Q3 2024 IPG Photonics Corp Earnings Call

Thomson Reuters StreetEvents10-30

Participants Eugene Scherbakov; Senior Director, Investor relations; IPG Photonics Corp Mark Gitin; Chief Executive Officer and Director; IPG Photonics Corp Timothy Mammen; Chief Financial Officer and...

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Mark Gitin; Chief Executive Officer and Director; IPG Photonics Corp. Timothy Mammen; Chief Financial Officer and Senior Vice President; IPG Photonics Corp. Ruben Roy; Managing Director and Equity Research Analyst; Stifel. Thank you, Eugene, 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 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, ou","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"IPGP":"IPG光电","IPG":"埃培智"},"translate_title":"2024年第三季度IPG Photonics Corp收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"IPG":1,"IPGP":1},"content_text":"Participants\nEugene Scherbakov; Senior Director, Investor relations; IPG Photonics Corp\nMark Gitin; Chief Executive Officer and Director; IPG Photonics Corp\nTimothy Mammen; Chief Financial Officer and Senior Vice President; IPG Photonics Corp\nRuben Roy; Managing Director and Equity Research Analyst; Stifel\nJames Ricchiuti; Analyst; Needham & Company Inc\nKeith Housum; Analyst; Northcoast Research\nMark Miller; Analyst; The Benchmark Company\nPresentation\nOperator\n 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 Scherbakov, IPG Senior Director, Investor Relations for introductions. Please go ahead with your conference.\nEugene Scherbakov\n Thank you and good morning everyone. With me today is IPG Photonics Chief Executive Officer, 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 future outlook 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. Risks and uncertainties are detailed in IPG Photonics Form 10-K for the period ended December 31, 2023 and other reports on the 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 or directly. In any forward-looking statements made on this call are the Company's expectations or predictions as of today, October 29, 2024 only. 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.\nMark Gitin\n Thank you, Eugene, 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 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 award 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 the new generation of laser diodes. There 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 ever more quickly into this area. The acquisition highlights our focus on long-term growth. I'll talk more about how CleanLASER fits the 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 were optimized execute on these opportunity. And 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 services for 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. Will be making some investments here, and I'll provide more color on in future calls. But the main theme is that we are going to be stronger off creators 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, implemented cost avoidance initiatives, and we recently executed a targeted headcount reduction. Respect 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 and 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 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, the welding sales have been relatively stable over the last three quarters that there are some several good signs of progress for IPG. We're winning business with some large global customers in 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 non-automotive customers were wield quality is critical for safe performance of their products. Additionally, EV sales improved sequentially, which demonstrates we are gaining market share and EV applications despite the 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 favourable 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 during and full automation to solve customer's 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 who 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 clean laser acquisition, as we look to increase our penetration into industrial cleaning applications. Screening is an important opportunity because tradition cleaning applications often rely on high levels of environmentally unfriendly consumables such as assets and embraces it must be disposed off. The processes may also involve high water consumption. By contrast, laser cleaning systems are environmentally friendly with limited or no processed waste, and hence, the compound selling total cost of ownership. Simulator 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. As a great example of a targeted and prudent approach, you will see us taking M&A activity. We've known the green laser 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 more details on this through 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. Well, 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 one, 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 in the U.S. We have limited visibility beyond the current quarter, but our remaining hopeful for more stability in 2025. With that, I will now turn the call over to Tim.\nTimothy Mammen\n 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 revenue from materials processing applications decreased 22% year over year, primarily due to lower covering sales, while revenue from other applications decreased 28%, due to unevenness in medical and advanced applications 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 efforts to right size 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 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 electronics supply chain over the past several years, which resulted in significant purchases of these items as a strategic backup. 