IPG PHOTONICS CORP

Previous wording

On April 30, 2024, we announced that Mark Gitin has been appointed Chief Executive Officer effective June 5, 2024. Dr. Gitin will succeed Dr. Eugene Scherbakov who will remain a member of the Board of Directors and will serve as an advisor to Dr. Gitin. Dr. Gitin has more than 30 years of experience in the lasers and optics sector, most recently overseeing the Photonics Solutions Division at MKS Instruments.

Current wording

On June 5, 2024, Dr. Mark Gitin succeeded Dr. Eugene Scherbakov as Chief Executive Officer of the Company. Dr. Scherbakov continues to serve as a member of the Board of Directors and as an advisor to Dr. Gitin. Dr. Gitin has more than 30 years of experience in the lasers and optics sector, most recently overseeing the Photonics Solutions Division at MKS Instruments.

Previous wording

Russia-Ukraine Conflict. The Russia-Ukraine conflict and the sanctions imposed in response to this crisis have significantly curtailed our ability to use our manufacturing operations in Russia to supply other IPG operations outside of Russia. The conflict and the risk of additional sanctions has also increased the levels of uncertainty and risks facing the Company due to our manufacturing operations in Belarus. Since the start of the conflict, we have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries, increasing inventories worldwide and qualifying third-party suppliers. Since 2022, we have been hiring and training additional employees, expanding capacity for increased production, running additional shifts in the U.S. and Germany and adding additional manufacturing capacity in Italy and Poland.

Current wording

Russia-Ukraine Conflict. The Russia-Ukraine conflict and the sanctions imposed in response to this crisis have significantly curtailed our ability to use our manufacturing operations in Russia to supply other IPG operations outside of Russia. The EU issued additional sanctions for Belarus on June 29, 2024. The sanctions allow shipments related to existing contracts to continue through October 2, 2024. We are currently evaluating the effect these new sanctions will have on our business. Our preliminary assessment is that our ability to continue supply of certain components from our factory in Belarus will be affected. Since the start of the conflict, we have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries, increasing inventories worldwide and qualifying third-party suppliers. Since 2022, we have hired and trained additional employees, expanded capacity for increased production, run additional shifts in the U.S. and Germany and added additional manufacturing capacity in Italy and Poland. We have also qualified and begun purchasing components from third party vendors to reduce reliance on sub-assemblies currently made in Belarus.

Previous wording

We believe the contingency measures outlined above that we have already put in place mitigate substantially all the effects of the sanctions on our ability to supply finished products to customers. If we have not fully mitigated the effect of these and other trade restrictions, or if new sanctions are adopted, our ability to supply finished products to customers could be impacted. Although we believe our contingency plans mitigate the risk of our ability to supply customers with finished product, these plans require additional investments in facilities outside of Russia and Belarus in the near term as well as additional ongoing operating costs, primarily associated with the higher cost of labor outside of Russia and Belarus. While we have sufficient financial resources to make these investments and expenditures, our gross margins and financial results have been and will be adversely impacted by increased operating costs associated with these transitions. Over time, we intend to mitigate some of these increases by producing components in countries with lower labor costs than the United States and Germany, with ongoing product expense reduction initiatives, higher productivity from automation, improved yields and product specifications. We are also continuing to review our operations in Russia and Belarus. For additional information regarding the risks and potential impacts of the Russia-Ukraine conflict, see “Risk Factors – The ongoing conflict between Russia and

Current wording

We believe the contingency measures outlined above that we have already put in place have mitigated substantially all the effects of current sanctions on our ability to supply finished products to customers. Additionally, we believe that we will be able to mitigate the effect of the new Belarus sanctions, although we are still evaluating the full impact of those sanctions on our business. If we have not fully mitigated the effect of these and other trade restrictions, or if new sanctions are adopted, our ability to supply finished products to customers could be impacted. Although we believe our contingency plans mitigate the risk of our ability to supply customers with finished product, these plans require additional investments in facilities outside of Russia and Belarus in the near term as well as additional ongoing operating costs, primarily associated with the higher cost of labor outside of Russia and Belarus. While we have sufficient financial resources to make these investments and expenditures, our gross margins and financial results have been and will be adversely impacted by increased operating costs associated with these transitions. Over time, we intend to mitigate some of these increases by producing components in countries with lower labor costs than the United States and Germany, with ongoing product expense reduction initiatives, higher productivity from automation, improved yields and product specifications. We are also continuing to review our operations in Russia and Belarus. For additional information regarding the risks and potential impacts of the Russia-Ukraine conflict, see “Risk Factors – The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations” in Item 1A of Part I of Form 10-K for the year ended December 31, 2023.

