IPG Photonics Corporation (IPGP) Earnings Call Transcript & Summary

Good morning, and welcome to IPG Photonics conference call to discuss the company's acquisition of Lumibird Medical. Today's call is being recorded and webcast. At this time, I would like to turn the call over to Eugene Fedotoff, IPG's Senior Director of 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 Lumin. Today's call will cover IPG's proposed acquisition of Lumibird Medical. Let me remind you that statements made during this call that discuss our expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties and that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties are discussed in our Form 10-K for the period ended December 31, 2025. And and our reports on file with the Securities and Exchange Commission. Any forward-looking statements made on this call are the company's expectations or predictions as of today, July 17, 2026 only and the company assumes no obligation to publicly release any updates or revisions to any such statements. During this call, we will be referring to certain non-GAAP measures, including measures derived from or aligned with IFRS reporting standards as well as other non-GAAP measures. Such non-GAAP financial measures should not be considered superior to, as a substitute for all alternative to and should not be considered in -- and should only be considered in conjunction with the GAAP financial measures presented by the company. For more information on how we define these non-GAAP measures and the reconciliation of such measures to the most direct comparable GAAP measures, please refer to our SEC filings. -- and our Investor Relations website. We will also pause to his prepared remarks on our website after this call. Finally, as a reminder, we closed our second quarter on June 30 and we'll be reporting results in a few days. Today's call will be focused solely on the announcements we made last night. With that, I'll now turn the call over to Mark.

Thank you, Gene. Good morning, everyone, and thank you for joining us. Today marks an important milestone in IPG's strategic evolution. We have signed a binding offer with Lumibird SA to acquire Lumibird Medical a recognized leader in medical laser systems for the ophthalmology market. It's a highly complementary addition to our medical laser business, which is a leader in urology. There are 4 key messages we'd like you to take away about this proposed transaction. First, this acquisition accelerates IPG's strategic evolution by meaningfully expanding our Advanced Solutions revenue into attractive, higher-margin medical markets with durable demand, strengthening the quality of our business mix. Second, -- it delivers on our commitment to improve profitability through the addition of a high-margin business that we expect will be accretive to gross margin, EBITDA and adjusted EPS. Third, it creates a scaled medical laser platform by combining our leading urology business with Lumibird Medical's leading ophthalmology business, increasing our addressable medical market by approximately $1 billion. And fourth, it expands our long-term value creation opportunity by combining complementary technologies, commercial capabilities and applications expertise to drive innovation and future growth. I'll now walk through each of these points in more detail. Before discussing the specifics of this acquisition, let me briefly revisit the strategy we've been executing as shown on Slide 4. It starts with 2 clearly defined strategic growth initiatives. The first is strengthening our leadership in industrial solutions by expanding laser adoption, displacing incumbent technologies and further moving up the value chain with differentiated system and subsystem solutions. The second part of our strategy and where this acquisition fits is expanding our leadership in laser and photonics technology in attractive markets and applications in advanced solutions, including medical, directed energy and micro machining. We are leveraging core capabilities to expand to new adjacencies, targeting applications where precision, accuracy, control, efficiency and reliability are required. This includes extending our technologies across multiple industries through organic and inorganic opportunities. We have already established a solid presence in these markets through organic investments and are excited to share how the Lumibird Medical acquisition advances this initiative and increases our Advanced Solutions revenue. We've also strengthened our organization through the 1 IPG operating model to position the company for profitable growth, supported by operational excellence, a self-sustaining innovation engine. We have built the M&A function and successfully integrated the Clean Laser acquisition last year. We believe that the acquisition of Lumibird Medical is the next natural step in continuing to accelerate this progress and expand our addressable market, utilizing our strong balance sheet. With that context, let's turn to Slide 5, and I'll explain why we believe medical is such an attractive opportunity. Expanding our participation in medical has been a high-priority growth initiative because it builds directly on the capabilities that already differentiate IPG, including our lasers, photonics and applications expertise. We've established a strong position in urology and developed solutions for dermatology markets through innovation, new product development and customer wins. Limibird Medical now expands on that foundation by adding a leadership position in ophthalmology and creating a broader medical platform spanning the 3 leading medical laser specialties. -- ophthalmology, urology and dermatology. Following the acquisition, Advanced Solutions will represent approximately 26% of total pro forma sales, up from 16% today with approximately $204 million in medical sales based on 2025 pro forma results. The ophthalmology medical laser market is characterized by favorable long-term demand, the need for specialized technology and high-quality products, strong brand preference and specialized clinical and regulatory expertise. With this acquisition, we combine our complementary technologies and capabilities while increasing our exposure to durable higher-margin medical markets. Overall, the acquisition of Lumibird Medical would meaningfully expand our medical laser platform and accelerate 1 of our key strategic initiatives. I'll now turn the call over to Tim to discuss the financial details of the proposed transaction.

