IPG Photonics Corp (IPGP) 2020 Q3 法說會逐字稿

Good morning, and welcome to IPG Photonics' Third Quarter 2020 Conference Call. Today's call is being recorded and webcast. At this time, I would like to turn the call over to Angelo Lopresti, IPG's Senior Vice President and General Counsel for Introductions. Please go ahead, sir.

Thank you, operator, and good morning, everyone. With us today is IPG Photonics' Chairman and CEO, Dr. Valentin Gapontsev; Chief Operating Officer, Dr. Eugene Scherbakov; and Senior Vice President and CFO, Tim Mammen.

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 include the impact of the COVID-19 pandemic on our business and those detailed in IPG Photonics' Form 10-K for the period ended December 31, 2019, and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the investors section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website. Any forward-looking statements made on this call are the company's expectations or predictions only as of today, October 30, 2020. The company assumes no obligation to publicly release any updates or revisions to such statements. For additional details on our reported results, please refer to the earnings press release and the excel-based financial data workbook posted to our Investor Relations website. We'll post these prepared remarks on our Investor Relations website following the completion of the call.

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

Good morning, everyone. We demonstrated excellent execution in the first quarter and delivered a result above our guidance range, despite continued challenges from the COVID-19 pandemic and general economic slowdown. Our outperformance was driven by 2 factors: first, strong revenue from -- in China, which improved slightly from second quarter and increased meaningfully from the third quarter of 2019. And second, a sequential improvement in Europe, which recovered from the low point in the second quarter 2020.

Economic indicators show improvement from the significant contraction in activity in the second quarter, and this helped to drive improved performance in the third quarter. Sales of high-power lasers above 6 kilowatt increased more than 15% compared to the third quarter of 2019. Revenue from other applications increased by 24%, primarily from higher revenue from advanced applications, which was driven by revenue from high-power, single-mode fiber lasers and medical procedures.

We are demonstrating good progress in our core markets, thanks to our technology differentiation and low-cost production capabilities. In the cutting market, we delivered strong year-over-year growth in both our rack mounted 1 to 4 kilowatt lasers for the high-volume market and our ultra-high power lasers for leading-edge cutting systems.

Ultra-high power lasers made up more than 58% of total high-power sales. Our customers are working on integrating the new ultra-compact rack mounted U series of lasers into their low cost-cutting systems, and we expect to receive the first volume orders in the coming months. The new U series has extended optical performance, with the smallest size, lowest weight in the industry and record power-to-volume ratio.

For the first time, this range of devices provides full protection against humidity penetration that is extremely important in field usage. At the high end of the market, we are benefiting from an increase in order volumes for our 20 and 30 kilowatt ultra-high power lasers and optical heads. These lasers not only enable 50% to 100% faster cutting speeds than a 15 kilowatt device, but are capable of processing materials with 20 to 50 millimeters of thickness or greater. This improvement in both productivity and flexibility is driving the replacement of plasma cutting machines and lower power laser solutions. This is particularly true in machine shops and construction equipment manufacturing.

Moreover, these lasers provide superior beam parameters, record wall plug efficiency and unique high reliability that are the hallmarks of the IPG brand. They also drive a superior return on investment for our customers. Our Adjustable Mode Beam lasers continue to gain traction in the welding industry, most notably in the electric vehicle battery welding.

Our AMB products offer superior speed and weld quality over competing solutions, thanks to the broadest range of beam tunability. This enables spatterless welding.

In addition, we continued to expect strong growth in our high-power nanosecond pulse lasers used for foil cutting and cleaning in electric vehicle battery processing as well as for ablation and cleaning in other industries. Product innovation remains core to IPG's success.

During the third quarter, emerging product and application sales were 21% of total revenue, increasing 5% year-over-year, despite softer demand trends due to COVID-19 in several new product categories, including systems. Sales of medical lasers increased more than 30% year-over-year as we continued to sell our gold standard thulium laser solution and consumable fibers for urology and other soft tissue applications.

