IPG Photonics Corporation (NASDAQ: IPGP) Q3 2025 Earnings Call dated Nov. 04, 2025
Corporate Participants:
Eugene Fedotoff — Senior Director, Investor Relations
Mark M. Gitin — Chief Executive Officer
Timothy P.V. Mammen — Chief Financial Officer and Senior Vice President
Analysts:
Ruben Roy — Analyst
James Ricchiuti — Analyst
Scott Graham — Analyst
Keith Housum — Analyst
Mark Miller — Analyst
Presentation:
operator
Good morning and welcome to IPG Photonic’s third quarter 2025 conference call. Today’s call is being recorded and webcast at this time. I’d like to turn the call over to your host Eugene Fedorov, IPG Senior Director Investor Relations. For introductions, please go ahead with your conference.
Eugene Fedotoff — Senior Director, Investor Relations
Thank you and good morning everyone. With me today is IPG Photonics CEO Dr. Mark Giddin and Senior Vice President CFO Tim Maman. On today’s call, Mark will provide a summary with a quick look at our third quarter results and the overall demand environment, then walk you through the progress we are making on our long term strategy. After that, he will turn it over to Tim to provide financial details. 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 that could cause the Company’s actual results to differ materially from those projected in such forward looking statements.
These risks and uncertainties are detailed in our Form 10K for the period ended December 31, 2024 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, November 4, 2025 only and the Company assumes no obligations to publicly release any updates or revisions to any such statements. During this call, we will be referencing certain non GAAP measures. For more information on how we define these non GAAP measures and the reconciliation of such measures to the most directly comparable GAAP measures, as well as 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.
Mark M. Gitin — Chief Executive Officer
Thanks Eugene. Good morning everyone. Third quarter revenue was at the top end of our expectations, flat sequentially and up 11% year over year excluding divestitures. There were a number of positive factors that drove the results this quarter. Stronger demand and battery production driven by E mobility and stationary storage, supported higher sales and welding with our adjustable mode beam laser weld monitoring and beam delivery solutions. We continued to win orders with some of the largest battery and automotive manufacturers across multiple regions. General industrial demand was stable compared with the prior quarter and our cutting revenue was essentially flat and consistent with the past several quarters.
We began shipping the new generation of our high power rack integrated lasers to cutting OEM customers globally. These next generation lasers use our new higher power diodes have a smaller footprint and lower manufacturing costs. Demand in additive manufacturing applications was very strong and we won new business with our single mode lasers tailored for that application. Cleaning continued to grow supported by the clean laser acquisition. Outside of industrial applications, we delivered year over year growth and built momentum towards longer term value creation through new product introductions and new business wins. One exciting example of this is the growing interest in our Crossbow Directed Energy solution which I’ll touch on shortly.
I’m also pleased to share that we’ve received FDA clearance for the next generation of Arthulium medical laser systems. This is an important step for the business and we expect shipments to start by the end of the fourth quarter. I’ll provide more detail on this milestone later in the call. Our financial results improved in the quarter as we increased gross margin maintenance, managed operating expenses and delivered adjusted EBITDA and adjusted earnings per share at the top end of our expectations. Order activity remained healthy with book to bill of approximately 1. While uncertainly in the demand environment persists.
Leading indicators such as PMIs continue to show improvements and we remain cautiously optimistic going into the year end. Now I’d like to take a step back and offer some broader perspective on the longer term trajectory of our business and and the progress we’re making on our strategic initiatives. Over the last 17 months I’ve been methodically working to transform the organization, creating a disciplined high performance culture that is fully prepared to take on the opportunities that lie ahead of us. This transformation involves moving IPG from a founder led approach to a team led operating model that can support further growth.
Last quarter I highlighted some of the additions I have made to strengthen our executive leadership team. This top talent has brought deep expertise and fresh perspective and they are already having a significant impact on our execution. The results we’re delivering today show that the strategy we outlined earlier this year is taking hold and is beginning to drive meaningful improvement across our businesses. Our progress reflects disciplined execution, sharper focus and a stronger alignment around our growth priorities. The steps we’ve taken to streamline operations, strengthen decision making and accelerate product development are translating into better performance and greater consistency across the business.
