Rodney McFall

Rodney McFall asked for an update on the competitive environment, particularly in Asia, and whether pricing pressures observed in cutting applications were extending to more advanced applications. He also followed up on the shift from electric vehicles (EVs) to stationary storage in welding, asking if this trend was margin accretive for IPG Photonics due to potentially higher volumes or larger devices.

Answer

CEO Dr. Mark Gitin stated that cutting is a very small part of IPG Photonics' business in Asia (China). He emphasized that the company operates in highly differentiated areas like battery, additive manufacturing, and micromachining, where its key differentiation allows pricing to hold up against competitive pressures. Regarding the shift to stationary storage, Dr. Gitin explained that while battery factories produce for both EV and stationary storage, the latter often involves higher-end applications with greater capacities and currents, similar to high-end EV. He highlighted that IPG's differentiated technology, including specific laser beams, in-situ weld monitoring, and process expertise, is even more critical for these higher-end applications due to thicker busbars, contributing to quality, reliability, and safety, which are key value drivers.

Rodney McFall asked for an update on the competitive environment, particularly in Asia, and whether pricing pressures from cutting applications are starting to extend into more advanced applications. He also followed up on the shift from Electric Vehicles (EVs) to stationary storage in battery manufacturing, asking if this trend is margin accretive for IPG Photonics due to potentially higher volumes or larger devices.

Answer

CEO Dr. Mark Gitin stated that cutting is a very small part of IPG's business in China (a couple of percent range). He emphasized that IPG operates in highly differentiated areas like battery, additive manufacturing, and micromachining in Asia, where their key differentiation allows pricing to hold up. Dr. Gitin clarified that IPG's technology applies across both EV and stationary storage battery factories. He noted that stationary storage and higher-end EV batteries tend to be more sophisticated due to higher capacities, currents, and thicker busbars, making IPG's differentiated solutions (specific laser beam types, in-situ weld monitoring, beam delivery, and process expertise) even more critical for quality, reliability, and safety. This differentiation is particularly valuable for the higher end of the market.

Rodney McFall asked for details on the size and scope of the new international customer opportunity and requested more color on the rationalization of investments in the commercial markets.

Answer

CEO Scott Keeney described the international directed energy opportunity as material and in its early stages, with larger programs expected in the future, but declined to provide specific details. He explained that the commercial market rationalization involves pivoting engineering talent from less attractive industrial laser applications to focus on defense-based laser development, while maintaining a strategic focus on growth in the additive manufacturing space.

Rodney McFall asked for details on the size, scope, and potential execution risk of the new international customer win and questioned which specific commercial markets nLIGHT is pulling back from as it rationalizes investments.

Answer

Co-Founder, CEO & Chairman Scott Keeney described the new international directed energy win as a material program in its early stages with significant future opportunity, but declined to provide more specifics. He explained that the company is rationalizing investments by pivoting engineering talent away from less attractive industrial laser markets and toward defense-based laser development, while reaffirming that additive manufacturing remains a commercial area of focus due to its differentiated technology.

Rodney McFall asked about the timeline to resolve manufacturing challenges for A&D fiber amplifiers and the potential scale and timing of the 'Iron Dome for America' initiative.

Answer

CEO Scott Keeney clarified that current amplifier products are mature, while the next-generation product for the megawatt program is now being transferred to manufacturing and progressing well. Regarding the 'Iron Dome for America' initiative, Keeney described it as a large, well-funded, and broad-based set of programs with a near-term emphasis, noting nLIGHT is actively engaged in related opportunities.

Rodney McFall, on behalf of Keith Housum at Northcoast Research, inquired about the initial steps being taken to improve the T2 Systems business following its management change and asked for color on the company's relative exposure to international versus domestic travel demand.

Answer

CEO David Roberts explained that the T2 management team has reinvigorated commercial leadership and execution by implementing the Verra Mobility operating system with disciplined metrics and KPIs, which contributed to modest growth. Regarding travel, both Roberts and CFO Craig Conti clarified that while they monitor gross TSA numbers, their focus is primarily on domestic travel within key tolling states. They noted that inbound international travel is more relevant to their business than the outbound travel often discussed by airlines.

Asked about the manufacturing progress for amplifiers in the A&D business and the potential scale, timeline, and impact for nLIGHT from the recently announced 'Iron Dome for America' initiative.

Answer

The company stated that current amplifier products are mature, while next-generation products are progressing well in their transfer to manufacturing. The 'Iron Dome for America' initiative is viewed as a very large, broad-based opportunity with a near-term emphasis, and nLIGHT is actively engaged in related programs.

Rodney McFall, on for Keith Housum, asked about the timeline for resolving manufacturing challenges for A&D fiber amplifiers and for more details on the scale and timeline of the 'Iron Dome for America' initiative.

Answer

CEO Scott Keeney explained that mature amplifier products are already well into manufacturing, while next-generation products for the megawatt program are currently being transferred to manufacturing with good progress. Regarding the 'Iron Dome for America' initiative, Keeney described it as a large, high-priority set of programs with a near-term emphasis, noting that nLIGHT is deeply engaged in related discussions.

Rodney McFall of Northcoast Research asked about the strategic rationale for the 3TC acquisition and inquired about the command center business's penetration and growth barriers.

Answer

Mahesh Saptharishi, EVP and CTO, explained that the 3TC acquisition brings a CAD solution in-house that Motorola was already integrating and selling, which will improve margins and provide a platform for future growth. He added that Motorola is now #1 in both CAD and Records in North America, with over 60% of customers having at least one cloud-attached component. Jason Winkler, EVP and CFO, noted that the command center business is growing at 9-10%, indicating the company is taking market share.