component shortage? And is that impacting their business to you? Speaker 300:49:59Customers experience components, which is so with yes, I think some of the people on the cutting side have seen shortages of Linear Motors and Drives and Electronic Components, I mean everybody is subject to the chip and electronic component supply chain issues that You know, affecting many different industries and that would be the main area that you've heard about. Speaker 200:50:23But it's on a few because as usual, our OEM customer for cutting application, for example, know Operator00:50:41We have reached the end of the question and answer session. I will now turn the call over to Eugene Fedorov for closing comments. Speaker 100:50:49Thank you, everyone, for joining us this morning and for your continued interest in IPG. We will be participating in a number of investor events this quarter I'm looking forward to speaking with you over the coming weeks. Have a great day, everyone. Operator00:51:04This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallIPG Photonics Q4 202100:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) IPG Photonics Earnings HeadlinesIPG Photonics price target lowered to $52 from $64 at BofAApril 22, 2025 | markets.businessinsider.comQ2 EPS Estimates for IPG Photonics Lifted by Zacks ResearchApril 19, 2025 | americanbankingnews.comURGENT: Someone's Moving Gold Out of London...People who don’t understand the gold market are about to lose a lot of money. Unfortunately, most so-called “gold analysts” have it all wrong… They tell you to invest in gold ETFs - because the popular mining ETFs will someday catch fire and close the price gap with spot gold. April 26, 2025 | Golden Portfolio (Ad)Zacks Research Boosts Earnings Estimates for IPG PhotonicsApril 18, 2025 | americanbankingnews.comIPG Photonics price target lowered to $80 from $90 at Raymond JamesApril 8, 2025 | markets.businessinsider.com3 Reasons to Avoid IPGP and 1 Stock to Buy InsteadApril 2, 2025 | msn.comSee More IPG Photonics Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like IPG Photonics? Sign up for Earnings360's daily newsletter to receive timely earnings updates on IPG Photonics and other key companies, straight to your email. Email Address About IPG PhotonicsIPG Photonics (NASDAQ:IPGP) develops, manufactures, and sells various high-performance fiber lasers, fiber amplifiers, and diode lasers used in various applications primarily in materials processing worldwide. Its laser products include hybrid fiber-solid state lasers with green and ultraviolet wavelengths; fiber pigtailed packaged diodes and fiber coupled direct diode laser systems; high-energy pulsed lasers, multi-wavelength and tunable lasers, and single-polarization and single-frequency lasers; and high-power optical fiber delivery cables, fiber couplers, beam switches, chillers, scanners, and other accessories. The company also offers integrated laser systems; LightWELD, a handheld laser welding system; 2D compact flat sheet cutter systems and multi-axis systems for fine welding, cutting, and drilling; welding seam stepper and picker, a fiber laser welding tool; high precision laser systems; specialized fiber laser systems for material processing applications; robotic and multi-axis workstations for welding, cutting and cladding, flatbed cutting systems, and diode markers; and laser and non-laser robotic welding and automation solutions. It serves materials processing, communications, medical procedures, and advanced applications and communications markets. The company markets its products to original equipment manufacturers, system integrators, and end users through direct sales force, as well as through agreements with independent sales representatives and distributors. IPG Photonics Corporation was founded in 1990 and is headquartered in Marlborough, Massachusetts.View IPG Photonics ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 12 speakers on the call. Operator00:00:00Good morning, and welcome to IPG Photonics' 4th Quarter 2021 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 Fedorov, IPG's Director of Investor Relations, for introductions. Please go ahead, sir. Speaker 100:00:19Thank you, Rob, and good morning, everyone. With us today is IPG Photonics' CEO, Doctor. Eugene Cherbakov And Senior Vice President and CFO, Tim Momin. Statements made during the course of this call that discuss management's or the company's intentions, 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. Speaker 100:00:51These risks and uncertainties include the impact of the COVID-nineteen pandemic on our business and those detailed in IPG Photonics' Form 10 ks for the period ended December 31, 2020, and our reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investors section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website. Any forward looking statements made on this call Are the company's expectations or predictions as of today, February 15, 2022 only? The company assumes no obligation to publicly release any updates or revisions to any such statements. Speaker 100:01:39For additional details on our reported results, please refer to the earnings press release, earnings call presentation and the Excel based financial data workbook posted on our Investor Relations website. We will post these prepared remarks on the Investor Relations website following the completion of this call. With that, I will now turn the call over to Eugene Scherbakov. Speaker 200:02:05Good morning, everyone. We are pleased with our 4th quarter performance. We delivered revenues that was 8% higher than a year ago and above the top end of our guidance range. Our full year revenue was record, Slightly above our prerecorded revenue reported in 2018. These strong results were driven by solid