Previous wording

Sales to third-parties in Russia were approximately 4% of our revenue for the first quarter of 2024, and 3% for the full year ended December 31, 2023. Our Russian subsidiary has historically supplied finished goods for our China market. Sanctions have limited our ability to provide components to Russia for the completion of finished lasers. Although our Russian operation has built safety stock in anticipation of this situation, we are also producing more finished lasers for China at other IPG locations. The total value of product shipped to the Chinese market from Russia was approximately $3.8 million for the three months ended March 31, 2024 and $15.8 million for the full year ended December 31, 2023.

Current wording

Sales to third-parties in Russia were approximately 4% of our revenue for the first half of 2024, and approximately 3% for the full year ended December 31, 2023. Our Russian subsidiary has historically supplied finished goods for our China market. Sanctions have limited our ability to provide components to Russia for the completion of finished lasers. Although our Russian operation has built safety stock in anticipation of this situation, we are also producing more finished lasers for China at other IPG locations. The total value of product shipped to the Chinese market from Russia was approximately $5.8 million for the six months ended June 30, 2024 and $15.8 million for the full year ended December 31, 2023.

Previous wording

At March 31, 2024, we had working capital excluding cash and cash equivalents of $29.1 million in Russia of which $22.2 million is inventory. We had $73.6 million of cash and cash equivalents in Russia. The net asset value of our Russian subsidiary was $104.5 million. In addition to the impairment charges referenced above, the net value of assets in Russia has been reduced by $141.6 million due to the cumulative translation effect of the Russian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. Depending upon the outcome of our review of our Russian operations, we may incur additional asset impairment charges and the other comprehensive loss that is currently in the equity section of our condensed consolidated balance sheets may be charged to our condensed consolidated statements of income.

Current wording

At June 30, 2024, we had working capital excluding cash and cash equivalents of $37.0 million in Russia of which $27.8 million is inventory. We had $78.1 million of cash and cash equivalents in Russia. The net asset value of our Russian subsidiary was $117.3 million. The net asset value of our Russian subsidiary has been reduced by $133.3 million due to the cumulative translation effect of the Russian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. Depending upon the outcome of our review of our Russian operations, we may incur additional asset impairment charges and the other comprehensive loss that is currently in the equity section of our condensed consolidated balance sheets may be charged to our condensed consolidated statements of income.

Previous wording

We continue to manufacture laser cabinets and other mechanical components in Belarus. Trade sanctions to date have not significantly affected our ability to supply these items from Belarus to other manufacturing locations. The value of the long lived assets in Belarus was $30.6 million at March 31, 2024, and we had working capital excluding cash of $3.9 million in Belarus of which $3.8 million is inventory. In addition, we had $3.5 million of cash in Belarus. If additional sanctions are imposed on Belarus or Belarus places restrictions on our operations there, it could trigger an asset impairment evaluation and may result in impairment charges in the future.

Current wording

We continue to manufacture laser cabinets and other mechanical components in Belarus. As noted above, we are evaluating a new round of sanctions that were issued by the EU on June 29, 2024. These sanctions allow shipments under existing orders to be shipped through October 2, 2024. It is expected that these sanctions will impact our ability to export some or all of the laser and mechanical components currently manufactured in Belarus after that date. The value of the long lived assets in Belarus was $30.9 million at June 30, 2024, and we had working capital excluding cash of $2.9 million in Belarus of which $3.3 million is inventory. In addition, we had $3.5 million of cash in Belarus. The net asset value of our Belarus subsidiary combined with inter-company loans was $37.4 million. The net asset value of our Belarus subsidiary has been reduced by $17.5 million due to the cumulative translation effect of the Belarus ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. The evaluation of the latest round of sanctions may lead to management decisions that could trigger an asset impairment evaluation and may result in impairment charges in the future.