Advanced applications revenue increased 50% year-over-year in Q3, driven by strength in government and semiconductor applications. Despite the impact of COVID-19, sales of green, ultraviolet and ultrafast pulse lasers into emerging microprocessing applications showed strong growth year-over-year.

In addition, we have a very strong backlog of green lasers and improved backlog for UV and ultrafast pulse lasers as a result of orders received in the last quarter. Our green pulse lasers are enabling significant improvement in solar cell efficiency. We continued to target more than 50 new projects for these lasers across a wide range of applications. These include processing [of glass], ceramics, composite materials, numerous crystals, circuit boards, OLED film, batteries and solar cells. We are investing in a number of next-generation solutions with significant disruptive potential that we plan to launch over the next six to twelve months.

Customer evaluation of our handheld laser welder has been very positive, and they have cited improvements in weld quality, diversity of materials that can be joined and programmed welding parameters for different types and thickness of materials as advantages. The multichannel QCW lasers for high speed spot welding applications have the potential to be disruptive in displacing very inefficient Nd:YAG lasers. This is due to the significant cost savings they can bring due to the increase in welding productivity and decrease in electrical consumption.

Our kilowatt-scale pulse lasers for ablation and cleaning applications are also continuing to gain acceptance. Beyond material processing, we continue to develop new soft tissue medical treatments, mid-infrared lasers for molecular-level resolution online spectroscopy, inspection, sensing and biomedical research applications and new high-speed transceivers for telecom and datacom markets.

I want to conclude by thanking our employees for their strong execution during one of the most challenging periods in our company's history. The diligence of our employees to keep each other safe has enabled us to return our operations back to normal within safety guidelines. Of course the well-being of our employees, their families, our customers, our partners and our community remains our highest priority.

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

Thank you, Valentin, and good morning, everyone. I will begin by discussing the effects of COVID-19 on our production. All 3 of automation production facilities in Germany, the U.S. and Russia remained open and operating normally, and we haven't seen any disruption of our manufacturing or our service capability in the regions where we operate.

Our global facility are operating on a largely normalized basis, albeit with social distances and enhanced cleaning and filtration measures in place.

In addition, we were back to normal operation promptly after we reported the ransom attack in September. The incident did not have any material impact on our business operations, financial conditions or on our ability to report financial results. As we disclosed earlier, we carry cyber insurance to cover this type of risk. Nonetheless, IPG is conducting an analysis to improve the security and resiliency of our systems. We continue to benefit from our vertical integrated production model, which enables key technologies -- technological and cost advantages or a competition while minimizing the supply chain disruption. The current constraints on our business primarily related to restrictions on travel that affect our sales team and customer visits related to applications development.

Logistics were a less impact in third quarter, and we did not encounter any meaningful disruption of our ability to ship components and finished products around the world. As a percent of sales, shipping costs were slightly lower than they were in the second quarter. We continued to benefit from reductions in the cost of devices and from expense reduction initiatives we undertook in the second half of 2019.

Gross margin improved to 48% this quarter. The total SG&A and R&D expenses increased by $2.8 million to $78 million in the third quarter compared to the $75.3 million in the second quarter, while sales revenue increased by $22 million. Operating expenses continue to track well below the peak level of $84 million incurred in the second quarter in 2019.

Examining our performance by region. Revenue in China increased 22% year-over-year, representing approximately 47% of total sales. New orders booked in China were slow at the beginning of the quarter but picked up in September. However, China continued to have significant backlog, given the exceptional level of orders booked in the first half of the year. While we face aggressive competition in the region for lasers at 6 kilowatt and below, we continue to maintain share at key accounts, while anticipate a strong mix of laser at 10 kilowatt or greater in the future.

