Good morning, and welcome to IPG Photonics Fourth Quarter 2023 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to, Eugene Fedotoff, Senior Director of Investor Relations, for introductions. Please go ahead..

Thank you, Kevin, and good morning, everyone. With me today is IPG Photonics' CEO, Dr. Eugene Scherbakov; 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 our 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 the IPG's website or the SEC's website.

Any forward-looking statements made on this call are the company's expectations or predictions as of today, February 13, 2024 only. 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 earnings press release, earnings call presentation and the Excel-based financial data workbook posted on the Investor Relations website. We will also post these prepared remarks on the website following the completion of this call.

With that, I'll now turn the call over to Eugene Scherbakov..

Good morning, everyone, and thank you for joining us today. We are pleased to report that fourth quarter revenue came at the top of our guidance.

We saw growth in multiple areas, including welding, cleaning, 3D printing and medical applications, that showed success in our strategy to diversify revenue away from cutting and reduce the amount of sales from China.

We remain focused on our strategy to displace legacy technology and processes with highly efficient and environmentally beneficial fiber lasers and laser-based technologies. Revenue in our emerging growth product improved sequentially and accounting for 46% of our total sales, driven by growth in hand-held welding, beam delivery and medical products.

However, uncertainty in macroeconomic conditions continued to weigh on sales and many general industrial applications, and some of our large OEM customers around the world were managing inventories and in-use purchases in the quarter. Also, we saw a soft demand for our lasers and e-mobility in China and solar cell manufacturing applications.

Welding sales rebounded strongly in the quarter with growth in North America, more than offsetting our low revenue in China. Laser adoption is growing in general industrial and automotive applications, and not just in e-mobility.

The increase in welding this quarter was driven by high sales in our hand-held laser welder and growing adoption of our real-time weld measuring tool, which has become the industrial standard for automating processes, monitoring and quality control.

Customers understand a significant value proposition of real-time welding processes monitoring, which can significantly reduce scrap and improve yields.

We are also seeing the high sales of integrated laser welding systems and complete solutions for high-speed automating laser welding, which includes laser, scanner, vision and controllers that are easy to integrate in the manufacturing process. I am happy to report another quarter of strong growth in hand-held laser welder.

Light weld sales are beneficial from rollout of the tool in Europe and increased 50% in 2023. We expect that adoption will continue this year and are excited about the new partnership with Miller Electric to promote laser welding among the large network of MIG and TIG welders.

Miller Electric is a leading worldwide manufacturer of arc welding products. We believe that most welding applications can be addressed by laser, including the hand-held market and there is tremendous productivity improvement that lasers enable. Welding is a large addressable market for our lasers and we are in the initial stage of developing it.

Indicative of success, we are generating in welding IPG to our largest customer. Laser application increased 13% year-over-year and accounting for 36% of our total revenue in 2023. IPG remains a well-positioned in immobility market providing welding, cleaning, cutting and now drying solution for most major EV battery manufacturers around the globe.

While our immobility sales were negatively impacted by a showdown in new capacity additions in China. We saw an increase in sale in North America, Japan and Korea during the quarter.

Our capacity in battery production in China after a strong investment cycle in 2021 and 2022 continue to provide a short term drag on our growth, but we remain optimistic in the future revenue for this important applications as a new electric vehicle sales continue to grow worldwide.

We are also looking to increase our exposure by editing more adjacent laser technology around our current offering to the further penetrator mobility applications. We successfully shipped the first order of laser drying solution for battery oil manufacturing.

The solution replaced the less efficient infrared bulbs and environmentally unfriendly gas fired furnaces and can significantly increase drying speed and reduce energy costs for our customers. For the full year, our EV sales increased modestly to the new record value level and accounting over 20% of total revenue.

Additionally, we are looking at new growth opportunity in laser cleaning market. Laser cleaning solution while still small contributor in our overall sales have been grown at high rate and there is an increased interest in the market to replace traditional cleaning process, which uses abrasive materials and chemicals.

Whether it is paint or rust removal, our laser can do the work quicker, more safely for the operator and with less harm to the environment. Finally, our medical business delivered strong results in the fourth quarter. Our revenue grew slightly to a new record level, despite some destocking by large customers in the second quarter.

We have benefited from growth in single use fibers and some additional demand in aesthetic applications. We believe that there is a large installed base of old laser technology that can be replaced with fiber lasers over time.