Thank you, Mark, and good morning. I'll take a few minutes to walk through the financial aspects of the proposed transaction -- as shown on Slide 6, the purchase price is EUR 300 million, which represents approximately 15.9x Lumibird Medical's 2025 adjusted EBITDA. As shown in the appendix to -- today's presentation, we have reconciled Lumerberg's historical IFRS financial information to the adjusted EBITDA measure used in the presentation and our remarks adjusting for the differences to GAAP reporting for operating leases and capitalized R&D as well as other differences with IFRS reporting standards, which decreased reported EBITDA by approximately EUR 5 million. Purchase agreement also includes a contingent earn-out of up to EUR 50 million based on financial performance in 2026 and 2027. We anticipate that the acquisition would be accretive to gross margin, EBITDA and adjusted EPS in the first year. As this is a carve-out in the short-term, we don't anticipate any cost synergies. Over the longer-term, we see opportunities to create additional value through new product co-development and leveraging IPG's technical and operational leadership in lasers, optics, and photonics across the combined portfolio. As with any medical technology business, realizing some of these opportunities will depend on regulatory and clinical approval time line which we will approach in a disciplined manner. Our exceptionally strong balance sheet allows us to fund the acquisition through cash on hand. After the transaction closes, which we anticipate happening by the end of Q4 2026, we expect to maintain a strong balance sheet with go-forward financial flexibility. With that, I'll turn the call back to Mark to discuss Lumibird Medical's technology, markets and products in more detail.