In Europe, revenue decreased 10% year-over-year due to the effect of COVID-19 on many countries in the region. Similarly, revenue in North America decreased 26% year-over-year with strong growth in the medical and advanced application not being sufficient to offset declines in lasers and system sales for material processing. While North America revenue was weak in the third quarter, it was notable that order booking were exceptional and benefited from several large orders from advanced applications and for our unique green lasers used in renewable energy.

Sales in Japan decreased 41% year-over-year, while COVID-19 infections in the region are below other country. The recurring stop and restart of economic activity has delayed many significant projects within our welding and cutting businesses in Japan. Sales in the rest of Asia increased 6% year-over-year and recovered from the second quarter through the fourth and also benefited from shipment of high-power lasers for advanced applications.

Sales in Turkey increased 15% year-over-year and by more than 100% as compared to the second quarter. Global demand trends remain uncertain, and we have seen continued delay of projects globally, which makes the execution in the third quarter all the more notable. We continue to believe that our large and diverse advanced materials and components technology platform, our efficient R&D model and our strong balance sheet and free cash flow provide us ample flexibility to respond to business disruption and emerge from pandemic and stronger competitive position.

With that, I will turn the call over to Tim to discuss financial highlights in the quarter.

Thank you, Eugene, and good morning, everyone. Revenue in the third quarter was $318 million, which declined 3% year-over-year, but increased 7% quarter-over-quarter. Revenue from materials processing applications decreased 5% year-over-year, and revenue from other applications increased 24%. Sales of high-power CW lasers were flat year-over-year and represented approximately 58% of total revenue. Sales of ultra-high power lasers at 6 kilowatts or greater represented 58% of total high-power CW laser sales. Pulse laser sales increased 3% year-over-year with strong growth in green pulse lasers used in solar cell manufacturing as well as higher sales of our new UV and ultrafast pulse lasers, which were partially offset by lower sales of lower power pulse lasers for marking applications.

Systems sales decreased 37% year-over-year as growth in systems for medical device manufacturing was offset by lower sales of other IPG laser systems and Genesis nonlaser systems. Medium power laser sales decreased 1% on continued softness in additive manufacturing and the transition to kilowatt scale lasers in cutting. QCW laser sales increased 21% year-over-year from sequential improvement in consumer electronics applications. Other product sales increased 8% year-over-year, driven by growth in medical laser sales.

Q3 gross margin was 48%, which increased 160 basis points year-over-year. Compared with the year ago period, the increase in gross margin was driven primarily by lower cost of products, which was offset by an increase in inventory provisions as compared to the year ago period.

Third quarter GAAP operating income was $41 million, and operating margin was 13%. Goodwill impairment charges related to Genesis Systems Group reduced operating income by $45 million and reduced operating margin by 14 percentage points. The results of this business were impacted by lower capital investments from industries impacted greatly by the COVID-19 pandemic such as aerospace and transportation as projects have been delayed.

We continue to be focused on numerous opportunities for Genesis, including transitioning to a higher percentage of laser-based systems as well as expanding the international systems opportunities. We are hopeful that it will ultimately enable progress to be made on broader-based laser welding applications across many different industries.

During the quarter, we recognized a foreign exchange gain of $11 million, primarily related to revaluation of U.S. dollar cash and other assets held in Russia, given the depreciation of the ruble versus the U.S. dollar, and to the appreciation of the Chinese Yuan.

The foreign exchange gain increased Q3 operating margin by 350 basis points. Q3 net income was $36 million or $0.66 per diluted share. The goodwill impairment charge reduced EPS by $0.63, while foreign exchange gains benefited EPS by $0.15. The effective tax rate in the quarter was 16%.

If exchange rates relative to the U.S. dollar had been the same as 1 year ago, we would have expected revenue to be $4 million lower and gross profit to be $3 million lower. We ended the quarter with cash, cash equivalents and short-term investments of $1.3 billion and total debt of $39 million. Strong operational execution resulted in cash provided by operations of $70 million during the quarter.

As a result of COVID-19, we have reduced our planned capital expenditures for the year. Capital expenditures were $25 million in the third quarter, and we now expect capital expenditures will be in the range of $80 million to $100 million for the full year.

