IPG Photonics Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Second Quarter revenue of $251M exceeded expectations, rising 10% sequentially and 2% year-over-year (excluding divestitures).
  • Positive Sentiment: Sequential demand improvements were seen in welding, cutting and marking, driven by EV manufacturing wins and renewed battery investments in China.
  • Positive Sentiment: Record revenue in advanced applications was led by the Crossbow laser counter-UAV system, with multiple units delivered to Lockheed Martin and a September showcase planned.
  • Positive Sentiment: Agile global supply chain shipped approximately $10M of at-risk orders despite tariffs, achieving a book-to-bill of ~1 on higher Q2 revenue.
  • Positive Sentiment: Strong balance sheet with $900M in cash, no debt, $30M of share repurchases this quarter, and planned $100M CapEx plus M&A investments to support growth.
AI Generated. May Contain Errors.
Earnings Conference Call
IPG Photonics Q2 2025
00:00 / 00:00

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Operator

Good morning, and welcome to IPG Photonics Second Quarter twenty twenty five Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fetidof, IPG's Senior Director, Investor Relations for today's introductions. Please go ahead with your conference.

Eugene Fedotoff
Eugene Fedotoff
Director, IR at IPG Photonics

Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Doctor. Mark Gideon and Senior Vice President and CFO, Jim Maman. On today's call, Mark will provide a summary with a quick look at our second quarter results and the overall demand environment. Then walk you through the progress we are making on our long term strategy.

Eugene Fedotoff
Eugene Fedotoff
Director, IR at IPG Photonics

After that, he will turn it over to Tim to provide financial details and then we'll 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.

Eugene Fedotoff
Eugene Fedotoff
Director, IR at IPG Photonics

And the company assumes no obligations to publicly update any publicly provide any updates or revisions to any such statements. During this call, we will be referencing to 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 Gitin
Mark Gitin
Director & CEO at IPG Photonics

Thanks, Eugene. Good morning, everyone. Second quarter revenue came in above 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're investing in key strategic initiatives targeting a $5,000,000,000 TAM that offers us hundreds of millions of dollars in revenue growth opportunities, and we are starting to see results.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

By quickly adjusting our operations, we were also able to ship approximately $10,000,000 out of the $15,000,000 in customer orders that we believe 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

On the industrial side, a stabilizing demand environment supported sequential growth in 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. We have also seen improvement and stabilization in the leading indicators such as PMIs and the industrial production through June, but the demand environment remains uncertain. We also expect demand for our products will benefit benefit from increased on shoring and local investments in automated production. We're also excited that early returns from our growth investments helped to drive revenue in the quarter.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

Our strategic focus on developing innovative lasers and photonic solutions to expand into medical, micro machining 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'm thrilled to announce that we've 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

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, validating the system's operational effectiveness against the increasing threat of smaller class Group one and Group two drones. We'll be showcasing Crossbow this September at DSCI in London, one of the industry's leading defense exhibitions, and we anticipate strong interest from both defense and commercial customers for protection of critical military and civilian assets. 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

This is a high potential market for IPG, where we see strong alignment between 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 additional product introductions planned for Q4 twenty twenty five, 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

As we said before, our primary focus is on organic growth investments and strategic M and A. We expect to spend approximately $100,000,000 on CapEx in 2025 to expand capacity and capture growth opportunities. Within M and A, we are evaluating tuck in opportunities with a range of $50,000,000 to $200,000,000 in revenue. Our revenue and competitive position in cleaning applications has benefited from the Clean Laser acquisition that we made at the end of last year, and we continue to target companies that offer differentiated technology or market access to accelerate strategic growth initiatives. During the quarter, we continued to opportunistically return cash to shareholders, repurchasing $30,000,000 of IPG stock, building on the $1,000,000,000 in share repurchases over the past three years.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

Since joining IPG just over a year ago, I've been focused on setting the foundation to drive profitable growth, including strengthening the organization. We achieved a recent milestone on this objective with 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

I'm pleased to welcome them to the team and excited about what we will be able to accomplish. I am proud to report that we've been effectively adapting to the dynamic operating environment by leveraging flexibility of our global manufacturing supply chain to minimize the impact of tariffs. We've demonstrated agility, shifting production across regions to better serve customers. We also continue to work on alternatives to optimize our tariff exposures. 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

While new tariffs have recently been announced, our global footprint and supply chain flexibility position us well to continue meeting our customers' needs. As I mentioned earlier, our second quarter book to bill ratio was 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 don't 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.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

In closing, I'm encouraged by the progress that we're 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.

Timothy Mammen
SVP & CFO at IPG Photonics

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.

Timothy Mammen
SVP & CFO at IPG Photonics

As Mark already mentioned, we saw sequential improvement in revenue in putting, 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.