Our focus remains on sustaining this momentum, balancing operational discipline with investment and innovation to position IPG for long term profitable growth. The powerful combination of innovation and execution is driving progress across our key growth initiatives. Our fundamental strategy is based on converting incumbent processes and applications to our differentiated laser based solutions. This enables us to expand existing laser use cases, create new laser applications and extend our reach into new high growth applications such as medical micromachining and directed energy. These are large opportunities with the potential to significantly expand our addressable market. We continue to strengthen our position in core industrial applications such as welding and cutting by focusing where differentiation matters most and where our technology delivers a clear performance or cost advantage.
This is evidenced by our business wins and positions us to outpace the market as industrial production recovers. We’re also moving up the value chain with our world class laser applications capability that enables us to integrate our fiber lasers into differentiated subsystems systems to solve our customers most challenging problems. This approach allows us to capture a greater share of customer spend and deepen long term partnerships. We have already demonstrated these benefits in welding which has become our largest application. Our unique solutions enable safer and more reliable welding processes for thin foils and alloys used in advanced batteries for EV and stationary storage applications.
We are also accelerating the adoption of lasers in other large industrial applications, displacing incumbent technologies. By combining our laser technology with deep applications expertise, we are solving complex challenges for our customers where precision and efficiency matters most. Laser cleaning is a great example of this approach. Customers convert to laser cleaning from conventional abrasive or chemical methods to because our laser solution offers greater speed and control, is easy to automate, and provides a safer and environmentally superior outcome. Lasers will continue to be adopted driven by these advantages and we are leading the change, accelerating broader implementation across the industry.
Finally, we’re penetrating new non industrial applications in markets where laser based solutions also offer clear cost benefits and superior outcomes relative to incumbent approaches. We are focused on medical micromachining and directed energy verticals where our innovative laser based solutions provide strong competitive advantages. I’m pleased to report that we’re making meaningful progress across each of these opportunities in medical We’ve been making strategic investments in urology applications. Arthulium lasers provide a superior solution for eliminating kidney stones and have demonstrated improved results versus legacy laser processes. On previous calls, I discussed a new customer we won earlier this year that has helped to drive strong revenue growth in the business in 2025.
I’m happy to report another major milestone on today’s call FDA clearance and the upcoming launch of our next generation urology system. This new system incorporates our proprietary Stone Sense and advanced pulse modulation technologies which deliver improved precision and control, continuing to enhance results in kidney ST removal procedures. Shipments are expected to begin in the fourth quarter. This marks another important step in expanding our medical portfolio and demonstrates how our innovations continue to advance patient care and broaden our reach beyond industrial applications. We’re executing against a clear roadmap that we believe will drive significant revenue growth including recurring consumables revenue over the next two to three years.
Last quarter we discussed Crossbow, a scalable and cost effective laser defense system that can neutralize the threat of smaller group one and Group two drones. Crossbow is a disruptive turnkey directed energy system enabled by our single mode lasers, systems expertise and our high volume manufacturing capabilities. Crossbuilt can operate as a standalone system or can be integrated into layered defense architectures. This system was showcased during two recent defense shows, DESCI in London and ausa in Washington, D.C. interest was high from both defense and commercial customers for protection of critical military and civilian assets. We are working on converting leads into orders and are having conversations with multiple potential customers.
We’re proud to announce the opening of our new IPG Defense Customer center and Production facility in Huntsville, Alabama which is dedicated to supporting the crossboat product line. Over the last few months there have been multiple examples of large international airports that were forced to shut down all flights due to the incursion of drones. We are optimistic that our solution can become a standard approach across many situations and scenarios to deal with these ever increasing threats. We believe this growth strategy best aligns our differentiating laser technology, market leadership and deep applications expertise to solve the most challenging problems and enables us to deliver a compelling value proposition that makes IPG a trusted partner in the industries we serve.
With that, I will now turn the call over to Tim.
Timothy P.V. Mammen — Chief Financial Officer and Senior Vice President
Thank you Mark and good morning everyone. My comments will generally follow the Earnings Call presentation which is available on our Investor Relations website. I will start with the revenue trends by Application on slide 4, revenue from materials processing increased 6% year over year driven by higher sales and welding, additive manufacturing applications, cleaning and micro machining, partially offset by lower sales in marketing, marking and divestitures. While cutting revenue remained nearly flat. Revenue from applications by higher sales in medical and advanced Our emerging growth products performed well in the quarter, increasing on a year over year basis but declining slightly sequentially and accounting for 52% of sales in the third quarter down from our record high of 54% in the prior quarter.