Previous wording

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for materials processing, which includes general manufacturing, automotive including electric vehicles ("EV"), other transportation, aerospace, heavy industry, consumer, semiconductor and electronics. Approximately 90% of our revenues for both the first quarter of 2024 and the full fiscal year of 2023 were from customers using our products for materials processing. Although applications within materials processing are broad, the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns. For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of materials processing equipment and will be subject to the broader fluctuations of capital equipment spending.

Current wording

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for materials processing, which includes general manufacturing, automotive including electric vehicles ("EV"), other transportation, aerospace, heavy industry, consumer, semiconductor and electronics. Approximately 89% of our revenues for the first half of 2024, and 90% of the full fiscal year of 2023 were from customers using our products for materials processing. Although applications within materials processing are broad, the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns. For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of materials processing equipment and will be subject to the broader fluctuations of capital equipment spending.

Previous wording

•Gross margin on systems can be lower than gross margin for our laser, depending on the configuration, volume and competitive forces, among other factors;

Current wording

•Gross margin on systems can be lower than gross margin for our lasers and sub-systems, depending on the configuration, volume and competitive forces, among other factors;

Previous wording

We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess. Any provision for such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for slow-moving, obsolete or excess inventory totaling $12.8 million and $12.1 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess. Any provision for such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for slow-moving, obsolete or excess inventory totaling $14.0 million and $11.2 million for the three months ended June 30, 2024 and 2023, respectively, and $26.9 million and $23.3 million for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

Goodwill and long-lived assets impairments. We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units, differences in the estimated product acceptance rates, or market prices below the carrying value of long-lived assets evaluated for sale could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets. We have long-lived assets in Belarus with a carrying value of $30.6 million. If sanctions increase or if the geopolitical situation changes such that we can no longer use Belarus as a source of supply for our laser cabinets and other mechanical components, we may need to evaluate those assets for impairment, which may result in impairment charges.

Current wording

Goodwill and long-lived assets impairments. We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units, differences in the estimated product acceptance rates, or market prices below the carrying value of long-lived assets evaluated for sale could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets. We have long-lived assets in Belarus with a carrying value of $30.9 million. As noted above, we are evaluating a new round of sanctions that were issued by the EU on June 29, 2024 and become effective on October 2, 2024. It is expected that these sanctions will impact our ability to export some or all of the laser and mechanical components currently manufactured in Belarus. If we can no longer use Belarus as a source of supply for ourlaser and mechanical components, we may need to evaluate those assets for impairment, which may result in impairment charges in the future.

Previous wording

Foreign exchange. Because we are a U.S.-based company doing business globally, we have both translational and transactional exposure to fluctuations in foreign currency exchange rates. Changes in the relative exchange rate between the U.S. dollar and the foreign currencies in which our subsidiaries operate directly affects our sales, costs and earnings. Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, the Chinese yuan and Japanese yen have had and could have an additional significant impact on our sales, costs and earnings. For the quarter ended March 31, 2024, the foreign exchange loss was primarily created by the depreciation of the Chinese yuan as compared to the U.S. dollar. Our European and Russian subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. dollars. Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products.

Current wording

U.S. dollar and the foreign currencies in which our subsidiaries operate directly affects our sales, costs and earnings. Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, the Chinese yuan and Japanese yen have had and could have an additional significant impact on our sales, costs and earnings. For the quarter ended June 30, 2024, the foreign exchange loss was primarily created by the depreciation of the Chinese yuan as compared to the U.S. dollar. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese and Russian subsidiaries have certain net liabilities denominated in U.S. dollars. Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products.

Previous wording

Major customers. While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from period to period. Net sales derived from our five largest customers as a percentage of our net sales was 13% for the three months ended March 31, 2024 and 13%, and 15% for the full years 2023 and 2022, respectively. One of our customers accounted for 21% and 14% of our net accounts receivable at March 31, 2024 and December 31, 2023, respectively. We seek to add new customers and to expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change. We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our products. If any of our significant customers substantially reduced their purchases from us, our results would be adversely affected.