demand for our lasers in Europe, North America and improved demand in Japan, which more than offsets the demand in high power cutting application in China. Speaker 200:02:41We saw increased sales in welding, high power cutting outside of China, marking, 3 d printing, foil cutting, cleaning, Semiconductor and number of other products and applications that all contributed to our growth this quarter. Overall, sales outside of China grew to 69% of total revenue, a level we have not seen in many years Sales of high power lasers benefited from increase in order volume in cutting application in Europe, North America and Japan as well as a strong welding revenue, which was offset by lower demand in China high power cutting market. This was due to general market softness and increased competition in low cost portion of this market. We continue to successfully protect our market share in areas which focus on reliability, technology and service. Our high powered lasers and optical heads can deliver significant productivity improvement, Electrical efficiency, flexibility and ease of use and integration as well as the lowest total cost of ownership and global support unmatched by other lasers and non laser tools. Speaker 200:04:08At the same time, we are introducing the ultra compact Rock Mountain, New Cities lasers, which power up to 6 kilowatt, to be more competitive in low cost cutting system. We are also pleased with the growth and we are seeing a medium power and QCW lasers this quarter, This are primarily driven by higher demand in emerging applications. I I would like to also highlight our exceptional growth in welding this year, driven by higher demand of AMB lasers Houston EV battery manufacturer and introducing LightWealth, our handheld welder. Both products are examples of IPG focused on innovation and ability to deliver solutions to our customers that expand our total available market. Our AIM devices provide a broad range of beam tunability that enables superior speed, Better weld quality, ability to weld disparate materials and sputterless welding, which is extremely important in the EV battery manufacturing process. Speaker 200:05:21Another driver behind the strong welding results is Light weld. Compared to traditional MIG and TIG welding, light weld is easier to use, faster, More precise welds in wide range of material, better and incorporate surface cleaning capability. This quarter significantly reduced preparation processing and post processing times resulting in lower total operation costs for our customers. Growth in Welding is one of the many examples of successful revenue diversification strategy that IPG has been pursuing. We are also pleased with the performance of our Medical business. Speaker 200:06:04We recorded revenue this quarter As our gold standard ROASER lasers and disposable fibers continue to gain acceptance. Additionally, ITG is well positioned to benefit from global macro trends such as automation, miniaturization as well as a Focus on sustainability, renewable energy and energy efficiency. As you read ahead, Automakers and Supply Worldwide are investing enormous amount in U. S. Air Mobility Products. Speaker 200:06:41We expect these investments to continue in the next 3, 5 years or even longer. Our lasers are widely used in manufacturing of electrical vehicles. We are supplying laser solutions for battery welding I'm seeing full cutting applications, cleaning, air P welding in electrical battery and motor assembly as well as some body in wide applications. Demand in solar cell market can be cyclical, But strict emission targets are expected to drive significant investment in solar cell production In North America and China, in the next 3 out of 5 years, resulting in high demand for green lasers. These lasers are used to improve solar cell efficiency and reduce the amount of wiring needed to in solar cell design. Speaker 200:07:38Demand for our green lasers increased by 50% in 2021. Focus on sustainability and efficiency as well as some recent energy structures in China and high energy cost in Europe Are there even an increased interest in our eco lasers that provide overall efficiency of greater than 50% and can help To manually reduce environmental impact and energy cost for medium and large industrial manufacturers. During the Q4, emerging product emerging gross product sales were 38% of total revenue, Increasing 57% year over year. We were pleased This performance of number of products is actually key for our diversification of our revenue, including the Backlog for this product remains strong As we enter 2022 and we focus on successfully establishing large market with our Innovative Solutions. Let me share some our expectation for 2022. Speaker 200:09:09While we continue to have limited visibility and see uncertainty in the operational and geographical environment, we believe that The breadth and depth of our product offering, our innovative solutions, efficient R and D model, Strong balance sheet and free cash flow provide us ample flexibility to respond to the business disruption and support growth. We expect continued growth demand in welding and cutting market in North America and Europe and in Japan. Sales and Emerging Growth products should benefit from continued macro trend such as investment into EV batteries, Solar cell automation and miniaturization. However, this will be a transition year for IPG with growth in focus areas And continued diversification away from highly competitive portion of high power cutting market in China, leading to more moderate 3% to 6% revenue growth in 2022. With that said, we remain optimistic In our long term growth opportunity for IPG and continue to expect double digit revenue growth in the mid and long term. Speaker 200:10:26I will turn the call over to Tim to discuss financial highlights in the quarter. Speaker 300:10:33Thank you, Eugene, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our Investor Relations website. I will start with the financial review on Slide 4. Revenue in the 4th quarter was $364,000,000 Up 8% year over year, driven by growth in most of our key product lines and geographies, but declined 4% sequentially mainly due to lower revenue In high power cutting applications in China, revenue from materials processing applications increased 5% year over year And revenue from other applications increased 41%. 