Moving to the revenue performance by region on slide 5, sales in North America decreased by 16% sequentially but were up 8% year over year. Sequentially sales declined due to the timing of some large orders in welding and advanced applications, while year over year growth was driven by higher revenue in advanced applications and medical as well as improved cutting and cleaning sales. Sales in Europe increased 11% sequentially and 4% year over year, excluding $7 million in divestitures. The sequential increase was driven by higher sales in welding, cutting and additive manufacturing, while the year over year improvement was driven by the acquisition of clean laser as well as higher sales in cutting and additive manufacturing.
Revenue in Asia increased 5% sequentially and 15% year over year driven by higher welding sales in China, Japan and Korea as a result of stronger demand and business wins and battery applications. Our differentiated solution, including the combination of our AMB laser weld, process monitoring and beam delivery is improving yields and battery safety and driving adoption by major battery manufacturers in the region Moving to the Financial Performance Review on slide 6, revenue came in at the top of our expectations at $251 million flat sequentially and up 8% on a year over year basis or 11% excluding divestitures.
Foreign currency increased revenue by approximately $3 million or 1% this quarter. GAAP gross margin was 39.5% and adjusted gross margin was 39.8% above our guidance and was driven by improved manufacturing cost absorption and a decrease in inventory provisions partially offset by higher cost of products sold. Increased shipping costs on a year over year basis. The impact of tariffs was 140 basis points in line with our expectations. We continue to work on mitigating tariffs, but the impact will likely continue in the fourth quarter. Operating expenses were flat sequentially but above last year’s level, primarily due to the investments we are making to support our strategy and strengthen our organization, which Mark highlighted earlier on this call.
GAAP operating income was $8 million and our adjusted EBITDA was $37 million, slightly above the top end of our guidance. GAAP net income was $7 million or $0.18 per diluted share. Adjusted earnings per diluted share was $0.35 in the third quarter at the top end of our guidance. 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 $870 million, $30 million in long term investments and no debt. During the quarter we spent $21 million on capital expenditures and $16 million on repurchasing IPG shares, supporting our balanced capital allocation framework of investing in growth and returning cash to shareholders.
As expected, operating cash flow started to improve significantly in the second half of the year, more than offsetting CapEx and driving positive free cash flow in the quarter. Looking ahead, we will likely come in well below $100 million in capex this year due to the timing of expenditures for our major investment in Germany. We still expect CAPEX to decrease to about 5% of revenue and free cash flow to improve once the project is complete, but the timing of this project may keep next year’s CAPEX at approximately the same level as in 2025. Moving to our outlook on Slide 8 for the fourth quarter of 2025, we expect revenue of $230 million to $260 million and adjusted gross margin between 36% and 39%, including a potential impact of tariffs of about 140 basis points.
With investments in the growth of our business and strengthening the organization, including leadership, we expect our operating expenses to remain elevated between $90 million and $92 million in the fourth quarter. We anticipate delivering adjusted earnings per diluted share in the range of $0.05 to $0.35, with approximately 42.5 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $21 million and $38 million. In summary, we are pleased to see further signs of continuing revenue stabilization coupled with margin improvement while investing in our strategic initiatives. We continue to believe we have significant operating leverage in our model.
Our strong balance sheet gives us a significant advantage given the near term uncertainty in the operating environment. I will now turn the call back to Mark.
Mark M. Gitin — Chief Executive Officer
Thanks Tim. In closing, we are encouraged by the progress we’ve made and energized by the scale of the longer term opportunity ahead. We believe we have strong growth opportunities driven by our differentiated solutions that have been successfully winning business even in a subdued industrial environment. As general industrial activity recovers, this positions us well to outgrow the market. Our market leadership, applications, expertise and complete solutions enables us to drive adoption of lasers, replacing incumbent technologies and expanding the addressable market. We are excited that our growth initiatives in medical, micromachining and defense are already showing meaningful progress and driving incremental revenue.
