IPG光纤 (IPGP) 2026财年第三季度业绩电话会议：营收增长15%，先进解决方案增长33%

IPG Photonics（NASDAQ: IPGP）公布2026年第三季度营收实现连续第四个季度两位数增长。焊接、半导体和国防应用推动了这一增长，而管理层对第四季度的展望则纳入了中国电池产能新增提速有所放缓的因素。

核心要点

• 第三季度营收同比增长15%，环比增长3%，达到2.88亿美元，工业解决方案与先进解决方案部门均对增长做出了贡献。
• 在焊接和增材制造的带动下，工业解决方案营收同比增长12%。在国防和半导体应用的有力推动下，先进解决方案营收同比增长33%，环比增长15%。
• 调整后毛利率达到41%，其中包括关税退税带来的500万美元净收益（贡献了约170个基点）。调整后每股收益为0.61美元，调整后EBITDA为5200万美元。
• 半导体应用营收同比实现翻倍以上增长。IPG表示，公司已获得多家顶级晶圆设备制造商的认证，为其下一代光刻、计量和检测工具提供支持。
• 订单与出货比（Book-to-bill）约为1。管理层指出，大多数市场的需求依然稳健，但预计短期内中国电池产能的新增速度将有所放缓。
• 针对2026年第四季度，管理层指引营收为2.65亿美元至2.95亿美元，调整后每股收益为0.30美元至0.60美元。该展望不包含待完成的Lumibird Medical收购案带来的任何贡献。

核心财务业绩

业务与运营表现

工业解决方案

工业解决方案营收同比增长12%，环比增长1%。焊接是主要的增长驱动力，受电池制造、通用工业市场和消费电子产品的需求支撑。

管理层表示，其电池焊接解决方案可应用于电动汽车和固定式储能（包括服务于数据中心的基础设施）。然而，在经历了几季强劲增长后，公司注意到中国电池产能的新增提速在短期内有所放缓。

随着客户在航空航天、医疗器械和消费电子领域采用IPG的光束整形和多光束技术，增材制造业务亦实现增长。公司在欧洲赢得了新业务，管理层预计这将为2027年的增材制造营收做出实质性贡献。

切割在工业解决方案中的占比有所下降。管理层表示，预计切割业务不会出现显著增长，但看好其在2027年和2028年的潜在机遇。

先进解决方案

先进解决方案营收同比增长33%，环比增长15%。半导体和国防应用是主要贡献因素。

半导体应用营收较上年同期翻倍以上。IPG将这一需求归因于针对GPU、高性能计算和高带宽内存（HBM）先进工艺的投资。管理层预计，随着现有中标设计的量产爬坡以及公司参与客户下一代项目，该业务随时间推移将在先进解决方案中占据更重要的地位。

国防业务营收受益于洛克希德·马丁（Lockheed Martin）公司CROSSBOW定向能系统大部分订单的出货。剩余设备计划于第四季度交付。IPG正在寻求更多机会，并推出了CROSSBOW SE以拓展产品线，该产品射程更远，可针对更大的无人机。

随着新产品和新客户开始量产爬坡，医疗业务营收同比微增，环比大幅改善。耗材表现同样良好。管理层重申了现有医疗业务有望在未来二至三年内翻倍的预期。

IPG预计将于第四季度完成对Lumibird Medical的收购。管理层表示，此项合并将使其可寻址医疗市场规模扩大至20亿美元以上，增添在眼科和泌尿科领域的领先地位，并将在2027年增厚业绩。

区域业绩表现

• 北美：营收同比增长33%，环比增长14%，由焊接和国防领涨，医疗、清洗、切割及增材制造均带来环比贡献。
• 欧洲：营收同比下降1%，但环比增长4%。年度切割和焊接销售额的下降被增材制造和半导体增长部分抵消。
• 亚洲：营收同比增长14%，环比持平，主要反映了焊接业务的增长。