4th quarter GAAP gross margin was 45.5%, An increase of 190 basis points year over year driven by lower inventory provisions, which reduced gross margin last year. Speaker 300:11:27It was partially offset by increased shipping costs and lower fixed cost absorption. Sequentially, gross margin decreased due to slightly higher In order to offset some of the inflationary pressures we are experiencing, we have increased the selling price of some products. GAAP operating income was $85,000,000 and operating margin was 23.3%. Net income was $65,000,000 or $1.21 per diluted share. The effective tax rate in the quarter was 23%. Speaker 300:12:08During the quarter, we recognized a foreign exchange gain of $7,000,000 primarily related to the appreciation of the U. S. Dollar versus the euro and Russian ruble and appreciation of the Chinese yuan. Exchange rates relative to the U. S. Speaker 300:12:23Dollar Had been the same as 1 year ago, we would have expected revenue to be $3,000,000 higher and gross profit to be $1,000,000 higher. Moving to Slide 5. Sales of high power CW lasers decreased 19% and represented approximately 41% of total revenue. Sales of ultra high power lasers above 6 kilowatts represented 51% Pulse laser sales increased 32% year over year with Continued growth driven by high power pulse lasers used in EV battery manufacturing, which is partially offset by lower sales of green pulse lasers used in solar cell applications. Systems sales increased 28% year over year, driven by growth across laser systems and higher sales of Light World. Speaker 300:13:16Medium power laser sales increased 28% on growth in 3 d manufacturing and semiconductor applications. QCW laser sales were up 30% year over year due to higher demand in welding. Other product sales increased 81% year over year, driven by higher sales in medical, telecom, Advanced applications as well as beam delivery and parts. Looking at our performance by region on Slide 6, Revenue in North America increased 30% driven by growth in materials processing with strong cutting and welding revenue driven by higher demand We also saw record revenue in medical applications and improved sales in telecom. In Europe, revenue increased 37% as a result of higher demand across many products and applications, including cutting, welding, Marking and Semiconductor. Speaker 300:14:16The region is becoming a close number 2 in terms of revenue contribution for IPG. Revenue in China decreased 20% year over year as we continue to see lower sales in high power cutting applications, which was only partially offset by growth in Welding, High Power Pulse Cutting, 3 d Manufacturing, Marking and Cleaning Applications. We're seeing order activity stabilizing and cutting, so portions of the cutting markets that focus on price remain highly competitive. We're pleased to see a solid improvement in demand in Japan this quarter, driven by higher demand in cutting And Welding Applications. Moving to a summary of our balance sheet on Slide 7. Speaker 300:15:03We ended the quarter with cash, cash equivalents and short term investments of $1,500,000,000 and total debt of $34,000,000 Strong operational execution resulted in cash provided by operations of $85,000,000 during the quarter. Capital expenditures were $29,000,000 in the 4th quarter. We expect 2022 capital expenditures will be in the range of $130,000,000 to $140,000,000 2022 CapEx includes facilities and capacity expenditure to support our future growth as well as redundant capacity for critical components. During the quarter, we repurchased 345,000 shares for a total of $57,000,000 And have approximately $80,000,000 left under the May 2020 authorization. Last week, the Board authorized an additional 200,000,000 In share repurchases, including this new program, the Board has authorized more than $500,000,000 in stock repurchases over the last 3 years. Speaker 300:16:09Moving to outlook on Slide 9. 4th quarter book to bill was close to 1 and we're pleased with order flow across most geographies and products outside of China. Macroeconomic indicators have been moderating, but remain strong for the U. S. And Europe, while Japan continues to recover And China has indicated it will focus on stimulating economic growth in 2022. Speaker 300:16:36We're also seeing China high power demand start to stabilize, albeit at lower levels. We continue to benefit from growth opportunities in electric vehicle battery manufacturing, Rollout of Light World, Growth in Medical Sales. That said, there is still a great uncertainty in the operating environment and price competition in China That make forecasting our business challenging in the medium term, and our Q1 guidance remains subject to significant uncertainties, including the impact on global business environment Geopolitical events, COVID-nineteen, economic trends, growth from emerging product revenue, competition And the lack of long term binding order commitments. We are closely monitoring the situation between Russia and the Ukraine. As we have disclosed before, we supply components between our major manufacturing operations in the U. Speaker 300:17:29S, Germany and Russia. At this time, it's unclear if sanctions