While we are cautiously optimistic about the demand environment, we continue to transform the company to create value for our customers and shareholders for the longer term. With that, we will be happy to take your questions.
Questions and Answers:
operator
Thank you. At this time, we’ll be conducting a question and answer session. If you’d like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star two. One moment please, while we poll for questions. Our first question comes from Reuben Roy Wittstifel. Please proceed with your question.
Ruben Roy
Thank you. Hi Mark and Tim. Mark, I’d like To start with, maybe just a little more detail on how you’re thinking about the outlook for Q4. It’s nice to see the progress coming out of Q3 and the book to Bill and some of the sort of new areas that you’re focused on continuing to contribute. So maybe you can walk us through. I know you’ve used the term cautiously optimistic going into year end here, but with PMIs improving, et cetera and where the bookings are, it’s a wide range of guidance. Again, what are some of the puts and takes to get to the lower end of that guided range or the higher end?
Mark M. Gitin
Yeah, sure. Nice to talk to you, Reuben. First of all, we’re quite happy with the performance around the world. As I mentioned, the book to Bill continues to be about one globally at this elevated revenue. And it’s showing continued strength in each of the regions actually in Asia, including Japan, Korea and China. Europe is stabilizing and we’ve been seeing some upside in North America. And we’re really encouraged with these early signs of industrial expansion. As you mentioned too, PMIs are tracking a little bit higher now. So with the US about 52 and a half, the Eurozone now stabilizing at about 50, China a bit over 50 as well.
So those are positive pieces. And even in what has been a muted industrial market, we’re really seeing the benefits of our differentiation. The technology, the product quality, reliability and the applications expertise that we’ve got and tie into that. The global support infrastructure that we have, those things are starting to really give us some benefit. And we’ve seen that in the cutting revenue, for example, that’s been essentially flat now consistent the past several quarters. And I’ve talked about this before, but our OEM inventories, in cutting our OEMs their inventories have really normalized happy that we’ve we’ve got our rack integrated platform out.
So you know, this helps to contribute to how we guide the new product is out now and it’s been qualified by most of our OEM customers. And again that’s the system that has the new diode lasers. That’s a higher power, smaller form factor, lower cost structure. And then, you know, as I mentioned in the prepared remarks, we’re continuing to get share gains and welding in additive manufacturing that’s going well to cleaning. So you know, I really feel good about that. You know that we’re positioned to outgrow the market as the industrial output starts to improve.
And then of course as I, as I mentioned, we’re also focused on the key Areas that we’re investing in, the non industrial areas. Right. So we’ve focused on the areas of medical micro machining and, and the defense area, the advanced area with our Crossbow system. And we’re seeing some pickups there in each of those areas as well. New customer that we’ve talked about in medical. New product coming out in Q4 where we’re starting to get some shipments. So you know, all of those are contributing as well. So you know, overall I’ll you know, say again, cautiously optimistic and you know, certainly feel better about the business now than we did, you know, a year ago at this time.
Ruben Roy
Great, thanks. Thanks a lot for all that detail. Mark. I just had a quick follow up on that and a quick one for Tim. Just a follow up. It was nice to hear the E mobility related welding revenue strengthen a bit. Was that geo specific or was that something that you saw more broad based?
Mark M. Gitin
So actually we’re getting share gains globally. If you look at Asia, we’ve had strength in Japan and Korea and continued share gains also in China. And then we’ve also had uptick in Europe and we’ve had some wins Also in the U.S. although the U.S. is a little slower. And one thing I would point out is that it’s really about battery. It’s not just ev. There’s quite a lot of work going on now in stationary storage as well. So in China, which has the largest growth, has about a third of it is due to stationary storage with two thirds about evidence.
And overall, just to point out too, the EV market is continuing to grow. It’s you know, year to date has grown about 25% year over year.
Ruben Roy
Yep, got it. Okay, a quick one for Tim on the gross margin. Tim, just thinking about the outlook, it sounds like the, unless I missed this, the tariff impact is about the same as you saw in Q3. Revenue at the midpoint is a little bit lower, but you’ve got a downtick in the gross margin. So maybe some moving parts there and how you’re thinking about the margins as you get out of this year and what’s the expectations for tariff impact if any, as you get into 26? Thank you.