管理层业绩指引

管理层预计第四季度不会产生显着的关税退税收益。该指引亦排除了来自Lumibird Medical的任何贡献。

首席财务官Tim Mammen表示，剔除关税退税后，约39%的调整后毛利率是合理的近期基准参考点。他补充称，更高功率的二极管、更小的产品外形尺寸、生产效率的提升以及产能利用率改善有望在2027年带来更显著的毛利率提升。

风险与关注焦点

• 在经历了几个强劲的季度后，中国电池产能的新增提速有所放缓，形成了短期逆风，这已在第四季度指引中得到体现。
• 由于CROSSBOW的订单和发货可能存在不确定性和波动，国防业务营收可能仍会表现不均。
• 第三季度的盈利受益于500万美元的净关税退税，而第四季度指引假定不会再次获得显着收益。
• 固定成本分摊减少拖累了同比毛利率，管理层表示，朝着数百个基点的潜在提升方向迈进的过程仍将是渐进的。
• Lumibird Medical交易尚未完成，第四季度指引假定无收购贡献。
• 随着IPG继续投资于多项增长战略，预计运营费用将小幅上升。

分析师问答亮点

管理层表示，尽管短期内中国电池产能新增放缓，但在其他市场和区域需求的支撑下，整体订单与出货比仍保持在1左右。

在先进解决方案方面，IPG预计尽管大型国防订单之间可能存在空窗期，但半导体、医疗和国防领域的机遇将支撑长期增长。半导体设计方案的中标（Design wins）被认为尤具吸引力，因为它们能长期嵌入客户平台并随时间不断拓展。

关于毛利率，管理层指出，若不含关税退税，第三季度调整后毛利率约为39.3%。第四季度指引的中点为38.5%，主要反映了预期营收下降以及缺少退税收益。

管理层将医疗、国防、半导体、微加工、焊接和增材制造列为主要增长战略。内生性投资仍是资本配置的首要考量，辅以有纪律的补充性收购和股票回购。IPG目前的股票回购授权额度还剩1.00亿美元。

IPG计划于2027年3月2日在纽约市举行投资者日活动，管理层拟届时对战略进行更深入的审视并公布长期财务目标。

财报电话会议完整文字记录

完整财报电话会议逐字稿

管理层陈述

Operator

Good morning, and welcome to IPG Photonics Third Quarter 2026 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 Fedotoff, IPG's Senior Director, Investor Relations, for introductions. Please go ahead with your conference.

Eugene Fedotoff

Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin; and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary of our third quarter results as well as the overview of demand environment and 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 these forward-looking statements. These risks and uncertainties are detailed in our Form 10-K for the period ended December 31, 2025, and other reports filed 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 1, 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 referencing certain non-GAAP measures. For more information on how we find these non-GAAP measures and a 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 Gitin

Thanks, Eugene. Good morning, everyone. Our third quarter revenue increased 15% year-over-year making it the fourth consecutive quarter of double-digit revenue growth with both Industrial Solutions and Advanced Solutions contributing to the results. Our adjusted EBITDA and adjusted EPS also improved. This reflects continued progress in executing our strategy, driving sustainable, profitable growth through technological leadership, product innovation, operational excellence and disciplined capital allocation.

Customers continue to adopt our differentiated solutions across several strategic growth markets. We saw strong growth in our Industrial Solutions particularly in welding applications, where our laser technology, beam delivery, process monitoring and applications expertise provide meaningful competitive advantages. We remain focused on helping customers improve productivity, quality and manufacturing economics to advanced laser-based integrated solutions. We've also made good progress in advanced solutions driving our laser and photonics technologies into attractive high-growth markets.

Let's look more closely at revenue by application and the meaningful progress we are making in our strategic growth initiatives. Starting with Industrial Solutions. Revenue increased 12% year-over-year, driven by strong growth in welding and additive manufacturing applications. Across these and other markets, we are strengthening our leadership by expanding laser adoption, displacing incumbent technologies and moving up the value chain with differentiated subsystem and system solutions. Our welding revenue benefited from higher demand in battery manufacturing, general industrial and consumer electronics in the third quarter.