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 unsettled. Provision for excess diode components as 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 had included $198 million loss on sale of assets related to the disposal of our Russian operations, $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 is from a large customer, can fluctuate significantly quarter over quarter due to the inventory management practices, adding some unevenness to these revenues. Other applications perform better with growth in welding and marking. EV investment has been delayed in the region, but traditional automotive investments seems 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 continuing to manage their inventories with only low order rates as economic conditions in Europe continued to be weak and the industrial demand remains muted. Revenue in China decreased 27% year over year due to lower sales and cultivating 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 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 the 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 off to the restructuring. Our total operating expenses will come down as a result of the sale of 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 the revenue in the 1st year. They 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.\nQuestion and Answer Session\nOperator\n Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question is coming from Ruben Roy,\nRuben Roy\n Thank you, Mark and Tim, thanks for taking the questions. I wanted to start, Mark went maybe drilling into the comment on no visibility of an improved demand environment to bid on contracts 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 bookings front to this quarter were you know sort of how you're thinking about that, maybe just in a little bit more of a specificity on either geographies or end market applications, et cetera.\nMark Gitin\n (inaudible) it would be nice to see you next week in Chicago. So again, as we mentioned, things have been stabilizing. So if you look at the book to bill, I mentioned is now one. So we're we're seeing some stabilization there. If you look at the areas that we're seeing from, if you look at the cutting area right, that's been affected by the private macro. So that's been a key piece. There are mostly in China. We're seeing, again in the industrial markets, we have PMI's that or continued to be down. So that's really driving the industrial market, and that's been mostly in other effect. There has been really mostly in Europe and in North America. Our areas that we've seen some real come back. It's been on the on the welding side, but that's been quite exciting for us received some really good progress as we have as we win business in a number of areas are actually bothin 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 will the well the overall EV is still draining is still pulling the market down. We're gaining share in those areas. So really excited about the not the progress in welding. So that gives you some sense that we do those gains are really across the across the world.\nRuben Roy\n Very helpful margin may get (multiple speakers)\nTimothy Mammen\n Geographically, we saw a little bit of a pickup in bookings in North America are as good. European zone was flat. So stable. China was also pretty stable from Japan was a little bit weaker than we're expecting, but offset by price strength in Korea. And then total medical buildings were a little bit weaker, but we expect to have a good quarter on medical revenue coming into Q4. We've had a positive forecast on them, so not too much of a mixed bag, general stability across the board, I would say, but no real momentum. Your question around linearity, I think it's still a difficult environment out there. On the bookings were weighted towards the end of the quarter. Some of that you have to overcome because you have some up some slowdown in Europe, but other places in August that, yes, you haven't got people probably at the door at the beginning of the quarter to drop orders on assay is still a bit of a struggle, which is why we think look bouncing along the bottom.\nRuben Roy\n Very helpful. Thanks for the detail, guys. And as a follow-up, Mark made the comment that there are some investments coming. And then you talked about on some recent development programs as you're collaborating with customers, et cetera. It seems like a good time to invest. Yes, we are in this down cycle, but will there be any implications that we should think about in terms of OpEx and maybe beyond Q4?\nTimothy Mammen\n Yes, as our guidance on Q4 reflects the benefit related to Russia, offset by some increase in expenses related to on the merit increase. In the next year as we go through our supply to our annual our operating plan process. But I'd expect the overall level expenses for next year to be slightly higher than they are this year. Given those investments that we want to carry on making on on R&D and the selling side of the business and developing customer relationships. I will call out, I think that we've done some analysis of where we are relative to some of the comps, and we're ready right in line with the median and average runoff and things there where we're looking at in that context, I want to remain disciplined the [Army] and give some additional detail.\nMark Gitin\n Yes. I mean, again, I feel excited about some move areas. We've been in the doubling down in some of the year, some of the R&D areas where we see a few key areas of growth. I mentioned welding, that's an area that we're continuing to focus on, of course, the cleaning application that now with the with the combination CleanLASER is exciting, some of the micro materials processing. So again, really nice areas to focus in and then being able to make some improvements in view of the organization also that it could continue to get better to mention 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. And as I talk time in the prepared remarks, and we'll be reallocating that too to cover some of these areas and allow this additional investments.