would be put in place and should they be, if they would cover components bought or sold from our Russian subsidiary. Sanctions could also target Russian banks and the banking system. In response to this uncertainty, we're developing contingency plans to mitigate possible Including increasing local inventory levels of key imported components and increasing production And other locations. For the Q1 of 2022, IPG expects revenue of 320,000,000 The company expects the Q1 tax rate to be approximately 26%. Speaker 300:18:14An increase in tax rate assumption is due to a decrease in the benefit expected from discrete items such as the excess tax benefit related to equity compensation. IPG anticipates delivering earnings per diluted share in the range of $0.85 to $1.15 with 54,000,000 diluted common shares outstanding. As discussed in the Safe Harbor passage of today's earnings press release, Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release and is subject to risks outlined in the company's reports with the SEC. With that, we'll be happy to take your questions. Operator00:19:00Thank you. At this time, we'll be conducting a question and answer session. One moment please while we poll for questions. Our first question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question. Speaker 400:19:34Hi, thank you. You may have talked about this. I joined a couple of minutes late. But just with respect to The overall cutting business, it looks like it was down for the year in around 17% high teens or so. When you talk about that market potentially stabilizing at a lower level, how do we think about that over the course of 2022? Speaker 400:19:59You seem to be suggesting some signs of stabilizing in China, but on the other hand, it looks like that still has The potential to be weaker in the first half of the year, how do we think about the cutting market? Speaker 300:20:16So I think overall, Jim, China started last year very strong on cutting and then You're all aware it was weak in the second half of the year. Order flow in January for example seemed to be a little bit stronger there. They've just come back from Chinese New Year. So really, we want to see what happens in March April, particularly the next actually 3 or 4 weeks will drive some of that Tonal feedback that we get, but the January pointed to at least some stabilization. It It was very weak in the second half of last year. Speaker 300:20:51The real positives I think on cutting though are really where some of our more focus is now In other geographies, so we are pleased with the performance in cutting in Europe, in North America. We actually saw some recovery in that market in Japan as well. So we continue to hold a very strong position outside of China. The other thing we mentioned on the script just now was that We're actually increasing the power level of the ultra compact lasers that we're offering in China. So they've been primarily at 3 kilowatts, we mentioned that very soon we're going to 6 kilowatts and even towards the end of the year to 8 kilowatts. Speaker 300:21:28That's a very competitive device for us there. We're not going to compete on price with it, but it will enable us to price that device Speaker 200:21:35because it has a lower bill of material cost, Speaker 300:21:37a bit more competitively. And then the other side of this is the opposite end of the spectrum, the really ultra high power lasers. We're seeing some demand there as we mentioned in Europe for The echo lasers with higher energy efficiency. So, the China cutting market remains subdued. We're pleased with performance elsewhere. Speaker 300:21:56And the other thing that's out there is potentially some stimulus coming into China, which the government's really been in more a contractionary phase where everybody else has been Fiscally more expansionary, so that could also help to improve the tone of the business during the year. Speaker 400:22:13Follow-up question is just On gross margins, just given if we think about the year as being somewhat of a transition year with this much Yes, a more modest growth rate, 3% to 6%. In the past, you've talked about a range of gross margins In the 45% to 50% area. So in light of what you're seeing in the market, is there any update you can provide with respect to how we Think about gross margins. Speaker 300:22:42So overall, last year gross margins performed pretty well, right? They were in the midpoint of our range, just slightly above that. Clearly, Q4 is a bit weaker. It wasn't anything specific in Q4. It's a number of different things that we called out, product cost a little bit with mix, There's some inflationary pressures there, shipping costs, a little bit lower absorption. Speaker 300:23:02Overall though, given A relatively slower start to the year and that guide for the year of 3% to 6%, that actually requires revenue to pick up Meaningfully in Q2, Q3 and Q4, that's the first benefit we'll get on gross margin as we tend towards a higher slightly higher revenue level. And then in addition to that, I mentioned that we've started to increase the price of certain products. We're also focused Continuing to reduce the internal cost of components that the 3 kilowatt ultra compact moving to 6 and 8 is an example of some of the cost initiatives there. So Yes. Overall, as we get to a slightly higher revenue level in the second half of the not second half, but Q2, in the second half of the year, expect to see some Return to that upper half of our gross margin range. Speaker 300:23:51We're not stepping away from that Target of getting into that more consistently into that upper half of that range, Tim. Operator00:23:59Okay. Thank you. Speaker 200:24:01And also with such kind of margin, which There is IPG. IPG definitely is a leader in this