The production of advanced batteries for electric vehicles and stationary energy storage systems involves a range of demanding welding requirements that significantly impact battery performance, safety and manufacturing efficiency. Our solutions are critical for high-capacity battery applications used in energy storage, supporting global electrification and growing energy infrastructure build-out, including for data centers. We are a leader in this space and are excited about the long-term trajectory for battery growth.

At the same time, we are encouraged by the strong growth in our welding solutions in other areas such as consumer electronics and industrial markets. In additive manufacturing, we saw increasing momentum as customers continue to adopt this technology for industries such as aerospace, medical device manufacturing and consumer electronics. Our beam shaping and multi-beam technologies, high-beam stability and applications expertise are delivering improvements in throughput and cost per part. This quarter, we secured new business in Europe that we expect to meaningfully contribute to our additive manufacturing revenue in 2027.

Moving to Advanced Solutions. Revenue improved 33% year-over-year and 15% sequentially as we continue to expand our technology leadership into attractive, high-growth markets focusing on medical, defense, semiconductor and micro-machining. Revenue growth in semiconductor and defense applications were the major drivers behind our results this quarter. In semiconductor applications, revenue continued to accelerate and more than double year-over-year. As device complexity increases and feature size decreases, semiconductor manufacturers are investing in advanced process technologies to meet growing demand for GPUs, high-performance computing and high-bandwidth memory. With our differentiated laser solutions, we are a critical supplier to a number of top-tier wafer equipment manufacturers where we are qualified for the next-generation lithography, metrology and inspection tools.

Defense revenue was also a large contributor in the year-over-year growth in Advanced Solutions in the third quarter as we ship most of the Lockheed Martin order for CROSSBOW. The remaining shipments will be delivered in the fourth quarter, and we are actively pursuing multiple additional opportunities. We remain encouraged by customer engagement and the growing recognition of our expanded portfolio of CROSSBOW directed energy systems as an effective, ready to ship and cost-efficient solution for countering evolving UAS threats.

While this market remains in its early stages and revenue can be lumpy in the short term, we believe our technology leadership decades of directed energy laser expertise and commercial laser and systems manufacturing capabilities enable us to establish leading positions in these opportunities. Moving to Medical. Our business continued to perform well during the quarter, supported by strong customer demand, new product shipments and ongoing adoption of our technologies across multiple applications. We are building on our long history of medical innovation and laser expertise by expanding our leading thulium fiber laser platform, with next-generation systems for urology applications.

Last quarter, we announced the acquisition of Lumibird Medical, an important milestone in the execution of our strategy to expand our business in attractive high-margin medical markets. The addition of Lumibird Medical creates a scaled medical laser platform with leading positions in ophthalmology and urology, expands our medical addressable market to more than $2 billion, enhances our Advanced Solutions portfolio and strengthens our long-term growth and profitability profile. The acquisition is expected to close in the fourth quarter. We are pleased with the initial integration planning and preparation and are excited about the long-term opportunities to leverage our complementary technologies, applications expertise, commercial capabilities and innovative culture to drive future value creation. I look forward to working with the Lumibird Medical team to accelerate growth and innovation across our medical business.

In summary, we achieved another quarter of double-digit year-over-year growth, above the midpoint of our guidance range. Customer demand for our unique solutions has strengthened across most markets. Orders also remained strong with book-to-bill of approximately 1. We continue to make meaningful progress on our strategic objectives, delivering profitable growth and creating sustained long-term shareholder value. Finally, I'm pleased to announce that we plan to host Investor Day on Tuesday, March 2, 2027, in New York City. We look forward to sharing a deeper review of our strategy and long-term financial targets. Details will be announced soon. Please mark your calendars and plan to join us for this event.

With that, I will now turn the call over to Tim.

Timothy P.V. Mammen

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 revenue trends by application on Slide 4. Industrial Solutions revenue increased 12% year-over-year and 1% sequentially in the third quarter, driven by growth in welding and additive manufacturing applications. Advanced Solutions revenue increased 33% year-over-year and 15% sequentially on strong growth in defense and semiconductor applications. Sales of our emerging growth products accounted for 52% and of our total revenue in the third quarter, down from 58% in the prior quarter due to product mix.