\nRuben Roy\n Got it. And just one last one guys on this, I have this straight on the transition to the high-power diodes that are more cost effective over the next 12 to 15 months, making some progress there. You remind me on what percentage of revenue we're talking about. I think last time we talked as you were saying, somewhere around 35% to 45% is that accurate.\nTimothy Mammen\n So in transition really goes wrote those data that's 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. Time will initially rolled 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 onto our customers and elements the way. I'd say on total, I mean, high-power, so I think about 40% of total sales and cuttings about 25% of total revenue, most of which is in the high-power spectrum. So initially it will be at 25% level of revenue. And then ultimately as we transition completely through the existing generation, should be benefiting up to 40% plus of the cost of sales.\nRuben Roy\n Excellent. Thank you very much. [See you next week.]\nTimothy Mammen\n Yes, Thank you.\nOperator\n Your next question today is coming from James Ricchiuti, Needham & Company. (Operator Instrucutions)\nJames Ricchiuti\n Hi thanks. Wondering if you could give giving us a sense how big your cleaning business will be with the acquisition of CleanLASER? I know it's now up until now. It's been fairly small part of the business, but it might be helpful.\nMark Gitin\n (inaudible) So we don't break out the cleaning business, but it's in move around with tens of millions of dollars. And as we've mentioned in our CleanLASER is adding about $30 million. Very excited about the about the area. This is a great area because this is a place where we can really drive the adoption together with CleanLASER 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, is really moving us from allowing us to penetrate non-laser markets with with laser. And we see no large operators Unity for for growth in that area.\nJames Ricchiuti\n And then, Mark, you had the opportunity now to evaluate strategies to establish some some new objectives through the business. I'm wondering, you talked a little bit about the R&D in the pipeline, and we'll hear more about that on the same thing, as you said. But I'm wondering whether M&A is going to play greater role in the future plans of IPG.\nMark Gitin\n Yes, than kyou very much James. So we feel we have great, great strategy of R&D great for them, great technologies, great programs, and that's certainly the primary areas of our investment. But as you saw us, do, you know, if we 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 with CleanLASER. So again, primarily primary is always going to be on the internal programs and driving those, but certainly open to doing M&A when it's when it makes sense in this agreed that our great example of that.\nJames Ricchiuti\n Thank you. Last question from me Tim, you've given us some parameters and the tenants that had, I think about gross margins and higher revenue levels. And it is clearly a lot of moving parts of the business over the past year. But I'm wondering if there's if you think you might be able to give us just an update as to the past, we had, I think, about gross margins as revenues recover.\nTimothy Mammen\n Yes, Jame, I 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 as of the offer products that remains very strong and relatively stable quarter to quarter. It can change a little bit depending upon mix. And then you have here where really you're under absorption is relative to that. So you can continue to maintain that strong gross margin, often product, which is driven by continued to get the pricing gap, your manufacturing efficiencies, pricing, you're getting the market for the product and then you can start to recover some of the under-absorption of at the moment, pension that under absorption was 660 basis points that can get that down back to a more normal level. So when we were running last year, that was 660 basis points lower or put you at 42% or 43% revenue, 40% to 43% gross margin. You know in terms of the revenue to get that on the flow through on the model is very strong. And I think in only 10 back up above 250, you're going to see some a little bit of momentum in that as you get closer to between 250, 260, 270, 280 and towards 300, I certainly expect to be above 40% gross margin and somewhere in that mid-point between 250 and 300. So nothing's really fundamentally changed on that. I think the other benefit is as we continue to get inventories more under control. And part of that's happened this quarter with the disposal of Russia and also provisions remained we actually generate cash out of inventory as inventory comes out. In the days on hand, reduces well. We should see a reduction obviously in the underlying inventory provisions that we're incurring, which should come down so much more normalized level of [1.1%] as compared to say, between 3.5% of the underlying it inventory provisions have been running at.\nJames Ricchiuti\n Got it. Thanks very much.\nOperator\n (Operator Instructions) Our next question is coming from Keith Housum, Northcoast Research.\nKeith Housum\n Good morning, gentlemen. Mark, maybe you could remind us how important pillars is to the company now and you mentioned that you guys go through our analysis there about perhaps next that's based on what's happening with the regulations out there. But just give some more color on what your thinking there.\nMark Gitin\n Yes, absolutely. Thanks for your question. So Belarus was just to supply into a 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. And so we've done other outsourcing recovers that. So really no risk at all with the business, no risk at all the supply. And we're working on its strategic options for that for that number going forward. But but really no effect on the business.\nKeith Housum\n Got it. Appreciate emerge. Even there are a few months now. Obviously if you got a lot of things that you're looking at in terms of the investments and strategies, I guess in your mind where the top two or three strategies that you are focused on now, I guess until the end of the year?