Tim Mammen
Senior Vice President & Chief Financial Officer at IPG Photonics
Thank you Eugene and good morning everyone. My comments generally will follow the earnings call presentation which is available on our investor relations website. I will start with the financial review on the Slide 4.
Revenue in the first quarter was $377 million, up 1% year-over-year driven by growth in most of our key geographies and increased 2% sequentially mainly due to higher revenue in North America, China and Japan. Revenue from materials processing applications decreased 1% year-over-year and revenue from other applications increased 29%. Second quarter GAAP gross margin was 45.7%, a decrease of 290 basis points year-over-year, due to increased inventory reserves as well as higher shipping costs and tariffs. We also had slightly lower absorption of manufacturing costs in the quarter which negatively impacted gross margins. This was partially offset by lower costs of product sold which benefited from stable selling prices, lower cost products introduced to the market such as the ultra-compact lasers and improved systems' margins.
We faced strong currency headwinds this quarter with significant strength of the U.S. dollar. If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $18 million higher and gross profit to be $10 million higher. Excluding foreign currency transaction losses related to revaluing foreign currency assets and liabilities to period-end exchange rates, operating expenses decreased slightly year-over-year, primarily in research and development. GAAP operating income was $72 million and operating margin was 19%. Net income was $57 million or $1.10 per diluted share. The effective tax rate in the quarter was 22%. During the quarter, we recognized a foreign exchange transaction losses of $18 million or $0.28 per share, primarily related to the appreciation of U.S. dollar and Russian ruble.
Moving to Slide 5. Sales of high power CW lasers decreased 14% and represented approximately 43% of total revenue. Sales of ultra-high power lasers above 6 kW represented 50% of total high power CW laser sales. Pulsed lasers sales increased 13% year-over-year, with continued growth in high power pulsed lasers used in EV battery manufacturing but offset by lower sales into solar cell manufacturing. Systems sales increased 30% year-over-year driven by growth in laser systems and higher sales of LightWELD. Medium power laser sales increased 4% while QCW laser sales were down 9% year-over-year. Other product sales also increased driven by higher sales in medical applications.
Looking at our performance by region on Slide 6, revenue in North America increased 33% driven by growth in cutting, welding and medical applications. In Europe, sales increased 2% as a result of higher demand in marking, cleaning and medical applications. In the first quarter, we reported pull forward of demand in Europe as customers were securing supply which negatively impacted demand in the second quarter. Revenue in China decreased 14% year-over-year despite strong growth in welding and foil cutting applications in the region. While revenue in high power cutting applications stabilized at a lower level in the last several quarters, it was still down significantly on a year-over-year basis.
Moving to a summary of our balance sheet on Slide 7, we ended the quarter with cash, cash equivalents and short-term investments of $1.2 billion and total debt of $32 million. Cash provided by operations was $79 million during the quarter and capital expenditures were $35 million in the quarter. Cash generation was negatively impacted by an increase in inventory during the quarter as we continued to build safety stock in order to keep reasonable lead times and secure critical components. In the second quarter, approximately $40 million of the $72 million increase in inventory value was due to the translation effect of exchange rates, with $32 million attributable to investment in inventories of critical components.
While continuing to maintain a strong balance sheet, we have returned a significant amount of capital to shareholders with our ongoing stock repurchases. In the last 18 months, IPG repurchased shares for approximately $450 million with $312 million spent on share repurchases since the beginning of this year. During the quarter, we repurchased just under 2.4 million shares for a total of $233 million, a record quarterly share repurchase number for the company. We believe in a disciplined approach to share repurchases and have become more active as the share price declined in the recent quarter, providing a good buying opportunity. Given that we completed both May 2020 and February 2022 share repurchase authorizations during the quarter, the Board approved a new $300 million share repurchase authorization in July.
Moving to outlook on Slide 9, second quarter book-to-bill was slightly below 1. We saw some moderation of order flow across Europe as compared to record bookings in the first quarter but we were pleased to see continued strength in key applications and more stable demand in other key geographies. Macroeconomic indicators have been moderating particularly in Europe but remained in the expansionary territory for North America and Asia. Furthermore, PMI in China returned to growth in June due to easing COVID-19 restrictions and posted a modest increase in July. While forecasting our business continues to be challenging in the medium term and our third quarter guidance remains subject to significant uncertainties, including the impact on the global business environment from geopolitical events, trade restrictions and sanctions, COVID-19, economic trends, tariffs, currency fluctuations, growth from emerging product revenue, competition and the lack of long-term binding order commitments, we continue to benefit from growth opportunities created by major macro trends that drive growth in electric vehicle battery manufacturing applications, LightWELD and medical sales.
For the third quarter of 2022, IPG expects revenue of $350 million to $380 million. The company expects the third quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $1 to $1.30, with 51 million diluted common shares outstanding. We continue to expect currency headwinds and estimate that third quarter revenue guidance range is reduced by about $15 million due to the strength of the U.S. dollar. As discussed in the safe harbor passage of today's earnings press release, our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release and is subject to risks outlined in the company's reports with the SEC.
And with that, we will be happy to take your questions.