Moving to revenue performance by region on Slide 5. North American revenue was up 14% sequentially due to increased sales in defense, medical, cleaning, cutting and additive manufacturing. Revenue increased 33% compared with last year, primarily on growth in welding and defense applications. European sales declined 1% year-over-year due to lower cutting and welding revenue, partially offset by increased revenue in additive manufacturing and semiconductor applications. Revenue was up 4% sequentially, driven by improved cutting and welding revenue as well as continued growth in semiconductor applications.

Revenue in Asia was flat sequentially and increased 14% year-over-year, driven by growth in welding.

Moving to a detailed review of financial performance on Slide 6. Total revenue was $288 million, up 15% year-over-year and 3% sequentially. Foreign currency benefited revenue by approximately 1% this quarter compared to the same period in the prior year. GAAP gross margin was 40.7%, and adjusted gross margin was 41%, above the top end of our guidance range. We recorded a $5 million net benefit from tariff refunds that had a positive impact on gross margin of approximately 170 basis points in the quarter. Lower cost of products sold helped margins in the quarter, was offset by lower fixed cost absorption on a year-over-year basis due to a significant build in inventory last year. Total adjusted operating expenses were $91 million, below our guidance range. While we are focused on controlling expenses, we still expect operating expenses to increase modestly going forward due to our continued investments in multiple growth opportunities.

GAAP operating income in the quarter was $21 million, and GAAP net income was $20 million or $0.40 -- $0.47 per diluted share. Adjusted operating income was $27 million, and adjusted net income was $26 million, with adjusted earnings per diluted share of $0.61. Adjusted EBITDA was $52 million. Both adjusted EPS and adjusted EBITDA came in at the top end of our expectations but also benefited from the $5 million in net tariff refunds. Excluding the tariff refund, both adjusted EBITDA and adjusted EPS improved year-over-year and sequentially and were above the midpoint of our guidance.

Moving to a summary of our balance sheet and cash flow statement on Slide 7. We ended the quarter with $926 million in cash, cash equivalents and short-term investments, with no debt. Cash flow from operations continued to improve, reaching $46 million in the third quarter. We spent $17 million on capital expenditures in the quarter, bringing year-to-date CapEx to $54 million. Our CapEx remains elevated this year due to investments in our major fiber manufacturing facility in Germany. Excluding the German investment, we expect CapEx to be at about 5% of revenue going forward.

Moving to our outlook on Slide 8. For the fourth quarter of 2026, we expect revenue of $265 million to $295 million. While we are seeing some moderation of battery capacity additions in China, after several strong quarters, we are very pleased with demand trends across other markets and regions, which are reflected in our book-to-bill of approximately 1. Adjusted gross margin is expected to be between 37% and 40% as we are not anticipating a meaningful benefit from tariff refunds. We estimate adjusted operating expenses in the range of $91 million to $94 million. For the fourth quarter, we expect to deliver adjusted earnings per diluted share in the range of $0.30 to $0.60, with approximately 43 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $33 million and $50 million. This guidance does not assume any contribution from the acquisition of Lumibird Medical.

In summary, we are pleased with our third quarter results, with growth in revenue and bookings as well as improvements in EBITDA and adjusted EPS. We believe that we are well positioned to continue improving our performance. We're seeing solid long-term demand trends across our markets and are gaining traction on initiatives to expand margins even as we continue to invest in the growth opportunities ahead.

I'll now turn the call back to Mark.

Mark Gitin

Thanks, Tim. We are pleased with our performance through the first 3 quarters of the year, driven by growth in both Industrial and Advanced Solutions. Our recently announced acquisition of Lumibird Medical accelerates our strategic evolution and considerably expands our advanced solutions portfolio into higher growth and higher-margin medical applications. We continue to execute our growth strategy, supported by operational excellence and an innovation engine that unlocks significant areas of opportunity. As we continue along this path, I'm increasingly confident in our ability to achieve above-market growth, expand margins and deliver lasting value for our customers and shareholders.