As you can see from our guidance, which will be covered by team later in this call, we are looking at slow start to the year as the industrial demand remains weak. However, we are focusing on what we can control to offset these headwinds.

We are targeting a number of addressable markets where fiber lasers can replace existing laser or non-laser technology by taking advantage of several novel trends including automation, increasing efficiency and reducing the environment impact. We expect that these trends to continue and help diversify our revenue.

We also are focused on operational improvement, such as lower cost and reducing the inventories in 2024. We are investing in the future growth and continue to maintain strong balance sheet. Our cash flow generation remains strong and benefited from inventory management and I would like to thank, our employers for their contributions to 2024.

And we will turn the call over to Tim to discuss financial highlights in the quarter..

Thank you, Eugene, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our Investor Relations website. I'll start with the financial review on Slide 4. Revenue in the fourth quarter was $299 million, down 10% year-over-year that came in at the top of our guidance.

Revenue from materials processing applications decreased 12% year-over-year due to lower general industrial demand, which impacted revenue in cutting applications, partially offset by growth in welding, cleaning and 3D printing. Revenue in other applications increased 4%, driven by the strength in medical.

GAAP gross margin was 38.2%, an increase from last year due to a significant decrease in inventory provision and other charges related to our Russian operations that impacted results in the fourth quarter of 2022. You can find details of these items in the financial tables of the press release.

Additionally, gross margin benefited from lower shipping costs and tariffs, but these benefits were mostly offset by lower absorption of manufacturing costs and slightly higher cost of products sold.

As we focused on reduction of inventory, we estimate that the impact of production shutdowns to work down our inventories, reduced manufacturing cost absorption and reduced gross margin by approximately four%age points in the fourth quarter as compared to the third quarter of 2023.

Additionally, both revenue and gross margin were negatively impacted by foreign currency translation. If exchange rates relative to the US dollar had been the same as one year ago, we would have expected revenue to be $5 million higher and gross profit to be $4 million higher.

Operating expenses came in above our guidance range, driven by continued investments in R&D and sales organization to support our strategic initiatives and new applications. In 2023, we created numerous new and important sales roles globally that we expect will drive our sales, deepen custom relationships for the future.

We also had higher stock-based compensation and some one-time expenses that increased operating costs in the quarter. Foreign currency transaction loss related to remeasuring foreign currency assets and liabilities to period end exchange rates had a minor negative impact on operating expenses of $0.4 million or $0.01 per diluted share in the quarter.

GAAP operating income was $29 million and operating margin was 9.6%. Net income in the quarter was $41 million or $0.89 per diluted share. The effective tax rate in the quarter was 2% and benefited from certain discrete items including closing tax audits.

Moving to Slide 5, sales of high-power CW lasers decreased 19% due to lower sales and cutting applications in China and Europe as a result of lower industrial demand and OEM customers working down inventories as well as increased competition from Chinese players in cutting applications sales of ultra-high-power lasers above six kilowatts, represented 48% of total high-power CW laser sales.

Pulse laser sales decreased 40% year-over-year due to lower demand in solar cell manufacturing and battery foil cutting applications, driven by reduced industry demand. System sales decreased 1% year-over-year with strong growth in light weld, offset by lower sales in other laser systems.

Medium power laser sales increased 5%, while QCW laser sales were up 6% year-over-year, driven by higher sales to consumer electronics 3D printing and e-mobility applications. Other product sales were up meaningfully on strong growth in medical applications and beam delivery.

Looking at our performance by region on Slide 6, revenue in North America decreased 3% due to lower demand in cutting applications, which was partially offset by higher sales in welding, mostly driven by strong revenue in e-mobility applications.

In the face of a widespread economic slowdown in Europe, sales increased 1% as the region continued to perform better than expected with higher sales across most applications except for cutting.

Revenue in China decreased 25% year-over-year, due to lower demand in general industrial markets, continued competitive pressure in cutting applications and reduced investments in electric vehicle battery production. China represented 24% of total sales in the quarter, its lowest level in the last 10 years.

Moving to a summary of our balance sheet on Slide seven, we entered the quarter with cash, cash equivalents and short-term investments of $1.2 billion and no debt. Cash flow generation remained strong with cash provided by operations of $106 million in the fourth quarter. Our CapEx was $25 million in the quarter and $110 million for the full year.

Net of asset divestitures CapEx was $79 million. Our inventories declined in the quarter and decreased by more than 10% during 2023 as we continued to focus on managing inventory and reducing our investment in working capital.

