Good morning, and welcome to IPG Photonics Third Quarter 2024 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotoff, IPG's Senior Director, Investor Relations for introductions. Please go ahead with your conference..

Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin; and Senior Vice President and CFO, Tim Mammen. Let me remind you that 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.

These risks and uncertainties are detailed in IPG Photonics' Form 10-K for the period ended December 31, 2023 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 the SEC's website direct.

Any forward-looking statements made on this call are the company's expectations or predictions as of today, October 29, 2024, on day and the company assumes no obligation to publicly release any updates or revisions to any such statements.

For additional details on our reported results, please refer to the earnings press release, earnings call presentation and the financial data workbook posted on our Investor Relations website. We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark..

Thank you, Gene, and good morning, everyone. Our third quarter revenue came in at the high end of our guidance, adjusted for the sale of our Russian operations in August. Adjusted earnings per share also came in at the top end of the guidance. We continue to focus on what we can control while navigating a demand environment that has remained muted.

Since joining in June, I focused on diving deep into key aspects of IPG's business and strategy. We're making good progress executing on our key initiatives, and I'm even more excited about our future opportunities and when I joined. I'll share a few highlights. I will start with the sale of our Russian operations.

As I mentioned on our last call, our team has done a tremendous job since the start of the war in Ukraine, executing flawlessly to serve the needs of our customers by quickly rebuilding our manufacturing infrastructure to ensure we did not miss a single shipment -- this was not an easy task.

This quarter, we were finally able to completely exit Russia with the sale of our operations in the country. With this transition now in the rearview mirror, we are focusing on optimizing our global manufacturing footprint to drive better efficiency, while ensuring enough capacity for an uptick in demand in future quarters.

In addition, we are working to decrease the cost of our products with a new generation of laser diodes that will also enable a significant reduction in the form factor of our high-power fiber lasers. Second highlight is our announcement today that we signed an agreement to acquire cleanLASER, a leader in laser cleaning systems based in Germany.

IPG has a strong track record of driving the usage of lasers in new applications and solutions and this remains a key part of our growth and differentiation strategy. This tuck-in acquisition advances our capabilities in the large and attractive cleaning market where we see a lot of opportunities.

It will enable us to expand the use of labor more quickly into this area. The acquisition highlights our focus on long-term growth. I'll talk more about how cleanLASER fits this IPG business shortly. My review of the business confirms the strength of our product pipeline, technical know-how and future market opportunities.

We have work to do to execute on these opportunities, and we're going to be investing in a number of key areas.

We will make sure we're allocating resources to capitalize on high-value programs in areas such as medical, cleaning and micromachining and also strengthening the organization to ensure that we are optimized to execute on these opportunities.

We have a robust product pipeline that presents attractive opportunities to drive differentiation around lasers and systems and to deliver complete solutions, process know-how and world-class support to our customers. All of this cannot be easily replicated by competitors.

Our focus will remain on providing a high level of service and support maximizing uptime and lowering the total cost of ownership for our customers. On the organization front, we need to get stronger to ensure we are executing at a high level. This includes how we drive decisions, efficiency throughout the organization and our go-to-market approach.

We will be making some investments here, and I'll provide more color on future calls. But the main theme is that we are going to be stronger operators and more formidable competitors as we exit the current demand downturn.

Because of the prolonged down cycle in the industrial market that we're facing, we need to make sure that we're managing with agility as we invest for the long-term. Over the past few months, we've achieved additional cost efficiencies in the implemented cost avoidance initiatives and more recently executed a targeted headcount reduction.

We expect to reallocate these savings to opportunities that will drive long-term growth for IPG. I'll have more to share on all the initiatives underway in coming months.

But for now, let me make it clear that we are moving purposefully and operating with agility as we put IPG in a strong position both for demand recovery and for long-term growth opportunities in our industry.

