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Date
Tuesday, Aug. 5, 2025 at 2 p.m. ET
Call participants
Chief Executive Officer — Mark Gitin
Chief Financial Officer — Tim Mammen
Head of Investor Relations — Eugene Fedotoff
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Takeaways
Total revenue-- $251 million in revenue for Q2 2025, up 10% sequentially and down 3% year over year.
Book to bill ratio-- Approximately one across all regions, on higher revenue.
Gross margin-- 37.3% GAAP gross margin for Q2 2025, flat year over year; adjusted gross margin of 37.8%, at the top of guidance.
Tariffs impact-- Negative 115 basis points impact to gross margin, which was better than company expectations.
Operating income-- GAAP operating income was breakeven. Adjusted EBITDA was $32 million.
GAAP net income-- GAAP net income was $7 million, or $0.16 GAAP per diluted share.
Adjusted earnings per diluted share-- Adjusted earnings per diluted share was $0.30, above the guidance range.
Cash & short-term investments-- Cash, cash equivalents, and short-term investments were $900 million at quarter-end, with no debt at quarter-end.
Materials processing revenue-- Decreased 6% year over year, due to divestitures and lower cutting, welding, and additive manufacturing sales, partially offset by micromachining and Clean Laser acquisition (subtotals do not sum due to other offsetting factors).
Other applications revenue-- Increased 21%, driven by medical and advanced applications.
North America sales-- Up 31% sequentially in North America, down 4% year over year in North America; sequential growth was driven by medical, advanced applications, and cutting OEM sales.
Europe sales-- Stable sequentially (less than 1% decline) in Europe revenue, down 11% year over year excluding $11 million in divestitures; lower cutting and welding sales partially offset by Clean Laser.
Asia sales-- Revenue in Asia increased 4% sequentially, up 14% year over year in Asia, benefiting from welding, cutting, and advanced applications.
Emerging growth products-- Reached 54% of total sales, reflecting expansion of laser sources, subsystems, and systems.
Capital expenditures-- Approximately $10 million in customer orders shipped in Q2 2025; 2025 CapEx guided to approximately $100 million.
Share repurchases-- $30 million repurchased during Q2 2025; $1 billion in share repurchases over the past three years.
Advanced applications revenue-- Achieved a record, with strength in directed energy, semiconductor, and scientific applications.
Directed energy milestone-- Delivered multiple units of the Crossbow laser counter-UAV system to Lockheed Martin.
Medical applications-- Growth supported by a new urology customer and further product launches planned for Q4 2025 and beyond.
Summary
IPG Photonics(IPGP 1.54%) reported sequential revenue growth in Q2 2025, delivered its first year-over-year revenue increase since 2022, excluding divestitures, and posted adjusted earnings and gross margins at or above guidance. Management cited broad-based demand improvement, particularly in Asia and advanced applications, and emphasized strategic moves such as the Crossbow product launch and major executive appointments as foundational to future growth. Capital allocation remained focused on organic investments and select M&A deals, with a substantial cash balance and continued share repurchases supporting financial flexibility in an uncertain environment.
CEO Gitin stated, “Book to bill was one and really just about one across all regions.” highlighting balanced bookings during the period.
The Crossbow system’s early field deployment and demonstrations with Lockheed Martin marked significant progress for the company’s directed energy business.
CFO Mammen disclosed, "the total value of bookings increased" year over year, with April described as a particularly strong month for orders.
Management described "cautious optimism" on demand trends, directly linking this to ongoing tariff and macroeconomic uncertainties.
The executive team was expanded with five key leaders, including four recent hires, as part of a broader organizational strengthening initiative discussed by management.
Industry glossary
Book to bill ratio: The ratio of new orders received to products shipped and billed within the same period; a ratio of one indicates stable demand and backlog.
Directed energy: Military and industrial applications involving the use of laser systems to neutralize threats or perform high-precision tasks.
CapEx: Capital expenditures, which are investments in property, plant, equipment, and other fixed assets intended to drive future growth.