Timothy P.V. Mammen
I think first of all, gross margin, both actually on GAAP and adjusted basis, was strong in Q3. I was actually very pleased with it. Some of the positives on that were that we started to see some improvement in product gross margin which we’d mentioned had been a bit weaker in the second quarter. So that’s really good because that shows that some of the cost reduction initiatives that we’ve got. Mark mentioned that around the RI laser we’re also trying to roll out the higher power diodes across the platform. More broadly, for example, there are other applications where we’ve introduced lower cost lasers.
So that was really pleasing to see that develop during the quarter for me. The other benefit on gross margin, couple of other ones, inventory provisions were lower. So I’d said that we expected to see those come down in the second half of this year given the work we’ve done around managing inventory. And then the final benefit was really an improvement in under absorbed costs. So the overall absorption was pretty good in Q3. That though did result from growing inventory a bit. If you look at the balance sheet, inventory is up about $20 million. That was an intentional investment in inventory really to reduce lead times to customers and support the business.
At this point in time, we’re not expecting, expecting a much more moderate impact from inventory in the fourth quarter. So kind of the midpoint of my gross margin guide factors that in. It’s not factoring in any other significant increase in, in tariffs. We’re trying to mitigate some of the effect of tariffs. I’ve said fairly clearly I don’t think companies are going to get rid of the cost of tariffs given how pervasive they are. But we’re looking at where we can increase pricing a little bit. We’re looking at other programs internally in terms of manufacturing drawbacks of tariffs and things like that.
They do take time to put in place. There’s a huge amount of data analytics and approvals that you need to go through to get those in place. But they should start to see some of that tariff impact potentially ameliorate a bit going into next year.
Ruben Roy
Great. Thanks again for all the detail.
operator
Our next question comes from James Rashuti with Needham and Company. Please proceed with your question.
James Ricchiuti
Hi. Thank you. Good morning. Had a couple of questions. First on Crossbow, wondering Mark, how we might think about the opportunity looking to 2026. Sounds like you the interest at the recent shows that you’ve participated in. Are you working with any other partners at the moment besides Lockheed Martin? So.
Mark M. Gitin
Hi Jim, let me just step back for a minute. So yes, we’re quite excited with, with Crossbow. And just to remind everybody that’s directed at the, you know, the smaller class of drones, the group one and group two and we have really a unique position because it uses our high power single mode lasers plus the surrounding photonics that we make and systems and we do this at scale at large volume manufacturing. So we’re Able to deliver, to deliver that and provide kind of a unique solution. And we demonstrated that or showed that at the tube big shows, the Desci, which is in London and also at the AUSA just a couple weeks ago in Washington D.C.
and Jim, what I would say is that we had, you know, quite a lot of interest, quite a lot of leads for that and that was both in the military space but also in, you know, in the civilian airspace. That’s been a, you know, a recent, you know, just in the last six weeks or so we saw drone incursions shut down major airports in Europe. Oslo, Copenhagen, Munich, all had long shutdowns. So there’s interest also in that civilian space. So, you know, quite a lot of leads that we’re working through. We have obviously the link with Lockheed but you know, that’s not, it’s not only Lockheed and we have conversations going on with, you know, quite, quite a few other potential customers in, in both the defense and civilian airspace areas and globally.
James Ricchiuti
If we think about the opportunity, looking out to next year, it sounds like you’ve got a few iron, you know, more than a few irons in the fire and that this how we think about it in terms of material revenue. So I guess where I’m going.
Mark M. Gitin
Yeah, sure, I understand Jim. So what I would tell you is. That, you know, we’re qualifying leads. This does take some time to go through. So you know, we do expect to get some revenue in 2026, but you know, it takes, you know, it takes some months certainly to qualify and turn leads into orders.
James Ricchiuti
Got it. Just with respect to the new urology system which I guess you’re shipping this quarter. Again, similar questions looking out to next year is this, you know, how significant a product launches this for you in terms of providing additional momentum in the national market here?