Timothy Mammen
SVP & CFO at IPG Photonics

Mark already highlighted strong results in our medical and advanced applications in the quarter, so I won't 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.

Timothy Mammen
SVP & CFO at IPG Photonics

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 was stable with less than a 1% sequential decline and down 11% year over year, excluding $11,000,000 in divestitures. Lower cutting and welding sales, a result of soft industrial demand, were 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.

Timothy Mammen
SVP & CFO at IPG Photonics

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 $251,000,000 up 10% sequentially and down 3% on a year over year basis. Foreign currency increased revenue by approximately $4,000,000 or 1% this quarter. Gross margin was 37.3%, flat year over year.

Timothy Mammen
SVP & CFO at IPG Photonics

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 $32,000,000 slightly above the top end of our guidance. GAAP net income was $7,000,000 or $0.16 per diluted share.

Timothy Mammen
SVP & CFO at IPG Photonics

Adjusted earnings per diluted share, which includes stock based compensation, but exclude amortization of intangibles, other acquisition related charges, foreign exchange loss and discrete tax items 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 $900,000,000 and no debt. During the second quarter, we spent $15,000,000 on capital expenditures and $30,000,000 on repurchasing IPG shares, supporting our balanced capital allocation framework of investing in growth and returning cash to shareholders. We now expect CapEx of approximately $100,000,000 in 2025, as we expand capacity primarily in Europe.

Timothy Mammen
SVP & CFO at IPG Photonics

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 $225,000,000 to $255,000,000 and adjusted gross margin between 3638%, 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 elevated at between $89,000,000 and $91,000,000 in the third quarter.

Timothy Mammen
SVP & CFO at IPG Photonics

We anticipate delivering adjusted earnings per diluted share in the range of $05 to $0.35 with approximately 42,500,000.0 diluted common shares outstanding. Our adjusted EBITDA is expected to be between 22,000,000 and $36,000,000 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'll be happy to take your questions.

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. Confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.

Operator

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question.

James Ricchiuti
Senior Analyst at Needham & Company

Hi, thanks. Good morning. Congrats on the quarter. First off on the book to bill, I'm 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
Mark Gitin
Director & CEO at IPG Photonics

Hey, Jim, thanks very much for the question. Good to hear from you. Actually, to bill was one and really just about one across all regions. That was, of course, on go ahead. Sorry.

James Ricchiuti
Senior Analyst at Needham & Company

No, please, Mark.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

I was just going to say that that was also on top of the higher revenue as well. So we're quite pleased with that.

James Ricchiuti
Senior Analyst at Needham & Company

Got it. My follow-up, Mark, is on the directed energy commentary. Yeah, I'm wondering how you're thinking about the opportunity for IPG over the next few years and just relative to maybe the other emerging growth opportunities you're targeting? And can you say, for instance, how many customers you're working with in this area? Thank you.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

Yes, sure. Thanks, Jim. So the directed energy, again, is part of our part of the work that we're 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 directed energy, as well as the medical and micromachining areas.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

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's a little bit hard to estimate, but it's developing market. There's 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's the key part that we believe is growing.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

So this is, 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've seen that as an issue, as well as in civilian infrastructures where there's incursions in airports, incursions at borders, incursions in stadiums. You know, it's a big issue today. So from a market standpoint, the Crossbow 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, is a broader one that has both, opportunities in the defense sector, but also the civilian, the civilian piece. And we'll be, of course, I've mentioned that we've done extensive testing with Lockheed, that that's going very well, and that we'll be bringing the system to the DSCI show, in, in September, where we'll have a chance to talk to a broader customer base as well.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

But overall, very excited with the progress the team has made. And again, this is a great application for us because it's the combination of our core technologies with the single mode lasers, as well as the photonics. And then it's key for us because, again, this is something that we can bring into our commercial manufacturing infrastructure, where we're manufacturing volumes of these single mode lasers, but also systems and subsystems. We can do this at a very disruptive price point and cost point. And that's why we believe that, you know, this is a unique position to be able to address this, you know, these smaller drone class at a at a cost point that could be broadly used.

James Ricchiuti
Senior Analyst at Needham & Company

Thanks, Mark. Appreciate the additional color on that. I'll jump back in the queue.