With that, we will be happy to take your questions.

Operator

[Operator Instructions] Our first question comes from Ruben Roy with Stifel.

分析师问答

Ruben Roy

Tim, let's start with the comment you made on moderation in battery capacity additions in China. You've had several strong quarters, as you mentioned. Can you start with maybe talking about welding or total revenue related to China battery today? And how much of that sort of slowdown is built into the midpoint for Q4? And I guess, sorry, one more on that is, would you say the book-to-bill was above 1 outside of the China battery moderation?

Mark Gitin

Yes, I'll take that, Ruben. Good to hear from you. So after strong growth over the last several quarters, we're seeing some moderation, as mentioned in the China battery capacity additions. We see that as a near-term effect. We're not breaking it out specifically, but we have factored this into the guidance for Q4. Longer term, we're excited about the growth opportunity. And we certainly still see a lot of capacity to be added there. We've talked about the market drivers there before, the electric vehicles, but also stationary storage, where that drives great electrification. Of course, data centers are a key driver there. And we have a very strong competitive position there with our technology solution. And as was mentioned in the prepared remarks, overall, we're seeing strong growth across most of our markets and regions, and that's giving us still a book-to-bill of 1.

Ruben Roy

Okay. Understood, Mark. On the Advanced Solutions, it sounds like you shipped most of the Lockheed across the order in Q3. You've got some coming up in Q4. Are you expecting a little bit of a gap? I know you mentioned this is a lumpy business, obviously. But how are you thinking about defense in general for the first half of '27? And I know you have other opportunities in semiconductor and medical. Do you think you'll see growth in Advanced Solutions despite potentially some lumpiness post the Lockheed orders?

Mark Gitin

Yes. So first of all, as you said, we did ship much of the Lockheed order in Q3. And I want to say also we're shipping from production. We're completing the rest of the shipments this quarter. As you mentioned and I did, it's lumpy but very attractive longer term. We're seeing continued strong customer engagement and pipeline there. I want to say also that if you didn't see, we did launch an extension of the product line, it's called the SE, and that has longer range and addresses longer -- larger drones as well. We're very excited, and we have very strong momentum on the customer side there and see good future there going forward.

As far as the rest of Advanced Solutions, we've talked about that. Semiconductor is a very strong area for us now. It's smaller, but it's growing quite fast. It doubled year-over-year. We have very good engagement with Tier 1 sub equipment players where we're being designed into their products, solving really key problems there. And that, of course, has the drive of data centers and AI, and that's an area I love also because the winds are sticky and they stack on each other over time. So that's a key one.

Medical, we've talked about urology, the urology platform and the growth that we're expecting there. New customer came on last year. We have a great platform for growth there. And remember, we've talked about that, that business doubling over the next 2 to 3 years. Medical is very strong. Of course, we're bringing Lumibird in, finishing that acquisition. We're really excited about what that will bring. The combination of the 2 brings some significant growth. And remember that Lumibird will be accretive in 2027 in the first year. There's new products that have already been announced, the first new product from Lumibird. So lots of exciting things going on there, in our Advanced area. So we're expecting growth in both our Advanced and our Industrial Solutions over time.

Ruben Roy

Okay. Just one more for Tim. On the gross margins, if we take out the tariff refunds in Q3, it looks like adjusted gross margins would have been around 39.3%. Your midpoint for fourth quarter is 38.5%. So can you talk about what accounts for the other 80 or so basis points lower on the gross margin? Is that mix absorption, et cetera? And is sort of the 39% level the right starting point to think about as you get into 2027?

Timothy P.V. Mammen

Yes. So your math is very good. I would say 39.3% is the adjusted excluding tariff. That reflects revenue that was [ $287 million ], right. So at the midpoint, our revenue is $280 million, and that actually -- the 38.5%, sorry, ties right in with what was reported on the third quarter Ruben. And yes, I'd say we're sort of more consistent here at this kind of like 39% range, and there's a tremendous amount of work that's continuing to be done in note -- 3 of the areas that I've talked about where it's optimizing the value of the product that we're delivering, continuing to get cost reductions with our new higher power diodes, which change in turn the form factor of the product, right? We're starting to roll those out more meaningfully.

