[Management View]
IPG Photonics reported $251 million in revenue for Q2 2025, up 10% sequentially but down 3% year over year. The company achieved a GAAP gross margin of 37.3% and an adjusted gross margin of 37.8%, at the top of guidance. Management highlighted strategic initiatives, including the Crossbow laser counter-UAV system and executive team expansion, as key drivers for future growth.

[Outlook]
For Q3 2025, IPG Photonics expects revenue between $225 million and $255 million, with an adjusted gross margin of 36-38%. The company anticipates continued investments in growth and organizational strengthening, with operating expenses projected between $89 million and $91 million.

[Financial Performance]
Revenue increased 10% sequentially but decreased 3% year over year. The book-to-bill ratio was approximately one across all regions. GAAP net income was $7 million, or $0.16 per diluted share, while adjusted earnings per diluted share were $0.30, above the guidance range. Cash and short-term investments totaled $900 million with no debt.

[Q&A Highlights]
Question 1: On the book to bill, can you provide any color on book to bill by region? Was there much variability in terms of the regional bookings?
Answer: Book to bill was one and really just about one across all regions, on top of the higher revenue.

Question 2: On the directed energy commentary, how are you thinking about the opportunity for IPG over the next few years? How many customers are you working with in this area?
Answer: Directed energy is a key growth area, addressing smaller class drones. The market size is significant, with billions spent annually. IPG's solution targets the small drone threat, with applications in both defense and civilian sectors. Extensive testing with Lockheed Martin is ongoing, and the system will be showcased at the DSCI show in September.

Question 3: Can you walk us through the Q3 guidance and the potential tariff impact? What visibility do you have from customers for the second half?
Answer: The book to bill of one on higher revenue is positive. The team mitigated tariff issues, shipping $10 million of the $15 million expected to move into Q3. Demand in material processing and industrial markets is improving, with cautious optimism due to ongoing tariff uncertainties and macroeconomic conditions.

Question 4: How are you thinking about high energy systems in the defense sector? Is this part of your strategy?
Answer: IPG has high-performance single-mode lasers used in many programs, but Crossbow focuses on smaller drone threats. The market for these systems is growing, addressing significant issues in both defense and civilian infrastructure.

Question 5: Can you provide details on the gross margin impact from tariffs and inventory absorption?
Answer: Improved manufacturing efficiencies and lower inventory provisions benefited gross margin. The tariff impact was 115 basis points, with cost reduction initiatives expected to improve product gross margins.

Question 6: How did the order book progress during the quarter? Any specific end markets showing improvement?
Answer: Bookings increased year over year, with April being a strong month. The overall tone improved compared to a year ago, with revenue more backloaded in June.

Question 7: What drove the first year-over-year sequential increase in a while? Any specific areas contributing to this growth?
Answer: Clean Laser acquisition and growth in micromachining and welding systems contributed to the increase. The medical business, particularly in urology, also showed strong performance.

Question 8: Can you comment on the welding market outside of China, particularly in the States?
Answer: Welding growth was strong globally, with the most significant growth in NEV in China. There was also quarter-on-quarter growth in light weld and welding.

Question 9: What is the margin profile of your backlog? Is it similar to what you are expecting in the third quarter?
Answer: The mix is not fundamentally different going into the quarter.

[Sentiment Analysis]
Analysts and management expressed cautious optimism, with a positive tone regarding sequential growth and strategic initiatives. Management highlighted the flexibility in mitigating tariff impacts and the potential for continued demand stabilization.

[Quarterly Comparison]
| Key Metrics | Q2 2025 | Q1 2025 | Q2 2024 |
|----------------------------|---------------|---------------|---------------|
| Revenue | $251 million | $228 million | $259 million |
| GAAP Gross Margin | 37.3% | 36.8% | 37.3% |
| Adjusted Gross Margin | 37.8% | 37.2% | 37.8% |
| GAAP Net Income | $7 million | $5 million | $8 million |
| Adjusted EPS | $0.30 | $0.28 | $0.32 |
| Cash & Short-term Investments | $900 million | $870 million | $850 million |

[Risks and Concerns]
- Tariff-related uncertainties and their impact on gross margins.
- Macroeconomic conditions affecting demand stabilization.
- Potential delays in customer orders due to external factors.

[Final Takeaway]
IPG Photonics demonstrated sequential growth and strategic progress in Q2 2025, driven by strong performance in advanced applications and effective tariff mitigation. The company's cautious optimism for the second half reflects ongoing uncertainties, but strategic initiatives and a robust balance sheet position IPG well for future growth. Investors should monitor tariff impacts and demand trends closely as the company navigates the evolving market landscape.