OEM: Original equipment manufacturer; refers to integrators or manufacturers that use components or systems from companies like IPG in their own final products.
UAV: Unmanned aerial vehicle, commonly known as a drone; used in both defense and civilian applications.
Clean Laser: Recently acquired company, contributing to IPG's growth in cleaning and related laser applications.
Full Conference Call Transcript
Mark will provide a summary with a quick look at our second quarter results and the overall demand environment.
Eugene Fedotoff: 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, and then we will open the call for questions. Let me remind you that statements made during this call that discuss our expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties and can 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 10-Ks for the period ended 12/31/2024, 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, 08/05/2025, only. And the company assumes no obligations to publicly update any publicly provide any updates or revisions to any such state. 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 will now turn the call over to Mark.
Mark Gitin: Thanks, Eugene. Good morning, everyone. Second quarter revenue came in above our expectations, increasing 10% sequentially and 2% year over year, excluding divestitures. Our first year-over-year revenue increase since 2022. Our results were driven by a combination of a modest demand improvement in multiple markets and geographies as well as our continued focus on our strategy to drive profitable growth. We are investing in key strategic initiatives targeting a $5 billion TAM that offers us hundreds of millions of dollars in revenue growth opportunities, and we are starting to see results.
By quickly adjusting our operations, we were also able to ship approximately $10 million out of the $15 million in customer orders that we believed were at risk of being delayed due to tariffs, and were not included in our second quarter guidance. Starting with our Materials Processing business, we saw a sequential demand improvement in welding, cutting, and marking applications with some growth in e-mobility and general industrial markets. Our unmatched capabilities in lasers and welding process monitoring technologies combined with deep applications expertise continue to differentiate IPG in the marketplace. This enabled us to secure key wins in EV manufacturing despite ongoing uncertainty in the market.
In China, renewed capacity investments in battery manufacturing drove growth in our welding, cutting, and marking applications. Booking trends are encouraging. With demand showing signs of improvement and book to bill at approximately one on our higher second quarter revenue as we move into the second half of the year. Such as PMIs and the industrial production through June, but the demand environment remains uncertain. We also expect demand for our products will benefit from increased onshoring and local investment in automated production. We are also excited that early returns from our growth investments helped to drive revenue in the quarter.
Our strategic focus on developing innovative lasers and photonic solutions to expand into medical, micromachining, and advanced applications is showing results. In advanced applications, we achieved another quarter of record revenue. Driven by higher demand across all categories. Primarily in directed energy, semiconductor, and scientific applications. Last quarter, I shared that strategic investments to grow our advanced applications business allowed us to achieve a key milestone six months ahead of schedule. I am thrilled to announce that we have now delivered multiple units of our first laser counter UAV solution, Crossbow, to Lockheed Martin. This disruptive turnkey directed energy system is enabled by IPG's laser systems expertise and high-performance commercial single-mode lasers and supported by our high-volume manufacturing capabilities.
Crossbow is a scalable and cost-effective laser defense system that can neutralize unmanned aerial threats and can operate as a standalone system or integrate into layered defense architectures. Over the past six months, both IPG and Lockheed Martin have conducted extensive field testing and customer demonstration of Crossbow against the increasing threat of smaller class group one and group two drones. One of the industry's leading defense exhibitions. And we anticipate strong interest from both defense and commercial customers for this is another example of how IPG leverages our core laser and photonics technologies to address critical market needs. Turning to our other growth initiatives.
Micromachining delivered strong revenue compared to the prior year, despite some shipment delays related to tariffs. This is a high potential market for IPG where we see strong alignment with our technologies and the key applications of our customers. As we shared last quarter, we are also making good progress in medical, with a new urology customer that is already helping to drive medical revenue growth. Looking ahead, we expect momentum to continue with the additional product introductions planned for Q4 2025, 2026, and beyond as we execute on our strategic development roadmap.