Mark M. Gitin
Yeah, thanks Jim. I’ll tell you, you’re a little bit, you’re garbled in your, in your voice, but I think, I think I understood the question. And that was around the launch of our new, our new urology product here in Q4. So just to reiterate for a moment, we have received FDA clearance and we are launching this, this is a new product in urology. It’s a thuleum based system, next generation that has a couple of really key features. One is called Stone Sense and the other is really a unique way that we’re able to modulate the pulse output.
And both of those are for basically precision and safety. The Stone Sense actually can tell the difference between hitting a stone and tissue and Therefore have, you know, additional safety in the process. So we’re launching that product. That’s the first of a roadmap of new products in urology. And I’ve been talking about this for several quarters now. And just to point out, I had said several quarters ago that we were targeting a Q4 launch. So that’s on track. And the entire roadmap with this being the first product will give us substantial revenue growth. And I also want to point out too, that earlier in the year I had announced that we had a second major customer that’s a leader also in the urology space.
Remember, we’ve talked about Olympus before as one, we can’t name the other, but it’s another large player in the marketplace. And just remind you also that as we bring out new product in the system side and gain share, that also brings with it recurring revenue because we also make the disposable fibers that go with each of the treatments. So, you know, what I’d say is we’re starting to ship the new product in Q4. We’re excited about the product. We think it will gain us more share in that market. But I also want to say that it’s the first of a number of new advancements that we’ll be bringing out over the next couple of years.
And we’re expecting in urology, which is the $2 billion TAM, we’re expecting to significantly grow that. And it’s to. So it’ll be a key part of our growth going forward.
James Ricchiuti
In terms of 2026, if you were to rank this among some of the other opportunities that you’re focused on, where would you place this, say, among the top three or four?
Mark M. Gitin
Yeah, so, Jim, it is one of the top ones for us. So when we think about the urology roadmap, you know, we look at that as growing our urology revenue kind of 2 to 3x in the next 2 to 3 years. So I can give you some, some sense of how to, how to consider that it is one of the larger ones we’re looking at if we, if we talk about the investments in the three key areas, you know, based upon our differentiation, we’ve talked about the urology, the micro machining space, and then of course, the area of the advanced area, which includes the crossbow, you know, that together, what I’ve said is that that’s addressing about a $5 billion TAM, and that over the next several years, we’re expecting to grow, you know, hundreds of millions of dollars in those spaces.
James Ricchiuti
Thank you. Congrats on the quarter.
Mark M. Gitin
Thank you.
operator
Next question is from Scott Graham with Seaport Research. Please proceed with your question.
Scott Graham
Hey, good morning. And congrats on the quarter as well. Could you just remind us when you talk about tariffs to minus 140 basis points, that’s a net number, right, versus your countermeasures.
Timothy P.V. Mammen
Yeah. That’s the impact on the quarter relative to normalized run rates saying Q1 or Q1 Q second half of last year. So it’s net of some countermeasures at the moment that we’ve implemented. But for example, if you’re trying to change pricing, Scott, you’ve got to go through adjusting pricing, you’ve got to adjust quotes, you’ve got to ship the existing backlog, you’ve got to wait for orders from customers. So you don’t see the benefit from something like a change in pricing for quite a significant period of time. And then I mentioned that we’re looking at different types of strategies to draw back some duties when you’re re exporting product or bringing product back into the US that has US content.
But again, those take a lot of time to put in place because they’re quite complex to do.
Mark M. Gitin
And just to remind you Scott too, as we’ve talked about for the, for the tariffs, we have actually done quite a lot in terms of mitigation, if you recall that we have a flexible manufacturing footprint and we actually moved product manufacturing for a number of product lines from the US to Europe, for example. We also flexed our, our supply chain and we, you know, adjusted where some of the supply was coming from. So we have done quite a bit to mitigate and get us to where we are as well.
Scott Graham
Understood. Thank you. Just my follow up question is, you know, the fourth quarter operating expenses number looks like about the same as the third quarter.
And you know, last year I believe that number was lower, although you, your earnings were maybe under more pressure. Could you explain why, you know, maybe fourth quarter operating expenses aren’t maybe a little bit lower than what your guidance is? I guess that one surprised me a little bit.
Mark M. Gitin
Absolutely, Scott. So as I’ve been talking about for the last few quarters, we’re making some key investments and that’s what you’re seeing in the opex. The first is, you know, really around these key programs that I’ve been talking about in medical and in the urology, in the micro machining, in the advanced space.