Thanks, Tim. I'll continue on Slide 7. Lumibird Medical is a global leader in developing, manufacturing and marketing innovative diagnostic and treatment solutions, primarily for ophthalmology. Their strong brand recognition and broad product portfolio have resulted in an impressive installed base more than 80,000 systems globally. They have more than 450 talented employees a highly experienced management team with extensive knowledge in medical markets, a strong R&D organization with over 50 employees and a proven track record of developing differentiated best-in-class proprietary solutions. The company is based in France and has 3 major facilities located in France, Australia and Slovenia. Lumibird Medical has a broad geographic sales mix serving more than 110 countries. Like the urology market we participate in, the ophthalmology medical market is highly regulated and driven by medical necessity. The market is characterized by rigorous regulatory and clinical approval standards that require specialized expertise and a long-term commitment to quality and innovation. These factors plus increasing demand driven by demographic changes, make this business attractive from an acquisition standpoint and provide steady revenue growth drivers with strong profitability. This is reflected in Lumibird Medical's financial profile with margins that are accretive to our current margin profile. Turning to Slide 8. The addition of Lumibird Medical would create a scaled medical laser platform and adds approximately $1 billion in addressable market opportunity with leadership in the specialized ophthalmology market. Lumibird Medical solutions address the full spectrum of ophthalmology care with specific differentiated products and applications. At a high level, their innovative solutions improve diagnostic precision and treatment outcomes, making them a partner of choice for ophthalmologists worldwide. This is an established franchise with leading global market positions and trusted brands such as Quantel Medical, Elyx and OptiTech Medical. They're well positioned across markets with laser treatment and diagnosis solutions for retinal conditions, cataracts and glaucoma. In addition, the company is leveraging its technical expertise to develop diagnostic and treatment solutions for dry eye, which is a developing growth market. One of the key benefits of this acquisition is the combination of complementary core strengths from each organization to enable long-term value creation as shown on Slide 9. Both organizations have strong product portfolios. IPG is the leader in thulium laser systems for urology and OEM lasers used in dermatology. Lumibird Medical's laser treatment and diagnostic systems are the leading solutions for ophthalmology. The 2 organizations have complementary global capabilities. Lumibird Medical has robust go-to-market and global distribution infrastructure to complement IPG's global manufacturing footprint and presence. Lumibird Medical has experienced navigating the regulatory, clinical and compliance regimes in Europe, while IPG has experience with those systems in the U.S. This is expected to improve and accelerate the approval process of future technology development. Most importantly, IPG and Lumibird Medical share an innovative mindset along with a commitment to solving complex challenges for our customers by delivering exceptional outcomes where precision, accuracy, efficiency and reliability are essential. Combining these core strengths creates a scaled medical platform with greater commercial reach, clinical credibility, regulatory and product management experience and cross-specialty innovation opportunities. The combination should enable us to advance the strategic road map for both businesses, growing our leading position in medical lasers and creating a long runway and strong platform for durable, profitable growth. In summary, and as we've discussed today, we believe this acquisition represents an important step in the execution of our sustained value creation strategy, accelerates our expansion in advanced solutions, strengthens our financial profile through the addition of a high-margin business and creates a scaled medical laser platform with leadership positions in both urology and ophthalmology. Just as importantly, it builds on the capabilities that already differentiate IPG. By combining complementary technologies, applications expertise, commercial capabilities and clinical and regulatory experience, we believe we are creating a stronger platform for innovation and future growth. This acquisition is the result of the strategy we've been executing over the past 2 years. We've strengthened the organization, streamlined operations, accelerated product development and made meaningful progress executing our growth strategy. We believe the acquisition of Lumibird Medical is an important next step that further expands our addressable market and positions IPG to create long-term value for our customers and our shareholders. We are excited about the opportunities ahead and look forward to welcoming the Lumibird Medical team to IPG as we continue building a leading medical laser platform. With that, we'll be happy to take your questions.

[Operator Instructions]. Our first questions come from the line of Ruben Roy with Stifel.

Congrats Mark and Tim. This seems like a very interesting addition to the strategy going forward. I guess, Mark, if we could start and just talk a little bit more. I admit, I hadn't heard of Lumibird until last night. So maybe if you can talk about potential cross-selling opportunities between ophthalmology and urology, how the markets work? Are they separate go-to markets or other complementary nature of distribution channels, I'm thinking potentially of European distribution urology systems, et cetera. So maybe if you could give us a little bit of how you expect these 2 businesses to operate together. Again, are they going to be separate go-to-market? Or what's the complementary nature, I guess, of the customer base and selling opportunities?

Absolutely. Thanks very much, Ruben, for the question. First of all, let me just say again that these are complementary businesses. And this Lumibird Medical adds to our overall business. From a synergy standpoint, near-term, we're not expecting synergies and still this is accretive in year 1. Again, this is a high-margin business with an attractive growth profile, we're excited about the opportunity to unlock value from the potential of this combination. In the longer term, certainly, we'll be able to put in our IPG lasers and photonics some of those time lines are a little bit longer because of the regulatory pieces. But on the go-to-market pieces, they're quite separate. But as you pointed out, having the global nature of both businesses, we expect to have some good combined benefits from those.

Okay. Maybe just -- I don't want to focus too much on long-term. But just given that, that potentially is a part of kind of next steps and it is interesting to me that there's an opportunity to source IPG lasers into these products longer term. But my understanding, and this could be wrong, but it seems like the Lumibird systems are built mostly on solid-state laser technologies. I guess, maybe if you could talk about kind of what the realistic time frame might be, given that it's a different type of lasers and to your point, there's a lot of potential medical requalification cycles, et cetera. Is that something investors should be thinking about way in the future? Or is that part of your sort of more medium-term road map and the way you're thinking about the strategy for the acquisition?