And then there's a lot of work continuing on optimizing manufacturing efficiency, utilization, looking at lower cost areas to make some parts, and that we want to drive improved absorption we still see several hundred basis points of gain that we can get from that. So we're making good progress. It's a bit slow to get there, but I think we're starting to get to the point where more meaningful gains in gross margin should materialize in 2027.

Operator

Our next question comes from James Ricchiuti with Needham & Company.

James Ricchiuti

I wonder if you could -- you may have given it the medical growth in the quarter. How big a contributor was that to the overall growth in Advanced Solutions? Because as I recall, I think you were anticipating a pickup in the second half, maybe that's [indiscernible] the new customer.

Timothy P.V. Mammen

Medical increased slightly year-over-year but improved significantly sequentially, which would be the pickup in the second half. We're starting to see the ramp on some of the new product introductions and the new customer. The consumable business is also performing well, and we're expecting that, obviously, to continue into Q4 for both the hardware and the consumable. And then as Mark said that we expect medical to be a nice growth driver for Advanced Solutions next year, Jim. So yes, we're seeing that pick up in the second half of the year that we thought we would.

James Ricchiuti

Okay. Got it. And just on the Industrial Solutions, nice growth there. And I'm wondering, the bigger part of that I think, is still cutting, and correct me if I'm wrong, but what kind of growth did you see in cutting? I assume modest versus what you described in welding and additives. But maybe if you could frame that a little better for us.

Timothy P.V. Mammen

The main application is really welding these days that drives the underlying Industrial Solutions. There is still a cutting business there, but it's, we've said before, I think last year, less than 20% of total revenue. It's very small in China. The other main applications that are still material would be the additive manufacturing, which globally is doing quite well. That's both in Asia, Europe. And North America, we've had good performance out of that. We're continuing to get good traction and make progress on cleaning applications. There is actually a marking engraving business, which is still a reasonable size, that can perform well when different markets are stronger there. And then, yes, the cutting is a smaller part of the business and not one where we expect any meaningful growth on it, although we're actually defending our position there and have got some opportunities in '27 and '28 that could be a little bit more positive.

Mark Gitin

Just to remind you, Jim -- go ahead.

James Ricchiuti

No, I was just going to say that the growth that you saw in China was really driven for the most part welding and additive. And cutting, as you described this as a much solar part of the business, but that was really the driver. You showed pretty healthy growth. It looks like year-over-year in China.

Timothy P.V. Mammen

Yes, it's primarily welding. Additive manufacturing in China. Margin can be good at. The cutting is a small part of that business. The flat metal cutting is very small in China. .

James Ricchiuti

I'm sorry, Mark, go ahead. .

Mark Gitin

We covered it there.

Operator

Our next question comes from Scott Graham with Seaport Research Partners.

Scott Graham

So kind of like 140,000 footer free you. Mark, you got a better set of industrial -- general industrial end markets, obviously, certainly in the U.S., maybe not as much in Europe, but that's supposed to improve. I'm just wondering, with that general industrial being your sort of your largest vertical, how are you approaching getting customers to trade up to fine, right? You talk about a couple of elements of how the market may be starting to move up. But how are you showing a value proposition there? This is just a significant runway here for you guys on this. And it's just been very slow in the coming. So how are you approaching that?

Mark Gitin

Yes. So Scott, good to hear from you. Yes, we're very encouraged by the growth that we're seeing in the Industrial Solutions. Areas that we're seeing growth, Tim mentioned some of this. Certainly, we're seeing growth in welding, additive manufacturing, cleaning. Those are all areas that are strong and growing in the U.S. in that industrial space. On the welding, a lot of this comes down to the applications expertise. We are world experts in applications. We have a large number in the U.S., and globally, we have nearly 100 applications engineers. That piece is really critical, especially for welding, developing the key applications there. And then being able to get the solution to the customer, whether it's a laser or a subsystem or a system, is part of our growth expertise there. And that's on the whether it's welding, whether it's cleaning.