And we are starting this from a solid foundation with great products, customer relationships, strong cash flow generation and one of the industry's best balance sheets, including $1 billion in cash and no debt. Let's now turn to the current business environment. Overall demand continues to bounce along the bottom.

Customer conversations indicate a cautious spending environment across many markets, driven by economic and political uncertainty and reduced end market demand in the key areas of general manufacturing and e-mobility.

Our fourth quarter guidance reflects a continuation of this trend, and we currently don't have any visibility into an improved demand environment. Turning to our key applications. In welding, revenue decreased modestly year-over-year primarily due to lower demand for e-mobility in China.

Despite the year-over-year comparison remaining negative, it's important to note that welding sales have been relatively stable over the last three quarters and that there are several good signs of progress for IPG.

We're winning business with some large global customers in the EV and general automotive applications and driving further adoption of our welding solutions. Our real-time weld monitoring system is gaining acceptance with automotive and nonautomotive customers where weld quality is critical for safe performance of their products.

Additionally, EV sales improved sequentially, which demonstrates we are gaining market share in EV applications despite a downturn in battery capacity installations. I'm also encouraged to see growth in our welding system sales with both automated systems and handheld posting better year-over-year results.

Welding systems for medical device manufacturing are gaining traction around the world, and we're seeing strong demand for our solutions in this market. We're having great conversations with important customers that indicate a favorable longer-term adoption curve, and we're well positioned for further gains.

Overall, across welding applications, we continue to focus on the total solution for customers by providing best-in-class lasers in-line real-time weld monitoring and full automation to solve customers' manufacturing challenges. In cutting, sales declined significantly year-over-year, primarily in Europe and U.S. as flat sheet cutting remains weak.

Amid an environment of weaker manufacturing PMI, our customers have not resumed normal purchasing activities, although some of them have made progress working down inventories. On a positive note, I continue to be enthusiastic about our opportunities in the growth areas where fiber lasers can replace incumbent technologies.

That's the reason behind the cleanLASER acquisition as we look to increase our penetration into industrial cleaning applications. Cleaning is an important opportunity because traditional cleaning applications often rely on high levels of environmentally unfriendly consumables such as acids and abrasives that must be disposed of.

The processes may also involve high water consumption. By contrast, laser cleaning systems are environmentally friendly with limited or no process waste and have a compelling total cost of ownership. cleanLASER has a strong foothold in Europe as a long-time leader in the cleaning space.

We have a wide array of customers in industries such as automotive, aerospace, medical, food and other markets. This is a great example of a targeted and prudent approach, you will see us take an M&A activity. We've known the cleanLASER team and have supplied our laser sources to them for a number of years.

Our businesses are complementary in many ways, bringing together our respective strong customer bases in North America and Europe as well as product and technology synergies. We believe that together, we can help accelerate the adoption of laser systems and industrial cleaning.

Tim will provide some more details on the structure of the deal and its financial impact. I want to emphasize, I'm extremely excited about a number of products and technologies and development. So we will be doubling down on some of them over the next couple of years.

While it's too early to share the details, I believe these products can provide significant differentiation for IPG and medical micromachining and advanced applications, all of which provide large and attractive market opportunities for us. Moving to our outlook. Our third quarter book-to-bill was 1, excluding Russian sales.

As I mentioned earlier, we continue to believe that we are bouncing along the bottom of this demand cycle. Across our geographies, we've seen some stability in demand in China, offset by continued macro uncertainty in Europe and the U.S. We have limited visibility beyond the current quarter but are remaining hopeful for more stability in 2025.

With that, I will now turn the call over to Tim..

Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation which is available on our Investor Relations website. We'll start with the financial review on Slide 5.

Revenue in the third quarter was $233 million, a decline of 23% year-over-year and down 8% sequentially when adjusted for Russian revenue, which was $7 million in the quarter. Revenue came in at the top of our guidance. Foreign currency did not have a meaningful impact on revenue this quarter.