industry. Nobody can reach such kind of results. Operator00:24:15Our next question comes from Patrick Ho with Stifel. Please proceed with your question. Speaker 500:24:21Thank you very much. Tim, maybe just as a follow-up to some of the comments you just made about gross margins, the supply chain and you talked about shipping costs being higher. Were there any challenges in procuring parts? Or were they just more that you had to pay more for those parts Because the revenues look pretty good for December, what are some of the supply chain challenges that you're experiencing today? Speaker 200:24:47Of course, there are some challenges, first of all, but taking in mind that IPG is a vertically integrated company. The main important components for our lasers, we are producing ourselves inside the company. This means it's not any problems to supply any time And I would reiterate also that at optimal cost for these companies. We are talking about Some components which are receiving from outside. Of course, there exist some explanations. Speaker 200:25:17First of all, price for some components increased dramatically. By the way, electronic components, for example, chips, in some cases, prices will increase up to 3, up to 10 times. Of course, it also influenced our will be influenced for our gross margin. Also, shipping cost Additional, yes, definitely. And the raw materials, some metals also, price for this metal growth, raw material capital 25%, 30%. Speaker 200:25:50Of course, it's influenced by our gross margin, but we are also working through optimization. Speaker 600:25:58Every time we are talking about this, Speaker 200:26:00we are making this optimization. This is why we would like to keep our margins high enough. Speaker 500:26:08Great. That's helpful. And maybe as my follow-up question, this diversification strategy that you're taking on and Obviously, trying to accelerate. As we look at 2022 as a whole, given that you have new products in your new markets And also just regional expansion, where do you believe the greatest, I guess traction you'll get among markets, products or regions, where is that diversification going to Greatly contribute to at least 2022 this year. Speaker 200:26:48I think the main our contribution will be definitely from United And also from Europe, different kind of application, including cutting market, it's definitely. But also our Medical business going Good enough and also we see the good opportunity, first of all for United States and Europe. And also there are some new products which we start to introduce now to the market. And our main Advantage for this year will be that we will not concentrate it on the cutting only market in China. We will concentrate our different applications for Speaker 500:27:32Great. Thank you. Operator00:27:46Our next question comes from Nick Toth with Longbow Research. Please proceed with Speaker 300:27:50your question. Yes, thanks and Speaker 700:27:53good morning everyone. I want to first double click on China. Is there any change in the strategy going forward? It sounds to me that you're going to be even more selective in participating in deals and maybe you're seeing an incremental I know competition has been formidable there for a while, but maybe the pricing aggression is penetrating even into the ultra high power space. Can you give us a little bit of an update on the China strategy? Speaker 200:28:26China strategy is very simple. Of course, we are not following this price We reached our competitors in China In some cases, it's not financial Basis for this, it's definitely they would like to get some shares in this market without any Our strategy is very simple. We are producing the best product It's high quality, it's high efficiency. In this case, we can keep also premium price for our product. It's without any problem. Speaker 200:29:10I mean for standard product. High power, we just I mean, it's power more than 15, 20, 30, 40 kilowatt. Definitely, IPG is leader and we also can keep good enough price for this product. By the way, the first First order for eco lasers, 20 kilowatt eco laser also received for China. Of course, it's also some demand in Europe and the United States, but first of all in China. Speaker 200:29:38And also for a good opportunity because nobody can supply such kind of laser with such kind of parameter like 50% volt plug efficiency, Also compact. There is different. I'm not talking about this on the high power. Also pulse laser Keep our portion of this market. And high power pulse lasers, which we're using for oil cutting and other applications, Green lasers, there is a lot of opportunities also to compete and to keep our part on the Chinese market. Speaker 700:30:13Okay. And as a follow-up, as you embark on this diversification strategy, how are you thinking about M and A? Traditionally, you've done some smaller tuck in deals. How are you thinking about potential larger deals maybe to accelerate The diversification plans? Speaker 200:30:33Definitely, we are discussing about this, there exists some opportunity, but we are very suspicious about this because One of the big problem is not only to take some company. The main problem is integrate and this is why we are looking for every time or for the new technologies, it will be also added to our Technology portfolio or to companies which is can we Easily integrate to our manufacturing process and also to integrate to our management system. This is our strategy for M and A. Speaker 700:31:15Okay. Last quick follow-up. Just, Tim, last year, I think you said EV sales were, I think, 9% of sales. Can you share an update how much EV related sales were for 2021 as a whole? Speaker 300:31:31I think we gave a specific number there. I mean EV sales can range from like 5% to slightly