During the quarter, we repurchased 61,000 shares for $10 million. Bookings growth in North America and Europe were strong compared to the second quarter, while total orders in China were lower. In North America, we had record bookings aided by several orders for advanced applications and emerging products. While total orders in China for the third quarter were lower, China continues to have a significant backlog, given the exceptional level of orders booked in the first half of the year. In total, third quarter book to bill was slightly below 1. Overall, it was also notable that order bookings improved markedly during September.

It is difficult to predict whether the improvement in some macroeconomic indicators will be sustained, given the resurgence of COVID-19 in Europe and North America and its potential impact on economic activity. These uncertainties continue to make forecasting our business challenging in the near to medium term. That said, we continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing, medical procedures and advanced applications. We believe the strides we are making in higher power products within our core materials processing business and new solutions will enable us to emerge from the current downturn in a stronger competitive position.

For the fourth quarter of 2020, IPG expects revenue of $290 million to $320 million. The company expects the fourth quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $0.75 to $1.05 with 53.1 million basic common shares outstanding and 53.7 million diluted common shares outstanding.

Financial guidance provided this quarter is subject to greater risk and uncertainty, given the COVID-19 pandemic and its associated impacts to the global business environment, public health requirements and government mandates. As discussed in the safe harbor passage of today's earnings release, actual results may differ from our guidance due to factors, including, but not limited to, goodwill and other impairment charges, product demand, order cancellations and delays, competition, tariffs, trade policies, health epidemics and general economic conditions. Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our press release and is subject to risks outlined in the company's reports with the SEC.

With that, Valentin, Eugene and I will be happy to take your questions.

(Operator Instructions) Our first question is coming from the line of Jim Ricchiuti with Needham & Company.

Wanted to follow-up on the comments you made about the bookings picking up in September. Can you elaborate on where you're seeing the activity? And to what extent that may be -- may have been sustained thus far in October?

So Jim. Yes, the phasing of orders and the tone of orders in the quarter was a bit weaker in July and August and was really exceptionally strong in September. That strength was driven, in particular, by improvements in North America and China. Overall, the order flow in Europe was a bit more even. It was actually stronger than it had been in the second quarter. The North American bookings, as we referenced, benefited from significant orders for advanced applications. Some of which are scheduled to ship in Q4 and some of which are probably going to Q1, we may be able to get some of them into the fourth quarter as well. Very strong orders for some of the emerging products, particularly green lasers and even better orders during the quarter for -- slightly better orders for UV and ultrafast. In October -- the first week in October, China was actually on holiday, so there was no activity in China. But since then, particularly in the last 1.5 weeks, the overall tone of order flow has actually picked up in China. It's been quite strong in Europe since the beginning of October, which is interesting. And in North America in the last 4 or 5 days, it's also improved meaningfully. We've had another order for green lasers from Southeast Asia as well. So we are actually quite pleased with the general tone of order flow in the business, given the disruptions that you're seeing in the market.

Got it. And just on -- curious, we're hearing more and more about a pickup in the automotive market. Are you seeing any signs of that in the business, including potentially in the Genesis business?

No, in Genesis. I think automotive, there is certainly a little bit more strength to it. It's difficult to bifurcate it between traditional EV. There's a lot of investment going on in EV, and that's not just happening in China. The significant orders we're waiting for in North America as well for this. There's an order we just took this week for EV. I'd say that the order flow in Europe around automotive is still a little bit weaker. So different -- there's a lot of -- there's certainly a significant pipeline of automotive activity. It's a little difficult to bifurcate it between traditional applications and the emerging EV applications.

Our next question comes from the line of John Marchetti with Stifel.