Revenue from materials processing applications decreased 22% year-over-year primarily due to lower cutting sales, while revenue from other applications decreased 28% due to unevenness in medical and advanced application sales.

GAAP gross margin was 23.2%, a decrease of over 20 percentage points year-over-year primarily due to excess inventory provisions, which provided a 12.8 percentage point headwind to GAAP gross margin this quarter. Adjusted gross margin was 36%, above the midpoint of our guidance.

Additionally, lower absorption of manufacturing costs as a result of lower revenue and our continued effort to rightsize inventory reduced gross margin by 660 basis points.

These negative impacts to gross margin were partially offset by a decrease in import duty and shipping costs as well as a further decrease of $5 million in sequential manufacturing expenses. Most of the decrease -- increase in inventory provisions was related to excess quantities of strategic electronic and diode components.

The provision related to the electronic components was driven by the severe issues that affected the electronic supply chain over the past several years, which resulted in significant purchases of these items as a strategic backlog.

Given the slowdown in our business, and unsuccessful attempts to sell the electronic inventory in the secondary market, the realizable value of these items is now uncertain. Provision for excess diode components is a result of the transition from the current generation of diodes to the new, more cost-effective high-power platform.

Although this transition will happen over the next 12 to 15 months, our analysis shows that we will not consume all the existing inventory. Operating expenses came in at the low end of our expectations due to the sale of our Russian business and focus on operating efficiencies.

Currency translation had a minor impact on revenue and gross profit in the quarter of approximately $1 million. Currency transaction losses had a negative impact on operating income of $1 million or $0.02 per share.

GAAP operating loss was $253 million and included $198 million loss on sale of assets related to the disposal of our Russian operations and $27 million in asset impairment charges due to recent EU trade controls, which curtailed our ability to operate in Belarus. We are currently evaluating strategic options related to this business.

As a result of these items, we reported a net loss of $234 million or $5.33 per diluted share. Excluding loss on sale of assets, asset impairment charges and excess inventory provisions, our adjusted EPS was $0.29 in the third quarter at the top of our guidance.

We have provided a reconciliation to adjusted net income and adjusted earnings per share in the press release and earnings call presentation. Moving to the revenue performance by region on Slide 6. Sales in North America decreased 20% year-over-year due to lower sales in cutting applications and a decline in medical revenue.

Our medical orders from a large customer can fluctuate significantly quarter-over-quarter due to their inventory management practices, adding some unevenness to these revenues. Other applications performed better with growth in welding and marking.

EV investment is being delayed in the region, but traditional automotive investments seem to be bouncing back slightly.

In Europe, sales decreased 29% compared to the prior year due to lower sales and cutting applications, large cutting OEM customers continue to manage their inventories with only low order rates as economic conditions in Europe continue to be weak and industrial demand remains muted.

Revenue in China decreased 27% year-over-year due to lower sales in cutting and welding applications as a result of soft demand in general industrial and e-mobility markets. which was partially offset by growth in 3D printing applications. Cutting sales were also impacted by the challenging competitive environment.

Moving to a summary of our balance sheet and cash flow on Slide 7. We ended the quarter with cash, cash equivalents and short-term investments of $1 billion and no debt. Cash provided by operations was $66 million and capital expenditures were $23 million during the quarter.

We continue to generate cash from inventory as we manage our investment in working capital. The proceeds received from the divestiture of our Russian operations resulted in a net cash outflow of $25 million. We spent $74 million on share repurchases in the third quarter and $286 million year-to-date.

While maintaining a strong balance sheet, we have returned a significant amount of capital to shareholders through share repurchases since the beginning of 2021. As mentioned earlier, we signed a definitive agreement to acquire cleanLASER for approximately $75 million. Moving to our outlook on Slide 9 for the fourth quarter of 2024.