We will remain focused on lowering our inventories during 2024, which may have a short-term impact on margins, but will benefit our cash generation. While maintaining a strong balance sheet, we continued to return capital to shareholders with our ongoing stock repurchases.

We repurchased shares for a total of $64 million in the fourth quarter and $223 million in 2023. The board has approved an additional $300 million in share repurchases. We have returned over $850 million to shareholders via share repurchases in the last three years and continue to buy back shares opportunistically.

Moving to the outlook on Slide nine, fourth quarter book to bill was below one. Continued economic uncertainty with low PMI numbers in Europe, North America and Japan is impacting industrial demand and capital investments.

We are also seeing our cutting OEM customers managing inventory and reducing purchasing, which may not restart until the second quarter. In China, demand has remained soft in some of the mature markets such as cutting and marking are facing severe competition.

We expect e-mobility investments to pick up in China in 2024, but only in the second half of the year. While it will be a challenging start to the year, we believe demand will improve as the year unfolds. We continue to focus on emerging growth applications and our strategy to continue to drive laser adoption in new markets and applications in 2024.

For the first quarter of 2024, IPG expects revenue of $235 million to $265 million. IPG anticipates delivering earnings per diluted share in the range of $0.30 to $0.60 with approximately 46 million diluted common shares outstanding. The coming expect the first quarter tax rate to be approximately 25%.

We expect 2024 CapEx to be in the range of $120 million to $130 million net of disposal of assets as we continue to invest in additional manufacturing capacity in Germany, US and other locations.

Significant amounts of the spending in 2024 relates to replacement of fiber and other critical components capacity that we no longer have access to in Russia. We expect capital expenditures at a significantly lower level in 2025 and beyond.

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..

[Operator instructions] Our first question is coming from James Ricchiuti from Needham & Company. Your line is now live..

Hi, thank you. Good morning. So it sounds like the non-China EV related business held up better in the quarter.

Is that your expectation still as you think about the early quarter of '24 just given some of the signs of slowing in the Western markets as it relates to EV and the impact that might have on capital investments may be moving -- shifting to the right?.

So, Jim, you're right. EV outside of China in the fourth quarter was quite strong with good sales in North America, career in Japan. Clearly, given the guidance we've got for the first quarter at least, there is a sort of lower level of EV sales in North America in the first quarter in particular expected.

I don't think there's any big pick up in the first half of the year. We've mentioned that we think we'll start to see some capacity investment in China in the second half of the year. There are a lot of R&D projects that we're working on both in North America and in Europe with a number of the larger automotive manufacturers.

There's a significant I'd say not rebound, but increase in interest given the success of some companies utilizing the sort of subsystem incorporating the laser weld measurement technology is a renewed or increased interest rather from a broader base of some of the large automotive manufacturing companies.

So we remain optimistic about it, but I think it's going to be a slow start to the year. We've got a fairly robust number for example the new drying application we expect that to grow strongly. We had a good win for some EV motor applications, some hairpin welding applications as well.

So that was a positive, but Yes it's a difficult start to the year and I think EV is part of that as well..

Got it. And then, Tim you size some of the impact from -- on Q4 gross margins from the production shutdowns.

Has that as we think about the early part of Q1, has that also been a headwind that has factored into the presumably the Q1 gross margin guidance?.

Yes part of the Q1 is continuing to try and work down inventories. I was actually really pleased with the progress and the pretty definitive progress we made in that in the end of the year and the way that translated into really strong cash flow generation.

I'd say in Q1 it's a combination of continuing to want to manage inventories closely with also a level of revenue guidance that starts to more fundamentally impact our fixed cost absorption relative to say a $300 million revenue run rate. There's a combination of the two things Jim..

Got it. I'll jump back in the queue. Thank you..

Thank you. Next question is coming from Ruben Roy from Stifel. Your line is now live..

Thank you. Hi Tim. Would like to stay on the inventory topic if we could and move over to the customer side of the equation, I think you mentioned that you were managing inventory at customer.

So I'm wondering if you can give us a little bit of detail around that dynamic versus demand and I know you like -- that you don't like to guide for more than a quarter, but you did say probably expect some pick up second half.

So when you think about the first half, do you think that there's further downside as inventories are digested at customers in Q2 or do you think that we're sort of at a level where we could think about sort of a flat revenue outcome and perhaps a little bit of growth in second half as the inventory is come up and you come down at your customers.

Thank you..