The traction we are seeing across micromachining, medical, and our other focus areas reinforces that our teams are executing well and that these investments are laying the foundation for long-term growth. Finally, our capital allocation strategy is an integral part of our growth strategy. As we have said before, our primary focus is on organic growth investments in strategic M&A. We expect to spend approximately $100 million on CapEx in 2025 to expand capacity and capture growth opportunities. Within M&A, we are evaluating tuck-in opportunities with a range of $50 million to $200 million in revenue. Our revenue and competitive position in cleaning applications and we continue to target companies that offer differentiated technology.
During the quarter, we continued to opportunistically return cash to shareholders repurchasing $30 million of IPG stock, building on the $1 billion in share repurchases over the past three years. Since joining IPG just over a year ago, I have been focused on setting the foundation to drive profitable growth, including strengthening the organization. We achieved a recent milestone on this objective, which is the appointment of five key leaders, including four recent hires to help advance our strategy and support continued global growth. These leaders have a proven track record of driving strategy and execution. They each bring distinct strengths, deep expertise, and a shared commitment to collaboration and innovation.
With these new appointments to our executive leadership team, we are shaping a stronger IPG, better equipped to execute with speed, serve our customers with excellence, and drive our next chapter of profitable growth. I am pleased to welcome them to the team and excited about what we will be able to accomplish. I am proud to report that we have been effectively adapting to the dynamic operating environment by leveraging the flexibility of our global manufacturing supply chain to minimize the impact of tariffs. We have demonstrated agility. We also continue to work on alternatives to optimize our tariff exposure.
As a result, we were able to ship most of the orders that were previously anticipated to be delayed due to tariffs and longer customs processing. Our global footprint and supply chain flexibility position us well to continue meeting our customers' needs. Approximately one on higher revenue, and we are encouraged by signs of further demand stabilization in our business. Industrial production has been improving, and inventories at some of our cutting OEM customers have normalized, supporting a return to more typical purchasing behavior. We do not believe the recent increase in demand is driven by customers pulling orders forward in response to tariffs.
That said, the demand environment continues to be sensitive to external factors, so we are approaching the second half with cautious optimism. In closing, I am encouraged by the progress that we are seeing. Both in the stabilization of our core business and in advancing our strategy to drive laser adoption in markets with high growth potential. While tariff-related pressure and uncertainty persist, we remain focused on what we can control and confident in our ability to navigate this environment while executing for profitable growth. With that said, I will now turn the call over to Tim.
Tim 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 five. Revenue from materials processing decreased 6% year over year as a result of divestitures and lower sales in cutting, welding, and additive manufacturing applications, partially offset by higher revenue in micromachining and the acquisition of Clean Laser. Revenue from other applications increased 21% driven by higher sales in medical and advanced applications. As Mark already mentioned, we saw sequential improvement in revenue in cutting, welding, and marking. Welding revenue grew on customer wins and improvement in industrial demand and EV battery investments primarily in China.
Cutting revenue also grew sequentially and was nearly flat compared to the prior year as the cutting OEM business showed some stabilization in Europe, and an increase in demand in Asia and North America. Marking and engraving sales were also more stable. Our cleaning revenue improved sequentially and continued to benefit from Clean Laser. Mark already highlighted strong results in our medical and advanced applications in the quarter, so I will not go over them again. Our emerging growth products performed well in the quarter, increasing to 54% of sales driven by a wide variety of laser sources, subsystems, and systems.
Moving to the revenue performance by region on slide six, sales in North America increased 31% sequentially and were down 4% year over year. Sequential growth was primarily driven by higher sales in medical and advanced applications as well as improved sales to cutting OEMs. Despite more stable sequential performance, welding revenue was down compared to the prior year due to soft demand from EV manufacturing in the region. Sales in Europe were stable with less than a 1% sequential decline, down 11% year over year excluding $11 million in divestitures. Lower cutting and welding sales are results of soft industrial demand partially offset by Clean Laser.