Operator

Our next question comes from Ruben Roy with Stifel. Please proceed with your question.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

Thank you. Hi Mark and hi Tim. Mark, I wanted to start with maybe just walking through the outlook. It's 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.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

So you had $10,000,000 that you had previously anticipated out of the 15,000,000 come through in Q2. And maybe just an update on how you're 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'm just wondering what kind of visibility you might be getting from your customers as you think about the second half, I. Do you think that there's going to be continued stabilization and maybe improving bookings into Q4? Thank you.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

All right. Thanks very much. So a couple of the pieces here. Again, we're very happy to see the book to bill of one. And again, that book to bill on top of the higher revenue.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

As you mentioned, we were able to ship about $10,000,000 of the $15,000,000 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 tariff situation. We believe we'll be able to do that also, of course, going forward. And we did see, you know, very good demand in material processing. We're seeing the industrial businesses, the industrial markets, know, there's been improvement over the last few quarters. You've seen that, some of that improvement in PMI.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

So, you know, we're seeing that industrial pick up, and we're 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've seen that also in cutting. So we've seen our cutting the inventories, some of our OEMs have normalized. So we're seeing that area pick up.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

And we've seen, you know, increases, you know, continued demand increases in things like additive manufacturing, as well as again, broad based. Saw strong medical. We have picked up another customer, as we talked about, in medical that's attached to our roadmap of urology. So that's, you know, that's continuing to see growth. So again, we're seeing, you know, kind of broad based, improvement, I would say, and I would say cautious optimism.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

And the reason I'm saying cautious optimism, because of course, there's still tariff uncertainties and we're still, you know, in a macro environment that hasn't completely recovered for sure. So that's really my comments on that piece.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

Thank you for that detail. Yeah, go ahead, Tim.

Timothy Mammen
SVP & CFO at IPG Photonics

We went through and started the usual process on generating guidance. So there's nothing particularly unusual in there. Think the only thing I think that's good is that even at the midpoint, we're slightly above where the street was. And I think that's the first time in quite a while that we've been able to guide at a midpoint that is mildly positive. I think we're more than bouncing along the bottom at the moment.

Timothy Mammen
SVP & CFO at IPG Photonics

We've got a little bit of lift off at the moment.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

A little bit, indeed. And yes, I can't remember the last time, yeah, that you guys had a guide above our numbers. So that's great. If I could follow-up on Jim's question, Mark, on the defense stuff. Would love to understand how you're thinking about high energy as well.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

There was you know, there's been some awards and actually, you know, just yesterday, another award for 100 kilowatt system. And so is that part of your strategy longer term perhaps? Or are you focused more on this lower cost stuff that you talked about? Thank you.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

Yeah, so what I would say is that, you know, we've been playing in the overall market in directed energy for many years. We have, you know, very high performance, I'd say the best single mode lasers that are applied, you know, 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, smaller drones that are more widespread and can be addressed with the relatively low power using these using our high brightness single mode lasers.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

So that's really the area that we're talking about here. And we think that that's a, as I mentioned, is a significantly growing market because it's one of the biggest issues today. You know, as you're reading, it's 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's an issue in the civilian infrastructure, borders, etc, as well. And we're starting to see more of that and it's only increasing.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

You know, we think that's a really good area for us to play.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

Great. And if I could squeeze one more in for Tim. Tim, on the gross margin, I might have missed it, but could you give as part of that thirty six percent 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?

Timothy Mammen
SVP & CFO at IPG Photonics

Relative to Q2, we are still we had an improvement in under absorption that we said benefited gross margin a bit. We're 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 second quarter and expect that to flow through to Q3 as well.

Ruben Roy
Ruben Roy
MD - Equity Research at Stifel Financial Corp

Okay. Thank you. That's all I had. Thank you.

Operator

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

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

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. Yes, I don't mean in dollars, I kind of mean year over year because we all know that June is typically the largest month for dollar orders.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

I'm just hoping as on a year over year basis to talk about the progression.

Timothy Mammen
SVP & CFO at IPG Photonics

Yeah, I mean, I think year over year, the total increase, the total value of bookings increased, we haven't given that number, but it was up compared to Q2 twenty twenty four. 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 wasn't back loaded. Our revenue happened to be a bit more back loaded in the quarter with June being very strong on revenue. That probably reflected the fact that the bookings in April were pretty good.

Timothy Mammen
SVP & CFO at IPG Photonics

May was a little bit weaker and then June picked up again. So we were actually, we weren't 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.

Operator

I think he left. Our next question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question.

James Ricchiuti
Senior Analyst at Needham & Company

I just wanted to, ask about the systems business, a smaller part of your business, obviously. But first year on year sequential increase that we've seen in a while, and I I wanted to understand what some what may have drove that. I assume, some of that may be the clean laser business, but can you elaborate on what you're seeing there?

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

Yes, certainly, Jim. So a couple of things. First of all, we're very excited with Clean Laser. That's going very, very well. That acquisition that we did at the end of last year, integration is going very well.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

And they've been continuing with their traction in the market. But we're also seeing, you know, we've also had some increases in other areas of our systems. You know, we're making micro machining systems and systems in welding and such as well. I don't know, Tim, if you have anything you'd add.