Yes so I think it's mainly our cutting OEM customers who are managing their inventory levels and not only are they trying to get those down in the first half of the year, but on the other side the equation they're also expecting to see some improvement in their business as we get into the second quarter and beyond.

So we don't expect cutting market outside of China to remain persistently weak for the entire year. So we're looking for some recovery in that. I'd say, my senses we're seeing somewhat of a bottom in the demand cycle here. We don't have a great bookings forecast for the first quarter, that's been put together, but it's actually relatively stable.

Now January bookings off of compared to the very, very weak October saw some improvement in January is the first month of the year. So that was quite good. It was still down on a year-over-year basis. So if I'm sort of going to pull together a trajectory here, I think the first half of the year will continue to be, or will be, will be very challenged.

But I'd like to target and we are targeting maybe some moderate growth on a year-over-year basis in the second half of the year. clearly, given the weakness we had in the second half of last year, that shouldn't be too difficult to do if we see even a basic recovery and things.

But I think it would be good to get back into a some growth on a year-over-year basis. And that's certainly what we're trying to target..

Very helpful, Tim. I guess just to follow up on that, outside of some of your own inventory work-downs, et cetera, and obviously, on the lower level of revenue, there are these absorption costs that we have to worry about.

But in terms of some of the other areas that you folks are working on last year, sort of bringing up the expanded factory, manufacturing levels, et cetera, as revenue does recover, are some of the factories set to go.

Germany, Poland, in terms of seeing a little more of a, I guess, inflection in gross margins as those revenues come back, second half of the year.

We're even looking, sort of exiting this year into next year, should we expect, sort of a meaningful recovery in gross margins as revenues recover, I guess, to the question?.

Yes, we expect to see that, basically, as we sort of absorb the fixed cost base better. Yes, Poland and Italy have made tremendous progress in getting their manufacturing and scale of their manufacturing increased. Germany's also made a lot of progress on that, and so has the U.S. I'll leave Dr.

Scherbakov to talk about some of the cost reductions that we're introduced on some of the high-power lasers with new designs there..

Yes, not now, but last quarter, we also installed the development of the new technological electromechanical platform for our mid-power and high-power lasers. One of the goals, of course, it was a cost reduction, dramatically cost reduction.

Our evaluation, and we will confirm when we'll start to ship to our first customer this quarter, our evaluation, this cost reduction will be up to between 15% and 20%. But it's only initial evaluation, and maybe it will be much, not much more, but a little bit more.

And this is why one of our cost reduction and optimization, our gross margin in the future, also for laser-like components, but also we start to produce a new, for us, a new product. It means a semi-integrated solution.

It means we are proposing today to customers not a list of a set of components, like laser, scanner, LDT monitor, and a special integrated box. We are proposing to our customers now solutions. For example, if customers have problems with copper welding, we definitely provide by our subsystem.

We guarantee that customers will get the optimal result with copper solution, the same for aluminum solutions, the same for other materials. For us, it's a new experience, and we would like to propose to our customers in the future such kind of product. Semi-integrated product with final solution to customer processes.

This is our main goals, from one side, to optimize development of our product, to minimize the cost. From other side, to propose a new product for our customers..

Understood. Thank you, Dr. Shcherbakov for all that detail..

Thank you. As a reminder, that's star one to be placed into question queue. Our next question is coming from Scott Graham from Seaport Research, your line is now live..

Yes, hey, good morning, and thank you for taking my question. I actually have several of them.

Would you guys be able to tell us what your pricing was for the quarter?.

We historically have given some guidance on high power laser pricing in particular, which has been more sensitive. Pricing has been very stable, Scott, for the last 18 months or so and we didn't see any significant change in that in the fourth quarter..

So when you say you saw significant competition you weren't referring to pricing you were just referring to volume?.

No we're referring to the fact that we've had a lot of Chinese competition around the cutting market for several years now. We choose not to compete with them on pricing which has resulted in a loss of share for IPG within the Chinese cutting market.

So the Chinese competitors will price at a significant discount to IPG but we choose to focus on the premium aspect and performance of our product and price it appropriately in that regard..

Got it. Thank you for that clarification. What would you see? I think you mentioned that the impact on gross margin quarter over quarter was about 400 basis points for the production shutdowns.

Is that kind of going to stay with us in the first quarter? Is that a again using the third quarter as the baseline? Is that a reasonable proxy for what's impacting the first quarter gross margin?.

