Timothy P.V. Mammen
Chief Financial Officer and Senior Vice President 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 Slide 4.
Revenue in the third quarter was $349 million, a decline of 8% year-over-year, primarily due to foreign currency headwinds, which accounted for approximately 7% of the decline. We also saw lower sales in China, Europe and Japan, primarily in general industrial applications. Our sales in North America was slightly higher year-over-year. Revenue from materials processing applications decreased 10% year-over-year, and revenue from other applications increased 10%.
GAAP gross margin was 43.1%, a decrease of 590 basis points year-over-year due to increased cost of products sold, higher inventory reserves as well as higher shipping costs and tariffs. We did see slightly better absorption of manufacturing costs in the quarter as we continue to increase our inventories of safety stock. In the long term, we remain committed to our gross margin target of 45% to 50%.
If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $26 million higher and gross profit to be $14 million higher. GAAP operating income was $93 million, and operating margin was 26.7%. Net income was $76 million or $1.47 per diluted share. The effective tax rate in the quarter was 21%. Foreign currency transaction gains related to remeasuring foreign currency assets and liabilities to period-end exchange rates only had a minor positive impact on the operating expenses of less than $1 million. At the same time, we had several unusual items in the quarter. There was a $22 million or $0.32 per diluted share gain on the sale of the telecom transmission business, and $1 million or $0.01 per diluted share restructuring charge related to shutting down the remaining telecom business.
Excluding the currency transaction gain, gain on sale of assets and restructuring charge, operating expenses declined year-over-year, primarily in research and development as we reduced spending on telecom product development following the sale and restructuring of the business. We are also looking at ways to further reduce our expenses, including sale of the corporate aircraft and two underutilized buildings. Freed-up resources will be available for activities that are core to our strategy.
Moving to Slide 5. Sales of high power CW lasers decreased 14% and represented approximately 44% of total revenue. Sales of ultra-high power lasers above 6-kilowatt represented 45% of total high power CW laser sales. The decline was primarily due to lower demand in cutting applications in China and Europe as a result of lower economic activity that negatively impacted demand in general industrial applications.
Pulsed laser sales decreased 6% year-over-year due to lower demand in cutting and marking applications, partially offset by strong sales into solar cell manufacturing and cleaning applications.
Systems sales increased 10% year-over-year, driven by growth in laser systems and higher sales of LightWELD. Medium power laser sales decreased 16%, while QCW laser sales were down 30% year-over-year, negatively impacted by lower sales to consumer electronics applications. Other product sales increased, driven by record sales in medical applications.
Looking at our performance by region on Slide 6. Revenue in North America increased 1%, driven by growth in cutting, welding and medical applications was offset by lower sales in non-laser systems as well as the telecom divestiture.
In Europe, sales decreased 13% as a result of lower demand across all major materials processing applications and the weaker euro. Customers are delaying projects as a result of high energy costs and economic uncertainty in Europe. However, e-mobility orders remained strong despite overall softness in the economy.
Revenue in China decreased 14% year-over-year as growth in welding for EV battery applications and 3D printing applications was offset by COVID-related lockdowns, continued softness in the cutting market and currency headwinds.
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 $16 million. Cash provided by operations was $76 million during the quarter, and capital expenditures were $25 million in the quarter.
While continuing to maintain a strong balance sheet, we have returned a significant amount of capital to shareholders with our ongoing stock repurchases this year. During the quarter, we repurchased shares for a total of $71 million. Most of the repurchasing in the third quarter happened in the second half of September as we had a cooling-off period between our 10b5 programs. We continued to repurchase shares in October.
Since the beginning of the year, IPG has repurchased shares for a total of $383 million as of the end of the third quarter and approximately $440 million year-to-date.
Our capex has been trending below our initial expectations, and we will likely finish the year at approximately $110 million, well below our previous guidance of $130 million to $140 million. As Eugene mentioned earlier, we are assessing strategic options for our Russian operations. In addition, we are evaluating the effect of the new sanctions on our ability to recover the value of our working capital and long-lived assets located in Russia.
As of the end of the third quarter, we had approximately $44 million in cash and short-term investments and approximately $150 million in working capital, including $116 million in inventory in Russia. The net value of long-lived assets in Russia is approximately $95 million.
Moving to outlook on Slide 9. Third quarter book-to-bill was slightly above 1. We saw further moderation in orders in Europe as well as reduced bookings in China, primarily due to softening macroeconomic conditions, which impacted demand in general industrial markets. However, we are seeing continued strong orders in e-mobility and medical applications as well as more stable operating conditions in North America.
We continue to benefit from growth opportunities created by major macro trends, such as electric vehicle battery manufacturing and renewable energy. In addition, LightWELD and medical sales further diversify our revenue. We believe these trends and diversity will enable us to weather downturns in the economy with greater resiliency.
For the fourth quarter of 2022, IPG expects revenue of $300 million to $330 million. Company expects the fourth quarter tax rate to be approximately 25%. IPG anticipates delivering earnings per diluted share in the range of $0.70 to $1, with approximately 51 million diluted common shares outstanding. Continue to expect currency headwinds and estimate that the fourth quarter revenue guidance range is reduced by about $20 million due to the strength of the U.S. dollar in the current quarter as compared to the fourth quarter 2021.
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 Safe Harbor and the company's reports with the SEC.
With that, we'll be happy to take your questions.