Timothy Mammen
SVP & CFO at IPG Photonics

I think you covered it. 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 Lightwell too.

James Ricchiuti
Senior Analyst at Needham & Company

Got it. And on the medical business, sounds like you're encouraged by the ramp you're seeing with the second customer in the urology area. I wonder if you would help us understand whether there's been any change in the overall competitive environment in this area of the business.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

So let me speak to that, Jim. So let me just step back for a moment and just say that you know, the urology is one of the key areas that we're investing in. So it's the medical side, the micromachining, the advanced. And in that urology roadmap, we have a broad base of capability in that area, and we're bringing out new systems. So we talked about the fact that we're bringing something out in Q4 and then a whole roadmap of growth.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

We have the strongest position on the thulium lasers in urology, and we're continuing to grow as we picked up this new customer. That's bringing our share up and continuing to drive our share in that marketplace.

Operator

Thank you. Our next question is from Scott Graham with Seaport Research Partners. Please proceed with your question.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Yeah, hi again. Sorry about that. The gross margin, the minus 500 basis points, Tim, could you provide a little bit more color around that, if you would?

Timothy Mammen
SVP & CFO at IPG Photonics

Yeah, sure. I think the positive takeaways from gross margin were that we had better manufacturing efficiency. So we had a benefit from lower under absorbed costs. We've made statements that that's a real focus of ours of trying to get that improved. It helped a little bit.

Timothy Mammen
SVP & CFO at IPG Photonics

The revenue is up a bit. The second side of it is that we've got inventory more under control over the last twelve months. The inventory provisions that we incurred were a bit lower. Offsetting those benefits, we 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've actually got cost reduction initiatives across four or five different areas that we're starting to roll through the business model.

Timothy Mammen
SVP & CFO at IPG Photonics

So we expect product gross margin to improve. And just a couple of examples of those, for example, the rack integrated higher power lasers is starting to be introduced more fully. We're looking at some of the micro machining lasers with higher power output and better specification that the bill of material won't change on. We're automating the production of some of our consumable fibers for medical. And there are other areas that we're working on to get the product cost down.

Timothy Mammen
SVP & CFO at IPG Photonics

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're back close to 39% on an adjusted basis and 38.5% on a GAAP basis.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Very good. Yes, that very thorough response to my question, Tim. Thank you really a lot for that. It would be nice also if you guys got a little bit of help from your end markets. 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 lift a little bit, you know, there's going to be an increase in, you know, green 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, a big part of your revenue basis, general industrial across the world. I was 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
Mark Gitin
Director & CEO at IPG Photonics

Hey, Scott, this is Mark. So as I talked about, we've seen we've obviously seen some pickup. We see the book to bill strong. We've seen the PMIs improving in the various regions. But we're still in some we still have some uncertainty.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

I'd say, again, it's what I said. I think my customers are saying the same thing that they have a cautious optimism looking forward. There's still some uncertainty with the tariffs and there's some uncertainty in the market, but I'm hearing, let's say cautious optimism.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Very good. Thank you.

Operator

Our next question comes from Mark Miller with The Benchmark Company. Please proceed with your question.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

I'm just wondering if you can comment about welding market outside of China, in particular United States.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

Yes. Hi there, Mark. Yes. So we've seen good growth in welding globally. So I can say that the strongest growth that we saw was specifically in NEV.

Mark Gitin
Mark Gitin
Director & CEO at IPG Photonics

And the biggest piece of growth there was was in China. But we do have we have had broad based growth and we've seen growth also quarter on quarter with light weld and welding. So we are seeing some increase.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

I'm just wondering too if you can comment about the margin profile of your backlog. Is that similar to what you're expecting in the third quarter?

Timothy Mammen
SVP & CFO at IPG Photonics

Yeah. I mean, the mix on that is not fundamentally different going into to the quarter mark.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

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 Sverdrup for closing comments.

Eugene Fedotoff
Eugene Fedotoff
Director, IR at IPG Photonics

Thank you everyone 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. Thank you.

Operator

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

Executives
    • Eugene Fedotoff
      Eugene Fedotoff
      Director, IR
    • Mark Gitin
      Mark Gitin
      Director & CEO
Analysts
    • Timothy Mammen
      SVP & CFO at IPG Photonics
    • James Ricchiuti
      Senior Analyst at Needham & Company
    • Ruben Roy
      MD - Equity Research at Stifel Financial Corp
    • Scott Graham
      Senior Equity Research Analyst at Seaport Research Partners
    • Mark Miller
      Equity Research Analyst at The Benchmark Company LLC
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