\nMark Gitin\n Yes, sure. Of the first thing I would say I said this coming in IPG that great, 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, component 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've 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 those best, but really no big places to grow the business. We've got a great brand in the marketplace. Great, great relationships. And as Tim mentioned, we have a strong balance sheet with the $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, micro machining of some examples and then to drive this long-term value creation, I just want to say we really need to get whether it's two things. The first is a sharpening our focus on the highest value R&D programs, some of these I mentioned in the second is really strengthening the organization to drive better execution. And this is this will have some targeted additions from in some areas. And you know, we're making really incremental investments is to mention two in these efforts have been I will 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 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, that applications across technology that's so critical and therefore, growing growth, really opportunities in these different created applications and again, industry's best balance sheet. Tim talked about the cash generation and the leverage through the business model. So if you do kind of putting all of those pieces together, those are those are some of the key areas that I see us investing in and driving the Company forward.\nKeith Housum\n If I could squeeze in one more here. The CleanLASER acquisition. one is it's more because it is more of a systems acquisition as opposed to moving major driven specifically. Is it perhaps a little bit more open escalate organization to move further into systems, not just the laser components.\nMark Gitin\n So when I 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 our 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 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 at the proper speeds and employ 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 will be supplying components will be supplying subsystems and systems as needed. Again, it's about the adoption and then just playing at the right value point and doing that across the across the portfolio.\nKeith Housum\n Thank you.\nOperator\n (Operator Instructions) Our next question is coming from Mark Miller, Benchmark.\nMark Miller\n China has recently announced more stimulus program. So I'm just wondering, do you think that will have a beneficial impact on IPG? And if so, when?\nMark Gitin\n So I think it's stimulus programs that are there, maybe area is, for example, in EV., one of the things that we're seeing in China is that the adoption of the EVs is becoming faster. So now I think more than now more than half of all of the vehicles on EV and some of that stimulus may flow into the auto areas and maybe that will continue to drive adoption. And on flow into some of these factories where there were 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 other thoughts on that.\nTimothy Mammen\n So I don't specifically I think we have to watch the PMI data out there, which has continued to be relatively weak. It's all it's not really bad. But I think some of the key indicators of the things to want to see whether that stimulus is creating a bit of momentum in the economy. I think for us, so that and say, is that we've seen a more stable business environment over the last couple of quarters, kind of where we can then build on that when faced with some of that stimulus coming a bit of a tailwind potentially? Yes, from August for some slightly improved performance. I think we're still have the Chinese economy still got a lot of challenges behind it. So let's see how much benefit that stimulus kind of can happen. But we've got a stable business out there. And the momentum(inaudible)\nMark Gitin\n We've seen some uptick in areas like 3D printing, 3D manufacturing subsidiary of metals were single mode. Lasers are such an important part. So that scenario, again, it's an industrial uses one particular segment. But as Tim said, hard to convert, (multiple speakers)\nTimothy Mammen\n We've heard that actually some of the utilization and some of the largest battery manufacturers have started to pick up meaningfully. So that could be a catalyst coming into some points in the future for a pickup in that demand. And I think our total EV sales and in China was slightly up quarter over-quarter in the US, so that's another standing by positive viewpoint. Yes, Israel said It's going to be deploying a young laser-based defence system against missiles and drones. I'm just wondering if you have any of our I know you've done some previous work. Do you have any arms in the fire in terms of development contracts and what's going on in that area?\nMark Gitin\n Yes, sure, can't be specific, but we are we do supply into the overall into that. Overall markets are in our single mode. Lasers are very high performance and have been an important part of it across the world. There are used in those applications for that for most, but I can say now.\nMark Miller\n So you still have ongoing programs there.\nMark Gitin\n We're still selling lasers into the into that. That market it's not a huge business for us today, but we are we do have arms in those fires. Thank you.\nOperator\n Thank you. We reset of our question and answer session. I'd like to turn the floor back over for any further or closing comments.\nMark Gitin\n Thank you for joining us this morning and for your continued interest in IPG. We will be participating in a number of industrial sales this quarter and are looking forward to speaking with you soon again. Have a great day everyone.\nOperator\n Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. 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