Yes we've given gross margin guidance to 37% to 40%. So some of that is just well whether it's you're trying to take inventory down or you've got a lower level of revenue it's an impact on the absorption of the fixed cost base.

In conjunction with that we are closely managing expenses within the business so we're taking down things like overtime very dramatically looking at trying to optimize the cost of the business and also the cost of the product.

Basically whether we're trying to get inventory down or in the first quarter coupling that with the relatively low level of revenue the gross margin guidance is kind of in-line with where we reported Q4 at the top end a little bit better..

Right I guess and I get that.

I guess what I'm getting to is that if you did not have that item weighing down the gross margin in the first quarter it actually looks like your gross margin would be up year-over-year and I just wanted to see why that would be the case?.

No on a year-over-year basis growth even with this level of revenue gross margin would not be up in the first quarter compared to the first quarter of 2023 when I think gross margin was 42%. You can't just add 400 base sorry I think I get what you're saying you can't just add 400 basis points back to the range that we've given you.

It's a combination of the lower revenue in the first quarter as well as probably a bit more moderate decreases in inventory in the first quarter than we attained and targeted in the fourth quarter. You can't just add 400 basis points to our range I see what you're saying..

Nope I see and I see what you're saying I completely follow. Last question, a lot of questions about the outlook for Germany particularly, on the industrial side. I know you had a an up quarter however it was of course against a fairly easy comparison.

I'm just wondering what you're seeing in Germany as we start the year?.

But you see we are very optimistic about our situation. I mean there's order and also some applications for our latest in Germany.

For example last year despite of this strong not good economic economical conditions our revenue in Europe and also included the Germany was a little bit go up and you see of course EV applications in Germany in particular it's a very strong application for our lasers and we also observe the trend because all manufacturing potential existing or potential manufacturing electrical cars they would like to produce battery for their cars mainly in Europe including also Germany.

And this is the one for IPG it's a very good sign because our lasers our other solutions will be acceptable by our customers here..

Thank you next question is coming from Keith Housum from Northcoast Research, your line is now live..

Good morning guys; thanks I appreciate it. I was hoping that could expand on a commentary regarding the hiring of new sales positions in the quarter and expectations going forward. Can you provide some context in terms of how much of an investment you guys are making and perhaps where some of the investments can be occurring? Thank you..

It's occurring on a pretty broad base due geographically North America in Europe some of our Asian entities as well.

We're targeting strategically growing a broad set of end markets right we've got the tremendous opportunity on the welding side which covers a very wide diversity of industries whether it's in automotive or fabrication other industries as well. So we're investing in key account management and capability around that application.

We believe we've got very strong opportunity for example opportunities and continuing to grow cleaning applications the new drying application some of the more specialized areas and more advanced applications such as semiconductor.

So we're really historically the company's been very much driven by an OEM customer base across a narrower set of applications. The build out of the sales force is to really add capability and depth and strength to cover what are very significant growth opportunities in a broader set of applications for the company that's how I best describe it..

Helpful I appreciate that. As my follow up some of the cost reductions you were referring to in terms of the made in high level lasers.

At what point during the year should we start to see some of that benefit gross margins?.

The first results will be demonstrated in the second quarter because first what we will introduce is medium power lasers and the third and fourth quarter we will start to introduce to our customer high power it means for 8 kilowatt up to 20 kilowatt lasers..

Thank you next question is coming from Mark Miller from The Benchmark Company, your line is now live..

Can you give us a feeling for your outlook for immobility opportunities?.

Overall this year Mark we've as I mentioned at the beginning we're doing a lot of work outside of China with major automotive companies in Europe. We had a robust pipeline of sales in North America as well last year. It's probably as I said that the first half of the year is going to be slow on immobility but we're expecting a pickup.

I think when you start to look at some of the data that's out there last year maybe 400 gig of total capacity was added that was a slow-down 400 gig going to come on stream this year which drove sales last year in 2023. There was a significantly higher amount of capacity that came on stream which drove the strength in 2022.

As you look out there's an expectation I think more than a terawatt of capacity has to come on stream in '25 and '26 that would imply that towards the end of this year and at the beginning of '25 there should be a meaningful pickup in demand around EV globally..

I'm just wondering in China especially in terms of EVs the softness there how much of it is just attributed to softness electric vehicle demand versus any competitor having an impact on the EV market?.

I think it's more the capacity that they had built out and that they're actually growing into that capacity so EV demand in the first half of last year was pretty weak you're absolutely right.