I'd like to go back just a little bit to the order commentary again. The North America and European, I think is understood to be a little bit more tied to those regions recovering a bit. But I'm curious, from the China perspective, having those orders get off to a little bit of a slower start and now coming back a little bit. If you can discuss maybe some of the dynamics that are going on there in that market. And then as we look out into '21, and I know you're not specifically giving guidance there, but should we expect the China business maybe back more towards the '19 type of levels? Or do you think something has changed there as we're looking out into '21?

So there's a lot of different aspects to that question. The order flow in China has been a bit, and I call it anomalous this year, right? We've had this very, very strong order flow in the first half of the year. And we reiterate, we have very strong backlog in China. What's been good to see is that even with that, order flow in China and the general tone of the business has been quite positive in September and October. So you can't really call it normal just because the backlog is strong, but also the tone generally tends to be a bit more positive at the moment. The feedback we've got from our China business is that Q4, the tone for business remains relatively good. Recent presentations from them for opportunities in 2021 are significant and meaningful. They're driven by things like EV, the transition to higher power -- ultra-high power cutting applications. Within EV, it's battery welding. It's cleaning applications. It's foil cutting. So that helps us because of the higher power pulse lasers. There's actually some interesting demand that may come out even of some additive applications in China.

So there seems to be a broader-based potential for the application sets in China, and there are a very significant number of opportunities that they're working on. They're even working on looking at displacement of CO2 lasers within traditional automotive industry, where they've identified 1,000-odd CO2 lasers that still potentially could be reduced. So if the economic -- underlying economics stay relatively strong in China, I think you see that investment cycle continue to -- I will reiterate on the order flow. North America was an extraordinarily strong quarter for us. And the good thing about that was just the diversity of applications. It wasn't materials processing on its own. It was also some of the advanced applications. It was one of the micro materials applications. We actually had another order for medical in October. So that wasn't quite Q3. We called out the strength during the quarter from revenue and bookings on some of the semiconductors applications as well. So North America was really a -- it was an exceptional quarter for us. And I think it was even record -- a record booking level, if you exclude some of the systems businesses.

Our next question is from the line of Nik Todorov with Longbow Research.

I just want to understand, again, going to bookings. You mentioned that China backlog remains very strong several times. Can you help us understand how should we think about seasonality? Obviously, this is not a typical period of the time. But as we go into the December and March quarter, typically, the business in China goes down a little bit. But how should we think about that relative to the backlog comments and the comments of order pickup in September and October?

We're not going to give any commentary around Q1. It's too early to do that. I think the seasonality in China that's backed into our guidance is fairly in line, even though it is a different -- difficult time to pick that. Revenue in China would be slightly lower, offset by strength in some other regions. China has been giving us good forecasts that they've been intending to get towards the top end of their range. And I think it just depends how the tone of the business holds up there. I think we've given a -- beyond that, I think there's an awful lot of commentary I've already given around orders and the tone of the business in these different regions.

Okay. And then as a follow-up...

Now we introduced this quarter, new -- some new, very exciting product in a way. Also I think they will have a very good new change in China also, not only worldwide. This product is very exciting and now with [a partner] in China and [best series of orders], volume orders start to grow only in this quarter. So [we hope that] beginning next year, perhaps would be a serious test to regular product in sales revenue in China and not only China, worldwide.

Okay. Just as a follow-up, I think, can you comment a little bit about the implied fourth quarter gross margin? If my math is correct, it implies about mid 45 percentage is where -- if I look at the revenue that is -- the revenue is about $15 million to $20 million higher than the June quarter, where you guys said a 46% margin. And obviously, September was very strong aided by FX. Can you help us understand the implied gross margin and the puts and takes for December?

The implied gross margin is very similar actually to Q3. It's 45% to sort of 48% at the top end of the range. So as you stand towards the top end of the range, you're getting into the upper half of our 45% to 50%. I'm assuming for operating expenses, something pretty similar at the top end of the range and slightly lower. And so I'm not sure whether -- you're saying 45%, we can come back to that in a bit more detail later. But -- so I'm assuming 45% to 48%, operating expenses at the top end of the range, similar to Q3, at the bottom end of the range, slightly lower and then a tax rate of 25%, which would exclude any discrete items that we can't really predict what they would be during the quarter.