above 10% each quarter, And we haven't gone into more detail than that. So they were meaningful contributor across pulsed hyper, pulsed A and B, Single mode kilowatt scale lasers, even LDD. So overall for the year probably it was slightly above 10%. Nick, one thing I want to draw your attention to is like your comment about embarking on this diversification strategy. Speaker 300:32:03The company has been pursuing this diversification strategy for several years now, right? We introduced Light World over a year ago. We introduced higher power pulse lasers, AMB lasers, the MQCL lasers for spot welding Accessories, the green laser has been in the market for a long period of time. We actually find ourselves having embarked on that strategy some time ago, Better positioned now than we would otherwise have been. So, there's a lot of work that's already gone on to that and we now want to really Accelerate that and remain committed not to just being drawn into a price war on certain parts of the China market. Speaker 300:32:43Even in China, there's a lot of diversity in revenue Last year compared to 2020 or even 2019. Speaker 700:32:53Yes, Tim, I agree. I think acceleration of that strategy is a more fair description. Thanks. Appreciate it. Operator00:33:02Our next question is from Michael Feniger with Bank of America. Please proceed with your question. Speaker 800:33:09Hey, gentlemen, thanks for taking my call. Can you touch on this earlier? I recognize this is a fluid situation with Geopolitical tension. In a scenario where Russia is kicked out of SWIFT, what does that mean exactly? And can you flesh out a little bit more Your plans to build contingencies right now, what does that entail exactly? Speaker 300:33:35So first of all, I'm not a banking expert, right? I mean, being kicked out of SWIFT is actually I don't think on the cards because They talked about Swift in 2014 and there's been a lot of pushback against that. There's probably like targeted sanctions against Russian banks, which would mean that You'd be limited in your ability to receive or pay cash out there. We also have international bank accounts in Russia. Now as around sanctions and the other areas, anything that we talk about at the moment is very speculative because there's a wide range of potential things that could happen. Speaker 300:34:07And A lot of what's been talked about in terms of sanctions doesn't target a lot of our optical components. It may target some of them. It depends whether there are retaliatory sanctions imposed or not by Russia. But at the moment, it's a very fluid situation. So And it's more positive, I think this morning even than it was at the end of last week. Speaker 300:34:32And we have obviously been Looking closely at it and trying to mitigate those risks by putting inventory in different locations and also in the medium to longer term looking at how to Reduce some of those risks a bit more. Speaker 800:34:47And just following up on that, Tim, you mentioned how I I think the inventories, your inventory levels were up 6% sequentially, yet I think sales were down a little bit sequentially, but the inventory to sales ratio kind of jumped. How are we thinking about your inventory levels kind of going forward? Is there a specific region you guys are charging there Are those inventories builds right now? Speaker 300:35:13So there's a lot of focus on inventory now. I mean there's some habitually there's some Things the way that inventory was managed historically within the company that had a lot of positives. So for example, right now when we talk about some of the risks whether it's supply chain or geopolitical risk, Some of the increases in Q4 relate to increasing inventory in different locations. Some of it relates to significant increase in electronic components, right? So You kind of got to pass this out a little bit between some of the strategic things we've done around inventory that mitigate risks and Enable us to maintain lead times to customers. Speaker 300:35:49And then also the fact that the company really is starting to look more Holistically around inventory planning and management and targeting that as an area where we want to improve Execution improved the processes in different areas. But at the moment, there's puts and takes around it. But our overall target this year, I don't want to talk about this on a quarterly basis, but would be to try and stabilize inventory at the absolute level it's at, Which would mean that we're not consuming cash on it and maybe even take a little bit of cash out of it. But we're not intending to Certainly grow it from the level it's at the moment. There's a lot of strategic inventory on hand there. Speaker 800:36:31Interesting. And just lastly, I know There's a lot of focus on the 2022 with revenue growth range of 3% to 6%. How much do you think we're embedding costs Going up in 2022, is it going up a similar amount of that revenue growth should we think about? Is it slightly below that revenue growth figure? Just Curious on what you're seeing on the inflationary cost side and how to think about that as we go through 2022? Speaker 800:36:56Thanks everyone. Speaker 300:37:01Yes, there's costs on like the sort of material side that Doctor. Sherbakov talked about, but we've also got Continue to have initiatives where, for example, if you get more power out of an individual component, the cost per unit of power goes down a bit. On the other side of it, for example, last year, we actually had a record year, right, and very strong revenue. So we had some of our variable compensation levels were Those will probably go down, not probably, they will go down at the budgeted level of revenue. And that would be a benefit both more on the operating expense side, that variable comp, a little