Revenue in Asia increased 4% sequentially and 14% year over year benefiting from higher sales in welding and cutting as well as advanced applications. We have continued to see a strong demand recovery in e-mobility coupled with our business wins in EV welding applications. Sales to additive manufacturing were lower in the quarter due to timing of shipments while demand remained strong. Moving to the financial performance review on slide seven. Revenue came in above our expectations at $251 million, up 10% sequentially and down 3% on a year-over-year basis. Foreign currency increased revenue by approximately $4 million or 1% this quarter. Gross margin was 37.3% flat year over year.
Adjusted gross margin was 37.8%, at the top of our guidance. And was driven by improved manufacturing cost absorption and a decrease in inventory provisions, mostly offset by higher cost of products sold due to geographic and product mix and increased shipping costs. The impact of tariffs was 115 basis points which was better than our expectations. Operating expenses were above last year's level, primarily due to the investments we are making in key areas that are central to our strategy as well as investments in strengthening our organization which Mark highlighted earlier on this call. GAAP operating income was breakeven. And our adjusted EBITDA was $32 million slightly above the top end of our guidance.
GAAP net income was $7 million or $0.16 per diluted share. Adjusted earnings per diluted share which includes stock-based compensation but excludes amortization of intangibles, other acquisition-related charges, was $0.30 in the second quarter above our guidance range. Moving to a summary of our balance sheet and cash flow on Slide eight. We ended the quarter with cash, cash equivalents, and short-term investments of $900 million and no debt. During the second quarter, we spent $15 million on capital expenditures and $30 million on repurchasing IPG shares supporting our balanced capital allocation framework of investing in growth, and returning cash to shareholders. We now expect CapEx of $100 million in 2025 as we expand capacity primarily in Europe.
We expect operating cash flow to improve significantly in the second half substantially offsetting CapEx. Looking ahead, we expect CapEx to decrease significantly and free cash flow to improve next year. Moving to our outlook on slide nine, for the 2025, we expect revenue of $225 million to $255 million and adjusted gross margin between 36-38% including a potential of a slightly higher impact of tariffs. With investments in the growth of our business, and strengthening the organization, we expect our operating expenses to remain at between $89 million and $91 million in the third quarter. We anticipate delivering adjusted earnings per diluted share. Our adjusted EBITDA is expected to be between $22 million and $36 million.
In closing, we are pleased to see signs of continuing revenue improvement coupled with results from our strategic initiative and we 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. With that, we will be happy to take your questions.
Operator: Thank you. At this time, we will be conducting a question and answer session. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you like to remove your question from the queue. Before pressing the star keys. One moment please while we poll for questions. Our first question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question.
Jim Ricchiuti: Hi. Thanks. Good morning. On the quarter. First off, on the book to bill, I am wondering if you could provide any color on book to bill by region. Was there much variability in terms of the regional bookings?
Mark Gitin: Hey, Jim. Thanks very much for the question. Good to hear from you. Actually, book to bill was one and really just about one across all regions. That was, of course, on top of the higher revenue as well. So we are quite pleased with that.
Jim Ricchiuti: Got it. My follow-up, Mark, is on the directed energy commentary. I am wondering how you are thinking about the opportunity for IPG over the next few years and just relative to maybe the other emerging growth opportunities you are targeting. Now can you say, for instance, how many customers you are working with in this area? Thank you.
Mark Gitin: Yeah. Sure. So thanks, Jim. So the directed energy, again, is part of our part of the work that we are doing taking the key technologies within IPG. So this is the lasers as well as the broader photonics and the applications understanding to really direct it to some key areas of growth. And, of course, the advanced is one with the direct energy. As well as the medical and micromachining areas. But specifically, in directed energy, what I can say is that this is a very interesting market for us in terms of market size. It is a little bit hard to estimate, but it is a developing market.
There are kind of billions of dollars spent each year on the order of a billion dollars in the US. And our solution addresses a key segment of the market, and that is the key part that we believe is growing. So, as I talked about on the call there, this is addressing the smaller class drones, the group one and group two drones, which is the biggest issue today or let's say a very significant issue today both in warfare, we have seen that as an issue, as well as in civilian infrastructures where there are incursions. In incursions in airports, incursions at borders, incursions in stadiums. So, you know, it is a big issue today.