Current wording

Major customers. While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from period to period. Net sales derived from our five largest customers as a percentage of our net sales was 13% for the six months ended June 30, 2024 and 13%, and 15% for the full years 2023 and 2022, respectively. One of our customers accounted for 17% and 14% of our net accounts receivable at June 30, 2024 and December 31, 2023, respectively. We seek to add new customers and to expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change. We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our products. If any of our significant customers substantially reduced their purchases from us, our results would be adversely affected.

Previous wording

Net sales. Net sales decreased by $95.2 million, or 27.4%, to $252.0 million for the three months ended March 31, 2024 from $347.2 million for the three months ended March 31, 2023.

Current wording

Net sales. Net sales decreased by $82.4 million, or 24.2%, to $257.6 million for the three months ended June 30, 2024 from $340.0 million for the three months ended June 30, 2023.

Previous wording

Sales for materials processing applications decreased primarily due to lower sales of high power CW lasers, pulsed lasers, laser and non-laser systems and other laser products, partially offset by higher sales of QCW lasers and medium power CW lasers.

Current wording

Sales for materials processing applications decreased due to lower sales of high power CW lasers, medium power CW lasers, pulsed lasers, QCW lasers and other laser products, partially offset by higher sales in laser and non-laser systems.

Previous wording

•High power CW laser sales decreased due to lower sales for cutting and welding applications. Within cutting applications, the decrease in sales was attributable softer industrial demand and inventory management by OEM customers while welding was primarily impacted by a slowdown in the e-mobility investments.

Current wording

•High power CW laser sales decreased due to lower sales for cutting and welding applications. Within cutting applications, the decrease in sales was attributable to softer industrial demand, increased competition in China and inventory management by OEM customers, while welding application was primarily impacted by a delay in the e-mobility investments.

Previous wording

•Pulsed laser sales, including high power pulsed lasers, decreased due to lower sales for solar cell manufacturing, marking and engraving, and foil cutting applications.

Current wording

•Pulsed laser sales, including high power pulsed lasers, decreased due to lower demand for foil cutting and solar cell manufacturing applications.

Previous wording

•Medium power CW laser sales increased driven by higher demand in additive manufacturing applications.

Current wording

•Laser and non-laser systems sales increased driven by higher demand for LightWELD and other laser systems.

Previous wording

Cost of sales and gross margin. Cost of sales decreased by $45.7 million, or 22.8%, to $154.5 million for the three months ended March 31, 2024 from $200.2 million for the three months ended March 31, 2023. Our gross margin decreased to 38.7% for the three months ended March 31, 2024 from 42.3% for the three months ended March 31, 2023. The decrease in gross margin was driven by an increase in unabsorbed manufacturing costs and an increase in inventory provisions as a percentage of sales. The decrease in gross margin was partially offset by a decrease in cost of product sold due to product mix and shipping costs and tariffs, as a percentage of sales. The strong U.S. dollar has negatively affected gross margin because a disproportionate amount of our manufacturing costs are denominated in U.S. dollars as compared to our sales which are predominantly denominated in foreign currencies.

Current wording

Cost of sales and gross margin. Cost of sales decreased by $30.8 million, or 16.0%, to $161.5 million for the three months ended June 30, 2024 from $192.3 million for the three months ended June 30, 2023. Our gross margin decreased to 37.3% for the three months ended June 30, 2024 from 43.4% for the three months ended June 30, 2023. The decrease in gross margin was driven by an increase in unabsorbed manufacturing costs and an increase in inventory provisions as a percentage of sales. The decrease in gross margin was partially offset by a decrease in shipping costs and tariffs, as a percentage of sales. The strong U.S. dollar has negatively affected gross margin because a disproportionate amount of our manufacturing costs are denominated in U.S. dollars as compared to our sales which are predominantly denominated in foreign currencies.