bit on the manufacturing side, Looking really at aligning and managing capacity on the manufacturing side and making sure you're absorbing costs Would be a benefit that may offset some of the inflationary pressures. Speaker 300:37:50So it's even with merit increases at a higher rate Expected this year than they are historically, right? Historically, you can budget a sort of 3% increase this year. Your some regions at a higher Significantly higher than that and on average at 4% to 5%. There are some benefits to the operating expense side that Leave me with some degree that would actually create a total, for example, expense forecast Relative to our revenue budget, it shows a little bit of leverage in it. Operator00:38:26Okay. Thank you. Thanks, everyone. Our next question is from Tom Diffely with D. A. Operator00:38:33Davidson. Please proceed with your question. Speaker 600:38:36Yes, good. Thank you for the questions today. Tim, I was wondering if there's some way to quantify the impact of Russia, maybe the Percentage of bill of materials that are sourced out of Russia or something along those lines? Speaker 300:38:55Just at a high level, there's 2,000 plus employees in Russia. They provide a significant amount of components. They sell some of our lower cost lasers and make For China there, the headcount, if you approximate it is One third of total headcount that we have and it's more on the component side of things Optical the higher labor content optical components, but those are also the components that we think are Pretty unlikely to be impacted by sanctions. Some of the work we've done on that, Particularly from the U. S. Speaker 300:39:38And Europe side, European side, indicates that those basic optical components wouldn't be part of any Thanks. In any event, they're coming from Russia to our other manufacturing operations. Speaker 600:39:52Okay. That's very helpful. Thank you, Tim. And then follow-up question on China. How much is the softness that you're seeing today It's driven by just kind of depressed end market demand versus kind of a recently intensified pricing environment. Speaker 300:40:12The cutting market is both a combination of Weaker demand as well as this we're stepping or not stepping away. We haven't competed on price in China for 2 years, so particularly the higher end of that market for automated investments may be a little bit weaker. Certainly China has not been Stimulating they've been in a more contractionary phase. So it's a combination of Probably a weaker macro environment, definitely, some COVID impact. And then the pricing competition that continues to be Aggressive from the main manufacturers there. Speaker 600:40:58Okay. Well, thanks, Tim. I appreciate your time. Operator00:41:03Our next question comes from Paretosh Misra with Berenberg. Please proceed with your question. Speaker 900:41:11Thank you, everyone. First on your EV business, any color you could Provide us to what you're hearing from your customers on battery capacity build out this year. Do you expect incremental Capacity build this year to be same as last year or maybe higher? I'm guessing last year you probably had 200 to 300 gigawatt hours incremental capacity or demand. So just any color you could provide for this year? Speaker 900:41:38That would be my question number 1. Speaker 300:41:41When you look at the data out there around battery capacity, it basically kind of stabilizes in that 200 to 300 Gigawatt capacity each year, but it goes on being sustained for a multiyear period, right? This is a decades long Investment cycle, what we would see within that and would hope to benefit from is, for example, an increased diversity All applications, whether they be increase in cleaning applications, that's more welding done, Benefiting also not just from the battery side of it, but from increase in electric motor manufacturing and then as investments happen on So all of the data you kind of look at doesn't say that Battery capacity sort of jumps from 300 to 600 gigawatts a year in investment, but it is a sustainable long term Source of revenue for the industry. Speaker 900:42:44Got it. And then can you also discuss your backlog? I think firm went up by a lot, but then frame agreements declined. So what's going on there? Speaker 300:42:56So a lot of frame agreements come in China for the cutting application. So sometimes it's timing of that, but given the weakness in that end market, That would be an explanation for that. In addition, our total backlog in China is still quite strong. So we actually have quite a lot of orders On hand for cutting, which we're waiting to see when they get called off and if that market continues to stabilize or even Demand improves a little bit, you'd expect to see those orders called off. So there isn't a pressing need for new cutting orders. Speaker 300:43:26We've got It's more a question of them being called off. The other components of backlog, I think, if you look at the shippable backlog, that's up meaningfully Year over year, which again is a positive trend, some of that's driven by some of the changes in the business. So for example, we have a lot of visibility into the medical We're not just for systems, but consumable fibers. We actually have from some of our semiconductor customers orders on hand That go out even for the full year and potentially even I think even into early 2023. So that would be an emerging business line. Speaker 300:44:00The Systems business, which is showing some recovery. We've got very strong backlog for medical device systems where the lead times are a lot longer. And then the other thing that I think is influencing backlog a little bit that's giving us a bit more than the normal 3 months trajectory into visibility is that given some of the supply chain