So from a market standpoint, this is a turnkey system that directly addresses that small drone threat. We have the partnership that we talked about with Lockheed, which is addressing one part of the market. We believe, again, the market is a broader one that has both opportunities in the defense sector, but also the civilian piece. And we will be, of course, I have mentioned that we have done extensive testing with Lockheed that is going very well. And that we will be bringing the system to the DSCI show in September where we will have a chance to talk to a broader customer base as well. But overall, very excited with the progress the team has made.
And, again, this is a great application for us because it is the combination of our core technologies with the single-mode lasers. As well as the photonics. And then it is key for us because again, this is something that we can bring into our commercial manufacturing infrastructure where we are manufacturing volumes of these single-mode lasers, but also systems and subsystems. So we could do this at a very disruptive price point. And cost point. And that is why we believe that, you know, this is a unique position to be able to address this, you know, this smaller drone class at a cost point that could be broadly used.
Jim Ricchiuti: Thanks, Mark. Appreciate the additional color on that. I will jump back in the queue.
Operator: Our next question comes from Ruben Roy with Stifel. Please proceed with your question.
Ruben Roy: Thank you. Hi, Mark, and hi, Tim. Mark, I wanted to start with maybe just walking through the outlook. It is great to see the progress. And some signs of stabilization. But when we look at the Q3 guidance, maybe you can just walk us through the puts and takes of that guidance. So you had $10 million that you had previously anticipated out of the $15 million come through in Q2. And maybe just an update on how you are thinking about potential tariff impact as a portion of that guidance for Q3. And then you had a comment about cautious optimism for the second half.
And I am just wondering, you know, what kind of visibility you might be getting from your customers as you think about the second half? I.e., do you think that there is going to be continued stabilization and maybe improving bookings into Q4? Thank you.
Mark Gitin: All right. Thanks very much. So a couple of the pieces here. Again, we are very happy to see the book to bill of one. And, again, that book to bill on top of the higher revenue. As you mentioned, we were able to ship about $10 million of the $15 million that we expected to move into Q3 because the team did a fantastic job of being able to mitigate the tariff issues because we have this flexibility as we talked about, to be able to move the manufacturing from region to region and optimize the tariff situation. We believe we will be able to do that also, of course, going forward.
And we did see, you know, very good demand in material processing. We are seeing the industrial businesses, the industrial markets. There has been improvement over the last few quarters. You have seen that some of that improvement in PMI. So, you know, we are seeing that industrial pick up, and we are seeing it in material processing broadly across, you know, across each of the regions and broadly across many of the applications, including the areas of welding. We talked about the EV pickup. We have seen that also in cutting. So we have seen our cutting the inventories. Some of our OEMs have normalized, so we are seeing that area pick up.
And we have seen increases continued demand increases in things like additive manufacturing as well as, again, broad-based. We saw strong medical. We have picked up another customer, as we talked about. Medical that is attached to our roadmap of urology. So that is, you know, continuing to see growth. So again, we are seeing kind of broad-based improvement, I would say, and I would say cautious optimism. And the reason I am saying cautious optimism is because, of course, there is still tariff uncertainties and we are still, you know, in a macro environment that has not completely recovered for sure. So that is really my comments on that piece.
Ruben Roy: Got it. Yeah. Thank you for that, Deepa. Yeah. Go ahead, Tim. Sorry. We went through and started the usual process on generating guidance, so there is nothing particularly unusual in there. I think the only thing I think that is good is that even at the midpoint, we are slightly above where the street was, and I think that is the first time in quite a while that we have been able to guide at the midpoint that is mildly positive. So I think we are more than bouncing along the bottom at the moment. We have probably got a little bit of lift. A little bit of lift off at the moment.