We expect revenue of $210 million to $240 million. The revenue guidance range is similar to the last quarter, but after for adjusting for Russian sales reflects an increase in the revenue guidance range of $10 million sequentially. The fourth quarter gross margin is estimated to be between 35% and 38%.

We anticipate delivering earnings per diluted share in the range of $0.05 to $0.35 with approximately 44 million diluted common shares outstanding. Let me provide additional guidance on the financial impact of the divestitures and acquisitions.

The sale of Russia is expected to reduce our revenue by approximately $40 million on an annual basis, but should have a neutral impact on operating income as the business was running at approximately breakeven after the restructuring.

Our total operating expenses will come down as a result of the sale, but the decrease will be partially offset by our annual merit increase. Furthermore, we will continue to invest in research and development and sales and marketing to support technology development and closer collaboration with customers.

The announced acquisition of cleanLASER is expected to close in the fourth quarter, pending regulatory approvals and is not a part of our guidance. We expect this acquisition to add approximately $30 million to revenue in the first year.

It will be approximately neutral to GAAP operating income due to accruals for earnouts based on future growth and profitability targets for the business.

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 safe harbor and the company's reports with the SEC. With that, we'll be happy to take your questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Ruben Roy from Stifel. Your line is now live..

Thank you. Hi, Mark and Tim. Thanks for taking the questions. I wanted to start, Mark, with maybe drilling into the comment on no visibility of an improved demand environment a bit in the context -- within the context of the book-to-bill getting back to one here.

Maybe you could talk about linearity of bookings or geography of the improvement from last quarter on the bookings front to this quarter were sort of how you're thinking about that, maybe just in a little bit more of a specificity on either geographies or in markets, applications, et cetera..

Sure, Ruben. Hey, it's great to talk to you, and it would be nice to see you next week in Chicago. So on the -- yes, -- so again, as we mentioned, things have been stabilizing. So if you look at the book-to-bill, as I mentioned, is now one. So we're seeing some stabilization there.

If you look at the areas that we're seeing, if you look at the cutting area, right, that's been affected by the macro. So that's been a key piece there. Mostly in China, we're seeing again in the industrial markets, we have PMIs that are continuing to be down, so that's really driving the industrial market.

And that's been mostly in -- the effect there has been really mostly in Europe and in North America. Areas that we've seen some real comeback has been on the welding side. That's been quite exciting for us.

We're seeing some really good progress as we win business in a number of areas, actually, both in EV as well as general automotive, so we're seeing that really across the world. We're seeing some of that happening now, again, gaining market share.

While the overall EV is still draining -- still pulling the market down, we're gaining share in those areas. So really excited about the progress in welding. So that gives you some sense. And again, those gains are really across the world..

Very helpful, Mark. Thank you..

Looking out a bit of color. Geographically, we've been -- I think we saw a little bit of a pickup in bookings in North America. That was good. Europe was flat, so stable. China was also pretty stable. Japan was a little bit weaker than we're expecting, but offset by strength in Korea.

And then in total, medical buildings were a little bit weaker, and we're actually expecting a good quarter on medical revenue coming into Q4. We've got a positive forecast on that. So not too much of a mixed bag. General stability across the board, I'd say, but no real momentum.

Your question around linearity, I think it's still a difficult environment out there. The bookings were weighted towards the end of the quarter. Some of that you have to look at because you have to summer slowdown in Europe and other places in August.

But yes, you haven't got people pounding at the door at the beginning of the quarter to drop orders on you. So it's still a bit of a struggle, which is why we think we're bouncing along the bottom..

Very helpful. Thanks for the detail guys. As a follow-up, Mark, made the comment that there's some investments coming. And Tim, you talked about some recent development programs as you're collaborating with customers, et cetera. It seems like a good time to invest as we are in this down cycle.

But will there be any implications that we should think about in terms of OpEx maybe beyond Q4?.

Yes. So our guidance on Q4 reflects the benefit related to Russia, offset by some increase in expenses related to the merit increase. Next year, as we go through our -- still going to go through our annual operating plan process.