And then if you look at additive manufacturing, there, the customers are moving to additive manufacturing because we're helping to drive the cost per part. So if you look at additive manufacturing, we develop lasers with special modes. You've heard us talk about a ring mode and also with multiple outputs. When those are incorporated into the additive manufacturing systems, it drops the cost per part and allows expansion into new areas, where a lot of that started in areas of defense and aerospace. Now that's expanding into areas of medical devices and even into consumer electronics. So the application piece that we're working and then using that in really a virtuous cycle to drive the development of the lasers, subsystems and systems and being able to provide solutions to the customers is really what's driving our growth, and we'll continue to drive that at an outsized level.

Scott Graham

That's a very comprehensive answer. Just the other one was about inflation, and maybe this is more for you, Tim. What was pricing in the quarter? What was inflation? And how are you looking at that heading into 2027 with inflation so elevated, not just on materials, but also on freight?

Timothy P.V. Mammen

Yes. I mean, on freight, actually in term -- yes, let me step back a bit. There's always inflationary pressures every year that you have to deal with and you have to pay for, for example, merit increases. We got halfway through the year. So our costs actually went up a little bit in Q3 in relation to that. The material costs, 20% of our revenue is on material. So you have to deal with the inflationary cost there. We actually have a couple of things that we look at. We're obviously looking at how we optimize the value proposition of what we deliver to customers, right, and that involves the pricing. We are, in turn, as I mentioned, moving to higher power guidance, so that means for each dollar of output power, we need fewer diodes.

We actually can also then change the form factor of the laser. Like a 10-kilowatt laser today is much, much smaller than a 10-kilowatt laser was even 2 or 3 years ago, right? So you got less material going into that. And then we actually run programs internally where we call it "A Profit In Cash" program, where we're actually looking and how we can drive cost savings across different areas. Some of those are in operation. Some of these are in SG&A, OpEx. And we use those to try and fund some of the inflationary impacts of the business that are kind of imitable from each year.

Operator

Our next question comes from Keith Housum with Northcoast Research.

Keith Housum

Mark, I know asking you to pick your favorite as [indiscernible] me to pick your favorite children. But if you think about growth initiatives in the next 2 to 3 years, what do you think are the top 2 or 3 growth initiatives that I kind of -- are your favorite, that you think will have the biggest impact on IPG as we look going forward? .

Mark Gitin

As you said, difficult to pick among the children, but let me just say that we're excited about growth opportunities in both the Industrial Solutions and the Advanced Solutions. I'll start in Advance. Of course, we've talked about the medical and the great roadmap that we have there in urology. We picked up a new customer last year. We have a great road map for growth, and we've talked about that doubling over the next 2 to 3 years. Remember then, we're in the midst of cleaning the acquisition of Lumibird Medical, and Lumibird Medical is going to add to that. That's accretive in the first year, has great growth potential on that piece. And certainly, the combination of Lumibird Medical and our urology, that expands the SAM significantly. So that's above $2 billion and gives us a great platform to grow on.

The other piece, again, I'll name a couple. We've talked about defense. We're making great progress with the CROSSBOW. I mentioned that we have the new product line that's addition that we have, the SE, which gets us long range and crosses into drones, and we have great customer interest from that product line and certainly have good expectations for that area. Semiconductor, that's going well. Again, we have great -- we've been embedded now in key customer programs and products now in major front-end players in metrology, inspection and lithography. We're seeing the benefits there. And we've built out the capability there not only in the technology that we've always had, but now in the quality systems and manufacturing systems to be able to drive that forward. So excited about that area.

And then at micromachining, we have great products in process there, great technology to get us into the shorter pulses and into some of the exciting areas in microelectronics and micromachining and medical devices. Those are all real key areas that we see for growth there in the advanced. And then I don't want to forget the areas that we're driving also in the Industrial Solutions. We have great programs there, and we're seeing some of the benefits that we've talked about, not only in welding, but also in additive. I talked about that a bit earlier. So overall, I see great opportunities for growth for the company going forward on these new areas that we're driving.