Yes. The way to think about it, Ruben, is that IPG's capabilities are very broad in lasers and photonics and that those capabilities are applicable to this business area. As I mentioned, the -- there's strong potential for that combination. It is a bit longer, as you mentioned, because of the regulatory time lines. Then if you look at it, combining the 2 businesses, again, having the capabilities both on the urology side and on the ophthalmology side, fantastic cross capabilities in the regulatory in the global nature and the manufacturing and our ability as a combined entity with the combination of that urology capability in medical plus the ophthalmology capability and the broader capability of IPG's lasers and photonics really allows us a longer-term capability to accelerate growth.

Okay. Maybe last 1 then just for Tim, and maybe high level, if you could talk to about the product gross margins for Lumibird to where your sort of corporate gross margins sit today and kind of what the target might be for gross margins? And then maybe if you could give us with that in mind that the synergies are a little bit out there. the path to the 16.8% adjusted EBITDA margin sort of what are the moving parts puts and takes to get to that sort of margin would be helpful.

Yes. Ruben, they're a leader, obviously, in the ophthalmology sector, and the gross margins reflect that. significantly above what our current trough level gross margins are. Then we stated that it is going to be accretive to overall EBITDA and adjusted EPS, particularly after accounting for intangible amortization and other acquisition-related expenses. We'll give more detail on that as we get to closing the deal in terms of the actual gross margins and the OpEx spend, et cetera. The second part of your question was on the reconciliation back to the adjusted EBITDA number that we gave. So we started -- they have a reported IFRS EBITDA number for the Medical division. From that, there are a couple of main adjustments that you have to deduct out. One of them is that they capitalize R&D under IFRS. On a more of a cash EBITDA basis under GAAP, you generally don't capitalize R&D. We deduct that from their reported number and then there's an adjustment related to lease accounting as well. That's another deduction and then there are some small other estimated accounting adjustments that we've taken. The reconciliation lays out those 3 main categories going from their reported IFRS. IFRS EBITDA down to GAAP equivalent to adjusted EBITDA.

Okay. Last 1 then. Tim, can you maybe give us a little bit of the metrics that might govern the earn-out? Is that revenue-based EBITDA base, both -- any color there?

Yes. I mean, performance metrics are typically here around revenue and EBITDA and reflect the fact that if they the -- sometimes you have some other synergy-driven metrics as well, but this deal doesn't have those in the right. So those performance targets, basically, if achieved, we haven't disclosed them at this point in time. If achieve will deliver significant incremental value, and that reflects the $50 million earn-out that they could earn for test. I think that we've assessed that very carefully in terms of how it plays out with incremental performance.

Our next questions come from the line of Jim Rashidi with Needham & Company.

Wanted to go back to Slide 8, if I could. You highlight the company's Lumibird market position. It appears that they compete with some very large players. When you note the global -- their global market position, are they stronger in particular, potentially smaller subsets of the broader ophthalmology market. I'm just trying to get a better understanding of the overall competitive landscape.

Absolutely, Jim. Thanks for the question. Yes, Lumibird is very strong and has in the segments of glaucoma, retinal and cataracts and specifically cataracts, it's secondary cataracts. Those areas, they have a very strong market position globally as well as in some of the diagnosis areas like the ultrasound. They have strong positions in those segments within ophthalmology.

Okay. I apologize if this may have been in some of the materials you provided, but Wondering if you could talk to the company's historical growth, the margin trends in the business?

Yes, absolutely, Jim. Lumibird Medical has a baseline of steady durable growth. Historically, that's been mid-single digits over the past several years. The margin profile is very strong. You layer that on 3 key growth drivers here is a really key product road map with innovative technologies for growth geographic expansion and some of the new segments like dry eye. Then on top of that, beyond really excited about the longer-term opportunity to then unlock the value from the combination of Lumibird Medical, plus our medical business with urology and the laser piece and the overall lasers and photonics capability, putting those together really allows us the opportunity to unlock value from the combination.

Okay. Final question. I just want to understand their manufacturing capabilities a little better. The extent to which they leverage other supply chain partners. I know it's going to potentially take time for you to begin to incorporate some of your own manufacturing capabilities. But just trying to understand how they actually produce their products?