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 5. Despite the headwinds to our revenue, I am pleased with the resilience of our financial model and the company's ability to generate strong cash flow from operations to support current and future investments as well as continued opportunistic share repurchases. Revenue in the first quarter was $252 million, a decline of 27% year over year. Foreign currency headwinds reduced revenue growth by approximately 2%. Revenue from materials processing applications decreased 28% year over year, while revenue from other applications decreased 25%.
GAAP gross margin was 38.7%, a decrease of 360 basis points year over year due to lower absorption of manufacturing costs, as a result of lower revenue, and higher inventory provisions. These negative impacts were partially offset by improved product costs, mostly as a result of product mix, and lower shipping and tariff costs. On a sequential basis, gross margin improved, due to lower product cost, a decrease in expenses related to scrap and duty, which were partially offset by an increase in inventory provisions and unabsorbed manufacturing expenses expressed as a percent of revenue.
Operating expenses came in at the high end of our expectations and increased both year over year and sequentially, primarily in research and development and sales and marketing, as we invested in resources to drive future growth while still controlling general and administrative expenses.
FX headwinds also had a negative impact on revenue and gross profit in the quarter. If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $8 million higher and gross profit to be $5 million higher.
GAAP operating income was $19 million and operating margin was 7.6%. Net income was $24 million, or $0.52 per diluted share.
The effective tax rate in the quarter was 28%.
Foreign currency transaction losses related to remeasuring foreign currency assets and liabilities to period-end exchange rates, had a negative impact on operating income of $2 million, or $0.03 per share. We continued to optimize our footprint and, as a result, we sold two buildings during the quarter. The gain on sale of these assets increased operating income by $7 million and increased diluted EPS by $0.11.
Moving to revenue performance by region on Slide 6. Sales in North America decreased 16%. We saw a decline in revenue in medical, welding, cleaning and advanced applications, partially offset by growth in cutting systems and increased revenue in parts and services. Uncertainty in the general demand environment and lower e-mobility sales as well as cutting OEMs and medical customers managing inventories were the main reasons behind the decline in North America.
In Europe, sales decreased 21% as growth in welding was more than offset by reduced sales in cutting applications due to large cutting OEM customers reducing purchases to manage inventories. Demand in 3D printing applications was also soft in the region. Economic conditions in Europe remain challenging, but we saw some improvements in e-mobility sales and benefited from a continued rollout of LightWELD in the region.
Revenue in China decreased 38% year over year as demand declined in general industrial and e-mobility markets, negatively impacting sales across cutting and welding applications. On the other hand, sales to 3D printing applications increased in China as the industry is seeing growing investments in the region.
Moving to a summary of our balance sheet and cash flow on Slide 7, we ended the quarter with cash, cash equivalents, and short-term investments of $1.1 billion and no debt. Our inventories continued to decrease sequentially and we are targeting further reductions over the course of 2024. Cash provided by operations was $55 million and capital expenditures were $28 million during the first quarter. As I mentioned earlier, we sold two buildings in the quarter, realizing $25 million in proceeds, which means net capital expenditures were just under $3 million, well below the same period last year.
While maintaining a strong balance sheet, we have been returning a significant amount of capital to shareholders through opportunistic share repurchases. We spent $90 million on share repurchases in the first quarter and continue to view current share prices attractive at current levels.
Moving to our outlook on Slide 9, first quarter book-to-bill was slightly above one. However, macroeconomic uncertainty is still negatively impacting demand across all of our major markets and resulting in project delays and reduced orders. Additionally, project delays related to battery capacity expansion are providing headwinds to our sales in China and North America. On a bright side, leading manufacturing indicators have been improving in U.S. and China and
Bottoming in Europe and Japan, which should lead to more stable demand for our customers. We also expect that medical and LightWELD will return to more normalized revenue levels in the second quarter.
For the second quarter of 2024, we expect revenue of $240 million to $270 million. The second quarter gross margin estimate is between 37% and 40%. We anticipate delivering earnings per diluted share in the range of $0.30 to $0.60, with approximately 46 million diluted common shares outstanding. 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.
Before we move on to questions, I would like to express our gratitude to Dr. Scherbakov on behalf of the Board, management team and employees of IPG. He has made vast contributions over the past 30 years, too many to describe today. But we should recognize his contributions particularly during his time as CEO, including by strengthening IPG's competitive position and laying the foundation for our next phase by establishing a clear strategic plan focused on key growth markets and applications, reorganizing R&D and disposing of non-core assets. We all look forward to continuing to work with Dr. Scherbakov in his capacity as a Director.
With that, we will be happy to take your questions.
