IPG Photonics Corporation (IPGP) Q2 2012 Earnings Conference Call July 31, 2012 10:00 ET Executives Angelo Lopresti – Vice President, General Counsel and Secretary Dr. Valentin Gapontsev – Chairman and Chief Executive Officer Tim Mammen – Vice President and Chief Financial Officer Analysts Zach Larkin – Stephens Incorporated Krish Sankar – Bank of America-Merrill Lynch Tom Hayes – Thompson Research Joe Maxa – Dougherty & Company Jim Ricchiuti – Needham & Company Patrick Newton – Stifel Nicolaus Jagadish Iyer – Piper Jaffray Avinash Kant – D.A. Davidson Mark Douglass – Longbow Research Olga Levinzon – Barclays Capital Mark Miller – Noble Financial Jiwon Lee – Sidoti & Company Presentation Operator
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Copies of these filings may be obtained by visiting the Investors section of IPG’s website at investor.ipgphotonics.com/sec.cfm or by contacting the company directly. You may also find copies on the SEC’s website, at www.sec.gov.Any forward-looking statements made on this call are the company’s expectations or predictions only as of today, July 31, 2012. The company assumes no obligation to publicly release any updates or revisions to any such statements. We will post these prepared remarks on our website following the completion of the call. Please go to www.ipgphotonics.com and select Investors to review these remarks. I will now turn the call over to Dr. Valentin Gapontsev. Dr. Valentin Gapontsev – Chairman and Chief Executive Officer Good morning everyone. IPG delivered another successful quarter with record revenues of $138 million, gross margins of 54.3% and net income of $37.7 million, which increased by 23% year-over-year. High-power fiber laser sales for materials processing applications continue to drive IPG’s top-line growth. We also reported a record quarter for pulsed laser sales and solid growth in medium power and QCW laser sales. Our sales growth continues to be driven by three factors. The first is the adoption of fiber laser over other laser technologies. I’ve discussed many times before the efficiency, superior performance and cost benefits of the fiber laser. The second factor is the overall use of lasers in an increasing number of applications. This is due to new types of materials used in manufacturing, the growing use of automation, and the need for precision and speed that only lasers can handle. The third factor is the strong demand we’re seeing in several of our key industries that is currently holding up despite prevailing economic concerns. For example, automotive OEMs are using new materials such as high-strength steel in advanced manufacturing techniques, and fiber lasers are the best solution to cut or weld these materials. We believe that meaningful transition to laser processing is just starting for some of these applications. As a consequence, the fiber laser is continuing to make significant market share gains across applications. These factors also explained why IPG is doing well in geographies like China and Europe, despite slower macro-economic growth.
Looking to the future, we are conducting internal research and working with industrial institutes and other strategic partners to develop new applications and new products in applications where lasers have not been widely used before. We plan to further leverage our leadership position by pursuing large-scale, higher-margin applications, including welding and cladding with high power lasers, micro-processing and ceramic cutting with QCW lasers, as well as processing of non-metals, micro-processing, scribing and marking with high-power green lasers.In addition, we are expanding our geographic footprint to meet customer demand. In Q2, we opened an office in Turkey to service a numerous OEM materials processing customers we have there. Finally, we remain focused on developing specialized laser-based systems to meet the specific needs of manufacturers whose requirements are not currently met by standard systems or in certain geographic areas where fiber laser systems are not currently available. We also are improving the flexibility of our existing products. For example, we have developed a 2 kilowatt air-cooled laser for use in dry environments and an ultra-compact 1 kilowatt fiber laser for use in applications requiring a small footprint. We are continuing to make the necessary investments to support the increasing demand for our products and meet the needs of our customers as well as to identify opportunities to expand and grow our business. With that, I’ll turn the call over to Tim Mammen. Tim Mammen – Vice President and Chief Financial Officer Thank you Valentin and good morning everyone. I’ll start with a review of our end markets, products and geographic regions. After that, I’ll provide highlights from our income statements and balance sheet, and close with our guidance. Second-quarter materials processing sales increased 16% year-over-year to $124.6 million. This market continues to drive our growth and accounted for 90% of total sales during the quarter. The most significant materials processing applications for fiber lasers are cutting, welding, and marking and engraving. We’re also seeing growth from applications such as cladding, drilling, brazing, annealing, and rapid prototyping. Read the rest of this transcript for free on seekingalpha.com