But I'd expect the overall level of expenses for next year to be slightly higher than they are this year, given those investments that we want to carry on making on R&D and the selling side of the business and developing customer relationships.

And we'll call out, I think, that we've done some analysis of where we are relative to some of the comps, and we're really right in line with the median and average on our spending. So we're looking at in that context and wanting to maintain discipline. Mark, you can give some additional detail..

Yes. I mean, again, excited about some of these areas. We've been doubling down in some of the R&D areas where we see key areas of growth. I mentioned welding. That's an area that we're continuing to focus on. Of course, cleaning application that now with the combination with cleanLASER is exciting, some of the micro material processing.

So again, really nice areas to focus in, and then being able to make some improvements in the organization also to continue to get better. As Tim mentioned, some work in the go-to-market improvements and some investments in sales and service and those pieces that will continue to make us stronger.

But again, we're doing that, as Tim mentioned in a very disciplined way. And you saw that we took some costs out of the organization as I talked in the prepared remarks, and we'll be reallocating that to cover some of these areas and allow this additional investments..

Got it. And just one last one guys, just so I have this straight. Tim, the transition to the high-power diodes that are more cost-effective over the next 12 to 15 months, nice to see the progress there. Can you remind me what percentage of revenue we're talking about? I think last time we talked, as you were saying somewhere around 35%, 45%.

Is that accurate?.

So the transition really those diodes are going to benefit the high power lasers over time.

We're going to continue using the existing lasers on some applications, which are less price sensitive and we'll initially roll out the newer devices on some of the cutting applications, for example, which will enable us to go-to-market a bit more aggressively and pass some of the cost benefit on to our customers in a limited way.

I'd say on total, I mean, high power is still, I think about 40% of total sales and cutting is about 25% of the total revenue, most of which is in the high power spectrum. So Initially, it will be that 25% level of revenue.

And then ultimately, as we transition completely through the existing generation should be benefiting up to 40-plus percent of the cost of sales..

Excellent. Thank you very much. See you guys next week..

Yes, sure. Thanks, Ruben..

Thank you. The next question today is coming from Jim Ricchiuti from Needham & Company. Your line is now live..

Thanks. Wondering if you could give us a sense, how big your cleaning business will be with the acquisition of CleanLASER.

I know it's -- up until now, it's been a fairly small part of the business, but it might be helpful?.

Hi, Jim, this is Mark. Great to talk to you again. So we don't break out the cleaning business, but it's in the round, it's tens of millions of dollars. And then as we've mentioned, CleanLASER is adding about $30 million. Very excited about the area.

This is a great area, because this is place where we can really drive the adoptions together with CleanLASER to drive the adoption of cleaning in the industrial cleaning markets, which is a tremendously large market.

And again, it's just as we've done in Welding, it's really moving us from allowing us to penetrate non-laser markets with laser, and we see large opportunities for growth in that area..

Got it. And Mark, you've had the opportunity now to evaluate strategies establish some new objectives to the business. I'm wondering, you talked a little bit about R&D and the pipeline, and we'll hear more about that, I'm assuming, as you said. But I'm wondering whether M&A is going to play a greater role in the future plans of IPG..

Yes. Thanks very much, Jim. So we have a great strategy, R&D, great technologies, great programs, and that's certainly the primary area of our investment. But as you saw us do -- if there's a great M&A opportunity that gives us some additional access to market or gets us to market faster.

We're certainly open to doing that as you've seen us do with cleanLASER. So again, primary is always going to be in the internal programs and driving those, but certainly open to doing M&A when it's -- when it makes sense. And it's a great example of that..

Okay. Thank you. Last question for me, Tim. You've given us some parameters in the past, I had to think about gross margins at higher revenue levels. There's clearly a lot of moving parts of the business over the past year.

But I'm wondering if there's -- if you might be able to give us just an update, as you know, possibly how to think about gross margins as revenues recover?.