(Operator Instructions) The next question is coming from the line of Michael Feniger with Bank of America.

My first question, just on the high-power lasers, it was flat year-over-year. This was the first quarter that it wasn't down on a year-over-year basis in 9 quarters. So I'm just hoping, Tim, you could kind of help me understand this impact. If we assume, based on your guide for Q4, the high-power lasers are going to potentially accelerate on a year-over-year basis like how do we think about what that does for your mix since it's been really down for the last 9 quarters and now it seems like it's flat and moving in the right direction.

Mike, I think that's a great comment. I think high power was basically flat year-over-year. And given the circumstances, I think that's a pretty interesting observation and a great performance. We benefited from clearly the shift towards ultra-high power that we've called out, where we have significant advantages in terms of just the quality, reliability, electrical efficiency, capability of producing that product. Interestingly, the YLR lasers also performed quite well. We called out that they actually grew year-over-year as well. So I think that's continuing to demonstrate again, the overall quality and reliability of the product that we have versus the competition. It shows we're not losing share there. We referenced that we also sold some single-mode lasers for advanced applications. That helped a bit with total high-power laser sales and the mix there. We've got this very strong backlog for single-mode lasers. We actually took 2 of the orders taken in the U.S. for 100-kilowatt lasers. So that's where the application is outside of materials processing. Yes, I think the performance of that high-power lasers was driven by those factors. I also called out that actually we've got the new ultra compact U series in the hands of customers and they're evaluating it. The performance of the less than 4-kilowatt range was before significant orders being received for that product. So there's potential improvement in 2021 as that product ramps up at the low end of the market.

Makes sense. And Tim, I want to ask about your inventories. If you look on a year-on-year basis, your inventories were down year-over-year, much more than your revenues. We haven't seen this since 2017. You talked a lot about last year, some of these inventory charges that were taken. And you look now, I mean, your inventories are kind of flattish while your sales are accelerating quarter-over-quarter. So can you just give me a frame of reference how do you feel about your inventories right now? Do you need to increase production to maybe match just demand where your inventories are now and where you think demand might be heading into 2021?

I think that's a good operational question. Eugene, what's your view on inventory and the investments and the overall control and execution around that at the moment?

We already mentioned that in 2019, we started to control much more precisely our inventory in different facilities. I mean, in Germany, United States and also especially in Russia. And during this control, we improved our position in area, I mean, much more control. And from this point of view, I think we will continue to check to control and to keep our inventory on the exceptional level.

This inventory, our policy in inventory helped us to pass this year over a critical year when this all the sources, practical components and parts [supply] outside sources where you see the problem and the average delivery time of new components, so increase in some time, so without inventory create enormous problem in manufacturing our products. But we have our inventory to pass without any problem this very tough time.

Our next question is from the line of Mark Miller with The Benchmark Company.

Considering a possible change in administration in the United States and possible impact on tariffs, any thoughts about that in terms of how it might impact IPG, if such a thing would occur?

I think we -- Mark, I'll get into discussion. In fact, the outcome of the election, we have to see what happens on that. We're a global and international company that operates in multiple end markets. I think for us, at the moment, it's more the underlying economic growth that's expected next year globally. So GDP is forecast to rebound quite strongly on a global basis. The most interesting and important thing for us would be whether that is actually sustained or whether the pandemic has an impact on that. I think the outcome of the U.S. election is more muted relative to those expectations. I think the other area that we're absolutely focused on is this diversification of the business, the new products at different wavelengths, different pulse durations, addressing different applications and how we execute around those. And that, again, is on a global basis. So I don't want to get too hung up on the election results. And I think there's other more in the near term, at least, pertinent things that could impact whether global GDP growth is robust or not next year.

And just as a follow-up. Could you estimate what percent of sales are coming from products introduced in the last 2 years?