issues, we are getting orders from customers In Europe and North America with slightly more visibility or longer lead times because they want to make sure that they're getting allocated Production. So there's sort of a number of different components of the makeup of backlog that have Changed a little bit. Speaker 900:44:44Got it. Thanks for the color. And maybe just the last one. On your share repurchase plan, Is there a time horizon over which you're looking to execute this? Just wondering if there might be some opportunity for some sort of accelerated buyback. Speaker 300:45:01We've not done ASRs before. We look at this more on the opportunity basis. So depending upon where the stock is trading Relative to our internal assessment of fair value, you'd see more shares repurchased. There is no specific timeline related to the new Repurchase that's been announced, but the last two quarters I think you've seen Some good level of repurchasing going on. Last quarter was almost $60,000,000 so that maybe gives you a timeframe over which that May get done. Speaker 900:45:35Thanks, Jim. Thanks so much. Operator00:45:39Our next question comes from Jamie Wang with Citigroup. Please proceed with your question. Speaker 1000:45:47Thank you for taking my question. Just a quick one. If I heard you correct You mentioned about the green laser demand for solar industry was also weak. So I was wondering, is that because of the industry growth slowdown or the competition in this sector was getting more intensified? Thank you. Speaker 200:46:11But we have mentioned in our presentation that this market is sickling. This is why maybe It's not too big. We don't have big enough orders this year, but definitely it will grow Because demand for solar in China and United States will definitely increase. It's why I anticipated that our green lasers will be used Definitely for this market, but not only for solar applications. Speaker 300:46:41Yes. It's not a competitive issue. Speaker 200:46:43It's the cyclical demand side of it, Jamie. Speaker 1000:46:50Okay. Thank you. Maybe just a quick follow-up sorry, the quick Second question from me. Is it possible to share with us the gross margin differences between China and non China? Yes, I found that after 2019, the revenue contribution from China has somehow negatively correlated with the Europe gross margin trend. Speaker 1000:47:14So I was wondering if there are no less revenue contributing from China is actually good for your margin? Yes. Thanks. Speaker 300:47:24There's no we don't give that granularity around it. I mean, what we've said is that We're not competing on price in China. Certainly, when you look at like ultra high power laser sales, whether they're in China or elsewhere, they have very, very Strong margin profile, the pulse lasers, hypo, pulse lasers have a very strong margin profile. So we don't yes, well, first of all, we don't break it out, but we've also said that we're really selling The value proposition that we deliver for the product. Speaker 1000:47:57Copy. No more questions for me. Thank you. Thank you very much. Speaker 300:48:01Thank you. Operator00:48:03Our next question is from Mark Miller with The Benchmark Company. Please proceed with your question. Speaker 1100:48:09Thank you for the question. You talked about green lasers, but What are the other drivers in terms of the Emergent product sales? Speaker 300:48:19Strong drivers in that are things like the high power pulsed For foil cutting applications as well as cleaning applications and other ablative processes, The AMB laser for welding applications, the new LightWeld product, which is the handheld welding application that displaces Traditional MIG and TIG and brings numerous advantages to that process including speed, quality of weld, ability to incorporate cleaning functions within it. Obviously, the green, the ultrafast pulsed, which we expect to start to more meaningfully contribute this year, Some of the beam delivery applications, so whether it's weld monitoring or high speed scanners, Cutting heads and welding heads that get delivered with the lasers, those would be the main and medical, sorry, I left out. Medical application for urology, the surgical medical application. Speaker 200:49:19But I would like also to add Some systems for EV applications, which we already started to supply this year, and we have a strong backlog for this system for this year. And I think it would give us good opportunity to produce and to supply to our customer not only components like lasers And optical threats and LDD monitoring, but integrated system subsystem for EV applications, first of all. Speaker 1100:49:49Just wondering, are any of your major customers experiencing component shortage? And is that impacting their business to you? Speaker 300:49:59Customers experience components, which is so with yes, I think some of the people on the cutting side have seen shortages of Linear Motors and Drives and Electronic Components, I mean everybody is subject to the chip and electronic component supply chain issues that You know, affecting many different industries and that would be the main area that you've heard about. Speaker 200:50:23But it's on a few because as usual, our OEM customer for cutting application, for example, know Operator00:50:41We have reached the end of the question and answer session. I will now turn the call over to Eugene Fedorov for closing comments. Speaker 100:50:49Thank you, everyone, for joining us this morning and for your continued interest in IPG. We will be participating in a number of investor events this quarter I'm looking forward to speaking with you over the coming weeks. Have a great day, everyone. Operator00:51:04This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.Read morePowered by