Ruben Roy: A little bit. Indeed. And, yes, I cannot remember the last time, yeah, that you guys had a guide above our numbers. So that is great. If I could follow-up on Jim's question, Mark, on the defense stuff, would love to understand how you are thinking about high energy as well. There was, you know, there have been some awards. And, actually, you know, just yesterday, another award for a 100-kilowatt system. And so, you know, is that part of your strategy longer term perhaps, or are you, you know, focused more on this lower cost stuff that you talked about?
Mark Gitin: Yeah. So what I would say is that, you know, we have been playing in the overall market in directed energy for many years. We have, you know, very high performance, I would say the best single-mode lasers that are applied broadly in the marketplace as well as our amplifiers. So those tend to play in many of those programs. But high power is not what Crossbow is. This system is really focusing on threats from these group one and group two drones, you know, the smaller drones that are more widespread and can be addressed with the relatively low power using these using our high brightness single-mode lasers.
So that is really the area that we are talking about here. And we think that is, as I mentioned, is a significantly growing market because it is one of the biggest issues today. If you, you know, as you are reading, it is a big issue on the battlefield today. These small drones that you can buy for, you know, hundreds of dollars can inflict major damage. And then also, you know, it is an issue in the civilian infrastructure, borders, etcetera as well, and we are starting to see more of that, and it is only increasing. So, you know, we think that is a really good area for us to play.
Ruben Roy: Great. And if I could squeeze one more in for Tim. Tim, on the gross margin, I might have missed it, but did you give as part of that 36% to 38% gross margin number, it sounded like a little bit of a higher impact from tariffs. Did you give the inventory absorption number that is impacting the gross margin?
Tim Mammen: Relative to Q2, we are still we had an improvement in under absorption that we set benefited gross margin a bit. We are still relative to peak efficiency probably 500 basis points. Of getting back to that more optimal level. But we saw a meaningful improvement, couple of 100 basis points improvement in the quarter and expect that to flow through to Q3 as well.
Ruben Roy: Okay. Thank you. That is all I had. Thank you.
Operator: Our next question comes from Scott Graham with Seaport Research Partners. Please proceed with your question.
Scott Graham: Hi. Good morning, and congratulations on a nice quarter. I wanted to ask a couple of questions here, including piggybacking off of what you just said about gross margins. But first, could you kind of tell us how the order book looked as the quarter progressed? And maybe any specific end markets in particular, anything you could mention would be helpful. Yeah. I do not mean in dollars. I kind of mean year over year because we all know that June is the largest, you know, month for dollar orders. I am just hoping as on a year over year to talk about the progression.
Tim Mammen: Yeah. I mean, I think, year over year, the total increase the total value of bookings increased. We have not given that number, but it was up compared to Q2 2024. I think the overall tone during the quarter was significantly improved compared to a year ago. April was actually quite a strong bookings month, so it was not backloaded. Our revenue happened to be a bit more backloaded in the quarter with June being very strong on revenue. That probably reflected the fact that the bookings in April were pretty good. May was a little bit weaker, and then June picked up again.
So we were actually we were not scrambling to get to this number at the end of the quarter. It was easier than it has been on not just a year ago, but even the last couple of quarters where bookings have been more weighted to the end of the period.
Scott Graham: I think he left.
Operator: Our next question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question.
Jim Ricchiuti: I just wanted to ask about this first year on year sequential increase that we have seen in a while, and I wanted to understand what some what may have driven that. I assume can you elaborate on what you are seeing there?
Mark Gitin: Yes. Certainly, Jim. So a couple of things. First of all, we are very excited with Clean Laser. That is going very, very well. That acquisition that we did at the end of last year, integration is going very well. And they have been continuing with their track in the market. But we are also seeing, you know, we are making micromachining systems and systems in welding and such as well. I do not know, Tim, if you have anything you would add.
Tim Mammen: I think you covered it. I think just on the robotic side, we had a better quarter on the large-scale gantry robotic systems as well and a pretty good quarter on light weld too.
Jim Ricchiuti: Got it. And on the medical business, sounds like you are encouraged by the ramp you are seeing with the second customer in the urology area. I wonder if you would help us understand whether there has been any change in the overall competitive environment in this area of the business.