Yes. Jim, I don't think that's really changed at all in terms of the way the model is performing at the moment. So kind of tend to look at what the gross profit is of the products that remains very strong and relatively stable quarter-to-quarter. It can change a little bit depending upon mix.

And then you're looking at where your -- really your under-absorption is relative to that. So if you can continue to maintain that strong gross margin of the product, which is driven by continuing to get the pricing down your manufacturing efficiencies, pricing you're getting in the market for the product.

And then you can start to recover some of the under absorption at the moment, mentioned that under absorption was 660 basis points. If you can get that down back to a more normal level, so when we were running last year, that was 660 basis points lower. It will put you at 42% or 43% revenue -- 42% or 43% gross margin.

In terms of the revenue to get there, the flow-through on the model is very strong. And I think as you tend back up above 250, you're going to see some -- a little bit of momentum in that. As you get closer to between $250 million, $260 million, $270 million, $280 million and towards $300 million.

I'd certainly expect to be above 40% gross margin, somewhere in that midpoint between $250 million and $300 million. So nothing's really fundamentally changed on that. I think the other benefit is as we continue to get inventories more under control.

Part of that's happened this quarter with the disposal of Russia and also provisions we've made, but we actually generate cash out of inventory as inventory comes down and the days on hand reduce as well, we should see a reduction, obviously, in the underlying inventory provisions that we're incurring, which should come down to a much more normalized level of 1.5% or 1% as compared to say, 3%, 3.5% the underlying inventory provisions have been running at..

Got it. Thanks very much..

Thank you. [Operator Instructions]. Next question is coming from Keith Housum from Northcoast Research. Your line is now live..

Good morning, gentlemen. Mark, maybe you can remind us how important Belarus is to the company now. And I think you mentioned that you guys are going through an analysis there about perhaps next steps based on what's happening with some of the regulations out there.

But just to give some more color on what you're thinking there?.

Yes, absolutely. Thanks for the question. So Belarus, the Belarus was just a supply into the organization. And we -- more than a year ago, we saw the potential of this issue and all of the supply lines have been covered by others from them. So we've done other outsourcing that covers that.

So really no risk at all to the business, no risk at all to the supply, and we're working on strategic options for that that now going forward, but really no effect on the business..

Got you. I appreciate it. And Mark, you've been there a few months now. Obviously, you've got a lot of things that you're looking at in terms of investments and strategies.

I guess, in your mind, what are the top two or three strategies that you're focused on now, I guess, until the end of the year?.

Yes, sure. I mean the first thing I would say, and I said this coming in, IPG is a great company. So this is really not about change. It's really about building. IPG has a tremendous foundation, great team, technical know-how across lasers, components, systems, applications.

And as I stressed last quarter, the process knowledge in the company is tremendous. And that allows us to do things like we're doing with CleanLASER where you can actually replace incumbent technologies with laser technology, same as we've done in welding as well. So that's the really big places to grow the business.

We've got a great brand in the marketplace, great relationships. And as Tim mentioned, we have a strong balance sheet with $1 billion of cash and no debt. And we see a number of really excellent growth opportunities, differentiated offerings in a number of applications.

Some of these I discussed earlier, we're excited about Medical, Cleaning, Welding, Micromachining as some examples. And then to drive this long-term value creation, I just want to say we really need to get better at two things.

The first is sharpening our focus on the highest value R&D programs, some of these I mentioned; and the second is really strengthening the organization to drive better execution. And this is -- this will we'll have some targeted additions in some areas.

And we're making really incremental investments, as Tim mentioned too, in these efforts that we'll talk about these more on future calls. But as we've talked about, we're being smart about how we do this, how we execute. We're managing with agility and controlling what we control -- can control as I mentioned earlier.

We've implemented these manufacturing efficiencies, targeted headcount reductions and such already, and we've got more opportunities there.