In the second half of the year though it picked up quite meaningfully I think I should have got the data at hand but a significant and quite high proportion of total EV sales of total vehicle sales in China or EV I haven't quite got the number right here at hand.

So I'd say the EV market the end market in China has started to improve particularly in the second half of last year and I think total EV sales for about 40% of light vehicle sales..

Thank you next question today the follow-up from Jim Ricchiuti from Needham & Company. Your line is now live..

Thanks I wanted to ask about the systems business which showed some nice sequential growth and I wonder if you can talk a little bit about what's driving that whether you're seeing some impact on the systems business on the cleaning side or is that some of the newer drying applications or is it just shrinking welding in general?.

First of all of course we'll see the very big potential for systems for cleaning applications.

We already start to demonstrate to our customer into sell some systems and the first reaction from customers is very positive because a lot of different applications and for such kind of applications also we have to provide flexible enough systems but again combination of our high power pump lasers I mean high power up to medium power up to three kilowatt again together with our scanners together with our monitor and finally with integrated box we can provide this such kind of subsystem to our customer not final system because final system it's much more complicated it must be of course coordinated with final customer but this subsystem flexible subsystem for different applications for assets will be and we also demonstrate this valuable product.

The second the second very important application also connected to the welding I already mentioned that we would like not to present the set of components to our customer but we would like to produce to our customer final solutions their problem it means kappa because it's for the application kappa welding is very important for different applications and the situation.

Aluminium welding also is very important different kind of configurations and so on and we propose to our customer the final solutions for us it's absolutely new business model and we would like to promote this business model for our future expansion or a laser system for different kind of applications it comes on to drying to drying applications today we are shipping only lasers but of course we are in the closed contact with our potential and existing customers and also start to think how we can develop the gain not the final system because final system much more complicated but again some solution for our customers we are working with the directions definitely..

Okay thank you for clarifying by the way on the drying side last question for me is just on the medical portion of the business how would you characterize the outlook as you look at Q1 and perhaps further into 2024 on the medical side of the business?.

So in Q1 actually Jeremy our medical is going to be after a strong Q4 a little bit weaker with one of our main OEM on the surgical side as well adjusting some of their inventories down for the full year we expect medical to basically be flat-ish this and then we're introducing a just not a lot two or three new applications and devices at the end of this year working with an additional partner as well on one of our main applications so we then expect the medical to start to pick up much more meaningfully into 2025..

Thank you next question is coming from Scott Graham from Seaport Researcher Line is now live..

Hi thank you for taking my follow questions the first quarter operating expenses guidance I guess I was a little bit surprised that it was at that level and maybe you can't get to it in the first quarter but what are you doing around operating expenses in 2024 to bring those down as percent of sales?.

I'd say the first thing is doing targeting getting revenue back up that'll bring them down a bit but we are focused on looking at the total level of expenses one of the things that happens at the beginning of the year though is that we have an annual operating plan that's out there and last year we would be low that annual operating plan not surprisingly given the results so some of your variable compensation accruals do change when you have a reset on the annual operating plan.

There is there is though we don't believe we want to take a lot of investment we mentioned some of the investment on selling expenses is very important because we're not just focused on this year but we're trying to drive growth out of a wide range of new applications.

We're also trying to accelerate bringing some of the newer product to market so for example on continuing to invest and develop our ultrafast and UV lasers which will substantially open up some more of the micro processing market which again is a fast growing area.

On the GNA side there's a limited amount of expense that we can take out there so it's really a question of trying to optimize them as best as possible but certainly not cutting back on areas where we think we should be investing in for the long-term growth and benefit of the company.

My personal view and the view we've held at IPG for a long time is that cutting R&D and some of these investments just because you're in what you think is a relatively temporary downturn is the wrong thing to do. The longer term returns are had on continuing to make those investments.

Understood thank you.

Just my last question would be around your commentary that some of this de-stocking might ease in the second quarter and you feel that second half revenues can be up year-over-year is that is that customer feedback is that trade press where is that coming from that those views?.

No we direct discussions with all of our main OEM customers on the cuttings knife. It's not like just trade news or PMI data it's more specific feedback than that..

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

Thank you for joining us this morning and your continued interest in IPG. As always we will be participating in a number of investor events this quarter and looking forward to speaking with you soon. Have a great day everyone..

Thank you that does include today's teleconference and webcast. Give me just connect your lines at this time and have a wonderful day. We thank you for your participation today..