Mark Gitin: So let me speak to that, Jim. So let me just step back for a moment and just say that urology is one of the key areas that we are investing. So it is the medical side, the micromachining, the advanced. And in that urology roadmap, we have a broad base of capability in that area and we are bringing out new systems. So we talked about the fact that we are bringing something out in Q4 and then a whole roadmap of growth. We have the strongest position on the thulium lasers in urology.
And we are continuing to grow as we picked up this new customer that is bringing our share up and continuing to drive our share in that marketplace. Thank you.
Scott Graham: Yeah. Hi again. Sorry about that. The gross margin, the minus 500 basis points, Tim, could you
Tim Mammen: I think the positive takeaways from gross margin were that we had better manufacturing efficiencies, so we had a benefit from lower under absorbed cost. We have made statements, so that is a real focus of ours of trying to get that improved. It helped a little bit. The revenue is up a bit. The second side of it is that we have got inventory more under control over the last twelve months. The inventory provisions that we incurred were a bit lower. Offsetting those benefits did have really related to product mix both on a geographic and product basis a little bit of an impact to gross margin, due to lower product gross margins.
But in that regard, we have actually got cost reduction initiatives across four or five different areas that we are starting to roll through the business model. So we expect that product gross margin to improve. And just a couple of examples of those as for example, the rack integrated higher power lasers is starting to be introduced more fully. We are looking at some of the micromachining lasers with higher power output and better specification than the bill of material will not change on. We are automating the production of some of our consumable fibers for medical. And there are other areas that we are working on to get the product cost down. So expect that to bounce back.
And then the tariffs if you really compare Q2 to Q1, the tariff impact was 115 basis points. You add that back to both the adjusted and unadjusted gross margin, you are back close to 39% on an adjusted basis. And 38 and a half percent on a GAAP basis.
Scott Graham: Very good. Yeah. That very thorough response to my question, Tim. Thank you.
Scott Graham: Really a lot for that. It would be nice also if you guys got a little bit of help from your end markets and I think there are a couple of companies that have reported so far that have indicated that, hey. Look. Once this tariff uncertainty, once that cloud starts to a little bit, you know, there is going to be an increase in, you know, projects are going to be green light, and things are just going to be a little bit better.
I was wondering if you were kind of hearing that from your customers or a big part of your revenue base is, you know, general industrial across the world, and it is just kind of hoping if you heard anything from that from your customers, if you could share that from your general industrial market.
Mark Gitin: Hey, Scott. This is Mark. So as I talked about, we have seen we have obviously seen some pickup. We see the book to bill strong. We have seen, you know, the PMIs improving in the various regions. But we are still in some, you know, we still have some uncertainty. I would say, again, it is what I said. I think my customers are saying the same thing. That they have a cautious optimism looking forward. There is still some uncertainty with the tariffs. And there is some uncertainty in the market. But, you know, I am hearing, let's say, cautious optimism.
Operator: Very good. Thank you. As a reminder, if you like to ask a question, please press 1 on your telephone keypad. Please proceed with your question.
Jim Ricchiuti: I am just wondering if you can comment about the welding market outside of China, in particular, the States.
Mark Gitin: Yes. Hi. Hi there, Mark. Yeah. So we have seen, you know, good growth in welding. Know, globally. So I can say that the strongest growth that we saw was specifically in NEV. And the biggest piece of growth there was in China. But we do have we have had broad-based growth. And we have seen growth also quarter on quarter with light weld and welding. So we are, you know, seeing some increase.
Jim Ricchiuti: I am just wondering too if you can comment about the margin profile of your backlog. Is that similar to what you are expecting in the third quarter?
Tim Mammen: Yeah. I mean, the mix on that is not fundamentally different. Going into the quarter, Mark.
Operator: Thank you. 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, everyone, for joining us this morning and your continuing interest in IPG Photonics Corporation. We will be participating in several investor events this quarter and are looking forward to speaking with you again soon. Have a great day.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.