So again, we've got really, really high confidence to drive this long-term value creation, again, on top of the strong foundation that create technologies, including that applications process technology that's so critical, and therefore, growing growth really opportunities in these differentiated applications.

And again, industry's best balance sheet Tim talked about the cash generation and the leverage through the business model. So kind of putting all of those pieces together, those are some of the key areas that I see us investing in and driving the company forward..

If I can squeeze in one more here. The cleanLASER acquisition. One, it's more -- it sounds like it's more of a systems acquisition as opposed to being laser-driven specifically.

Is this perhaps a little bit more openness for the organization to move further into systems and not just the laser component?.

So what I'd say there is we need to operate on each of these areas. So again, it's about driving adoption into these non-laser markets. So if you look at something like cleaning with cleanLASER, it's the lasers, but it's really understanding that process and being able to deliver a solution to the customer.

So as we understand that process, we're able to then develop better lasers that fit that process, for example, with the right energy profile, right power profile components that can then scan fast enough scan faster to be able to again clean at the proper speeds. And then pulling those together to provide a solution.

And we'll be providing lasers in those -- in these various markets, just like we do in Welding, just like we do in Cutting, we'll be supplying components, we'll be supplying subsystems and systems as needed. Again, it's about the adoption and just playing at the right value point and doing that across the portfolio..

All right. Thank you..

Thank you. [Operator Instructions]. Our next question is coming from Mark Miller from Benchmark. Your line is now live..

All right. China has recently announced more stimulus programs.

I'm just wondering, do you think that will have a beneficial impact on IPG? And if so, when?.

So I think stimulus programs, there may be areas, for example, in EV. One of the things that we're seeing in China is that the adoption of EVs is becoming faster.

So now I think now more than half of all of the vehicles are EV and some of that stimulus may flow into the auto areas and maybe that will continue to drive adoption and flow into some of these factories where some of the EV capacity -- EV battery capacity has been a bit stalled. Maybe some of that will flow in.

I don't know, Tim, if you have other thoughts on that..

Not specifically, I think we have to watch the PMI data out there, which has continued to be relatively weak. It's not really bad, but I think some of the key indicators are the things towards to see whether that stimulus is creating a bit of momentum in the economy.

I think for us, the benefit is that we've seen a more stable business environment over the last couple of quarters. And if we can then build on that with some of that stimulus coming as a bit of a tailwind. It potentially is August was some slightly improved performance. I think we're still the Chinese economy still put a lot of challenges behind it.

So let's see how much benefit that stimulus can have. But we've got a stable business out there at the moment..

Yes. We've seen some uptick in areas like 3D printing, 3D manufacturing the centering of metals where our single-mode lasers are such an important part. So that's an area, again, it's an industrial piece. It's one particular segment. But as Tim said, hard to pull that to understand that across the whole economy at this point..

Formal point on that is we've heard that actually some of the utilization of some of the largest battery manufacturers have started to pick up meaningfully. So that could be a catalyst coming into some point in the futures for a pickup in that demand. And I think our total EV sales in China was slightly up quarter-over-quarter.

So that's another slightly positive viewpoint. Yes..

Israel said, it's going to be deploying a laser-based defense system against missiles and drones. I'm just wondering if you have any -- I know you've done some previous work.

Do you have any irons in the fire in terms of development contracts and what's going on in that area?.

Yes, sure. I can't be specific, but we are -- we do supply into the overall -- into that overall market. So our single-mode lasers are very high performance and have been an important part of just across the world, there are -- they are used in those applications, but that's the most I could say now..

So you still have ongoing programs there..

We're still selling lasers into that market. It's not a huge business for us today, but we are -- we do have irons in those fires..

Thank you..

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments..

Thank you for joining us this morning and for your continued interest in IPG. We'll be participating in a number of investor events this quarter and we are looking forward to speaking with you soon again. Have a great day, everyone..

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today..