The crossbow is a great example. So we’re investing in those key areas. That’s a significant piece of it. And then also we’ve made some investments really in the organization. I talked about last quarter, you know, some very top talent that we’ve recruited into the organization to help us lead the company into continued growth. So that’s what you’re seeing and I expect, you know, we expect that to, you know, stay at about that level going forward.
Scott Graham
All right, that’s very helpful. Thank you.
operator
Our next question comes from Keith Howsam with North Coast Research. Please proceed with your question.
Keith Housum
Good morning. Good morning, guys. I appreciate it. And good quarter. Just remind me here, historically, has there ever been an opportunity for budget flushes in the fourth quarter in any potential benefit from the one big beautiful bill that we saw passed earlier this year.
Timothy P.V. Mammen
In seasonality in the fourth quarter? Sometimes Q4 can be a bit weaker than the third quarter. Depends upon the geographies as the issue, Keith. I mean you can have slightly lower revenue, for example, in China, where China can be stronger in Q2 or Q3, but then you can get some pull through in other geographies that may or may not offset that. So it’s not a particularly meaningful seasonality, I’d say. And it can, you know, be a little bit variable from, from period to period. And then the one big beautiful bill. No, I mean, what were the way that.
One big beautiful bill is very complicated what it does. You know, there are different ways you have to strategize about that. The way that we’ve looked at it in terms of preserving some of our permanent deductions, that if you accelerate, for example, depreciation, you lose those. We don’t see a meaningful change in the effective tax rate going Forward related to OB3. You can see some benefit on cash taxes, but not really to the effective tax rate overall.
Keith Housum
Okay, I appreciate it. Helpful. And then Mark, you briefly mentioned a new facility in Huntsville, Alabama, regarding your cross bill opportunity there. Can you expand a little bit more about what you’re going to be going down there? Is it going to be manufacturing? Is it just a sales location?
Mark M. Gitin
Yeah, absolutely. So yes. So our Huntsville location, so it’s a small lease facility and it’s really in the heart, let’s say, of that type of technology and it brings us closer to some key people that we need in that business. But it also has near it cleared airspace for doing drone type testing.
So it all pulls together and that’s why we have that. And we’re able to do customer tests there, validation there, and we’ll do some of the manufacturing there as well.
Keith Housum
Great, thank you.
operator
As a reminder, if you’d like to ask a question Please press Star one. One moment while we poll for questions. Our next question comes from Mark Miller with the Benchmark Company. Please proceed with your question.
Mark Miller
Mark, thank you for the question. I’m just wondering if you can give us some thoughts about margins for defense related opportunities. Are they similar to corporate margins or would they be above or below?
Mark M. Gitin
Yeah, thanks very much for the question. So this is, you know, the area, for example Crossbow is you know, again in one of the highly differentiated areas. So that’s where we’re investing in these areas in medical micromachining and this Crossbow area, this defense area. So very high differentiation and therefore margins above what you would see in corporate.
Mark Miller
Okay. With chip sales booming and shortages and pricing going through the roof. What’s your thoughts about business from semiconductors next year?
Mark M. Gitin
Yeah, so I can tell you, you know, we’re actually excited about that area. That’s an area that we’ve been concentrating in. So that also falls within that what we call the advanced segment which has the Crossbow in it as well. So the area of, you know, semiconductor capex, you know, this WFE piece, again, it’s where we have significant differentiation. We’re working with key suppliers that are in that market largely in the, in the metrology inspection lithography space. And you know, we’ve gotten some very, some, some design wins in that area recently from, you know, from that work with very differentiated products.
So you know, I really like those, that semiconductor area because you know, when you win there it’s really an annuity that lasts for many years. And so as those start to roll out and we’ve seen some of that happening, that’s why you saw our advanced up a bit this quarter was because of some of the semiconductor pull through.
Mark Miller
Thank you.
operator
We have reached the end of the question and answer session. I’d now like to turn the call back over to Eugene Federf for closing comments.
Eugene Fedotoff
Thank you for joining us this morning and your continued interest in ipg. We will be participating in several investor events this quarter and are looking forward to speaking with you again soon. Have a great day everyone.
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