The number we gave on emerging products, which is not quite the last 2 years, those include some higher-power pulse lasers, but getting to higher powers on that was 21%. We gave that number in the script.

Our next question is coming from the line of Tim Diffely with D.A. Davidson.

Tim, you mentioned the gross margins of 160 basis point improvement year-over-year, driven mainly by cost. Does that infer that pricing has been relatively stable for you over that period of time?

On a year-over-year basis, pricing actually still came down. It was more in the 10% to 15% range. It's more of a -- but some of that is also changes in -- sorry, 10% to 15% on an average kilowatt basis. In fact, if you look at the high power, average selling prices were down, significantly less because of the transition to higher power levels. So you've still got competitive dynamics and pricing issues there. If you look at order -- interestingly, if you look at order flow and ASP, some of the ASP analysis around orders taken in Q3, there were actually slight improvements on that because of some of these ultra-high power lasers and single-mode lasers that we booked. But also the exchange rates have moved a little bit in our favor at the moment. So the renminbi is a bit stronger, the euro is a bit stronger, and that helps with the ASP trends a bit.

So the other side of the equation is it just continues to reinforce the ability of the company to reduce costs on product. And this is, as I said, even before the new compact YLR user introduced, there's certainly some benefit coming from the -- the YLS use. But there's also the product mix benefits as you go to ultra-high power lasers. Stronger sales of things like green lasers, stronger sales of ultra-high power or higher-power nanosecond pulse lasers, these are all areas where we have a competitive advantage and where the value proposition delivered to the customer is exceptionally strong.

Okay. Sounds good. And then on the booking strength, especially in North America, how much of that do you think reflects just some pent-up demand from a couple of quarters of COVID versus matching the true underlying demand level today?

The bookings, sorry, in North America was -- we referenced that it really came from newer products and newer applications in advance. So it wasn't necessarily driven by a rebound on the core materials processing applications. We started to see some more recovery of that, I think, broadly in September and more recently in October, where we started to see some of the cutting OEMs place some orders. There's a significant order on automotive we're waiting on at the moment. There was an order take in automotive. So the real trend on Q3 was from these advanced applications and strength on some of the emerging products in green and UV and ultra -- ultrafast.

The next question is a follow-up from the line of Michael Feniger from Bank of America.

I'm just curious, Tim, I mean, with your cash position where it is, I'm curious, you took this impairment in Genesis. What have you really learned from Genesis? And with this cash position, do you think IPG could be moving more aggressively in terms of acquisition to help drive that penetration on welding? How are you guys thinking about that cash position as you head into 2021?

Sure. I mean, the cash position and the strength of our balance sheet has been a very significant advantage to the company during the last year, particularly given the volatility in the macroeconomic environment. It leaves us with a tremendous amount of firepower to look at potential acquisitions and investments in new technologies. And then the learning points on Genesis. Genesis, unfortunately, has been very impacted by COVID-19, right? So there was a lot of growth opportunities in things like aerospace that we were looking at, particularly on the laser-based and the aerospace industry as a -- I mean everybody knows it's just a complete mess at the moment. So it's not that we don't think Genesis is going to be successful. I think that it has just been impacted, and it's going to take a bit of time to get that business to recover.

On the overall acquisition strategy, we continue the successful acquisitions we've done, have been around looking at technologies that really fit with our lasers. So the acquisition of LDD in Canada is driving significant revenue opportunities, given the real time weld monitoring capability. The acquisition of OptiGrate in Florida really enhances the capability around ultrafast lasers and also even in helping with some of the diode specifications. So we're well positioned to look at strong technology acquisitions that benefit the business.

At this time, we've reached the end of our question-and-answer session, and I'll turn the floor back to management for closing remarks.

Thank you for joining us this morning and for your continued interest in IPG. We look forward to speaking with you over the coming weeks, and we'll be participating in a number of virtual investor conferences this quarter. Have a great day, everyone.

Thank you.

Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.