Keith Housum

Great. Great. And I know Lumibird acquisition hasn't been closed yet. So many of my questions are premature. But how are you guys thinking about M&A from here? Do you need to take a pause as you guys integrate Lumibird? Or is it still an active process that you guys want to do more here, quickly?

Mark Gitin

Yes. So happy to talk about that. First, let me just step back and frame it with our capital allocation strategy here. First and foremost, it's investing in our organic programs, it's the ones that we talked about here in both Industrial and Advanced and the opportunities that we have to grow with organic programs. And then the inorganic piece, right, tuck-in or bolt-on acquisitions that can get us there faster or augment the markets. And we've seen success with that with clean laser, a fantastic integration team there, and that's really paying back very well now, with great new products combining the road maps of both [indiscernible] and our laser ronapps, having cleaning systems that are size and COGS.

And then Lumibird Medical, as you mentioned, great -- we've talked about the great fit there and how that's going to allow us to grow. We've got a really strong integration team on that. Now and all the integration planning there, we'll continue to look for opportunities, but we'll be very disciplined in our approach, but we have our arms around that. And then just to complete the capital allocation, we always balance that with with share repurchases. We did $1.5 billion over the past several years, and we have another $100 million authorized. We're just excited to have such a strong balance sheet and you see the free cash flow continues to be strong, and we've got great flexibility and optionality going forward.

Operator

[Operator Instructions] Our next question comes from Jim Ricchiuti with Needham.

James Ricchiuti

I just had a follow-up question on semi. I know it's a small part of the overall business. I'm guessing, what, less than 5% or so. But as we think about the [indiscernible] market in '27 and looking out to '28, we're talking, I guess, the numbers being out, thrown at [ 35% ] or so growth in [indiscernible] in '27. Is this a business, Mark, that you see becoming a more meaningful part of the Advanced Solutions revenue base going forward?

Mark Gitin

Yes, Jim, graduate that. I have to say I'm very encouraged by the progress that we're making in semi. I mean this is something that I really focused on when I came in because of my experience in that area. And this is an area where the technology was always there. We have some neat technologies in the company that the [ WFE ] players were interested in. But what we've been able to do now is transition that into design wins in the programs because we put in the other key pieces that you need there, the quality systems, the manufacturing systems, to be able to really engage and supply that market. And that's why we're seeing it.

As the numbers you talked about are -- it is, again, a smaller piece, but you can see that we've now doubled that year-over-year. And we see good opportunity to continue to grow that business, both in the areas that we have design wins now from the growth of the markets, as you talked about, driven by AI and data centers and those things. We're in those newer programs, and we continue to work with these companies on next-generation area. So longer term, I think this can become a more meaningful part of the business for sure. It's a great area. The technology is there, and we're making that crossover.

James Ricchiuti

And maybe just on that topic of crossover that you raised. As we think of -- I don't want to front run your Analyst Day coming up in early next year. But as you think about CROSSBOW and the opportunity in Defense, is there any color you can provide or maybe just broad expectations as to how we should think about that business looking out to '27 and '28, recognizing, right now, it's small, it's lumpy? But how should we think about the potential for CROSSBOW from what you've seen so far? I mean, obviously, you're shipping -- finishing the big order with Lockheed. But beyond that, how do we think about it?

Mark Gitin

Yes, Jim, I'm really optimistic about the CROSSBOW business. As I mentioned, we have very good engagement. We have -- as I mentioned, we've now extended the product line. So that's the next piece of the product line with the SE product. That now gives us both longer range and crosses over into some of the larger drone classes as well. We're shipping from production, which is really key as well because we can react quickly. And I would say that the customer engagements are very, very good and the programs that we're discussing and working with their large programs, and we're excited about where that can go. The product is working. It's been tested in multiple environments, as I talked about. And again, we're excited about where that can go.

Operator

We have reached the end of the question-and-answer session. I would now like to turn the call back over to Eugene Fedotoff 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. .

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.