Previous wording

Sales and marketing expense. Sales and marketing expense increased by $1.9 million, or 9.0%, to $23.0 million for the three months ended March 31, 2024 compared with $21.1 million for the three months ended March 31, 2023. The increase is due to higher personnel and related costs and premises costs. As a percentage of sales, sales and marketing expense increased to 9.1% from 6.1% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Sales and marketing expense. Sales and marketing expense increased by $2.3 million, or 11.4%, to $22.5 million for the three months ended June 30, 2024 compared with $20.2 million for the three months ended June 30, 2023. The increase is due to higher personnel and related costs and premises costs. As a percentage of sales, sales and marketing expense increased to 8.7% from 5.9% for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Research and development expense. Research and development expense increased by $6.6 million, or 28.9%, to $29.4 million for the three months ended March 31, 2024, compared to $22.8 million for the three months ended March 31, 2023. The increase is due to higher personnel and related costs, premises costs and expense for materials used for research and development projects. As a percentage of sales, research and development expense increased to 11.7% for the three months ended March 31, 2024 from 6.6% for the three months ended March 31, 2023.

Current wording

Research and development expense. Research and development expense increased by $4.0 million, or 17.0%, to $27.5 million for the three months ended June 30, 2024, compared to $23.5 million for the three months ended June 30, 2023. The increase is due to higher personnel and related costs and premises costs. As a percentage of sales, research and development expense increased to 10.7% from 6.9% for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

General and administrative expense. General and administrative expense increased by $1.1 million, or 3.7%, to $31.2 million for the three months ended March 31, 2024 from $30.1 million for the three months ended March 31, 2023. The increase was due to an increase in expenses related to information systems, premises and accounting costs, partially offset by lower personnel and related costs. As a percentage of sales, general and administrative expense increased to 12.4% from 8.7% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

General and administrative expense. General and administrative expense increased by $1.9 million, or 6.4%, to $31.6 million for the three months ended June 30, 2024 from $29.7 million for the three months ended June 30, 2023. The increase was due to increases in consultant costs and legal expenses. As a percentage of sales, general and administrative expense increased to 12.3% from 8.7% for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Effect of exchange rates on net sales, gross profit and operating expenses. If exchange rates relative to the U.S. dollar had been the same as one year ago, which were on average euro 0.93, Russian ruble 73, Japanese yen 132 and Chinese yuan 6.84, respectively, we estimate that net sales for the three months ended March 31, 2024 would have been $7.8 million higher, gross profit would have been $4.7 million higher and total operating expenses would have been $1.9 million higher.

Current wording

Effect of exchange rates on net sales, gross profit and operating expenses. If exchange rates relative to the U.S. dollar had been the same as one year ago, which were on average euro 0.92, Russian ruble 81, Japanese yen 137 and Chinese yuan 7.01, respectively, we estimate that net sales for the three months ended June 30, 2024 would have been $5.9 million higher, gross profit would have been $2.8 million higher and total operating expenses would have been $1.3 million higher.

Previous wording

Loss on foreign exchange. We incurred a foreign exchange transaction loss of $1.7 million for the three months ended March 31, 2024 as compared to a $2.7 million gain for the three months ended March 31, 2023. Our European and Russian subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. dollars. The foreign exchange loss for the three months ended March 31, 2024 was primarily attributable to a loss related to the depreciation of the Chinese yuan as compared to the U.S. dollar.

Current wording

Loss on foreign exchange. We incurred a foreign exchange transaction loss of $3.2 million for the three months ended June 30, 2024 as compared to a $1.3 million loss for the three months ended June 30, 2023. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. dollars. The foreign exchange loss for the three months ended June 30, 2024 was primarily attributable to a loss related to the depreciation of the Chinese yuan as compared to the U.S. dollar.

Previous wording

Interest income, net. Interest income, net was $14.2 million for the three months ended March 31, 2024 as compared to $7.5 million of income for three months ended March 31, 2023. The change in interest income, net was due to an increase in yields on cash equivalents and short term investments that resulted from higher market interest rates as compared to prior year rates.

Current wording

Interest income, net. Interest income, net was $12.8 million for the three months ended June 30, 2024 as compared to $9.3 million of income for three months ended June 30, 2023. The change in interest income, net was due to an increase in yields on cash equivalents and short term investments that resulted from higher market interest rates as compared to prior year rates.

Previous wording

Provision for income taxes. Provision for income taxes was $9.5 million for the three months ended March 31, 2024 compared to $23.2 million for the three months ended March 31, 2023, representing an effective tax rate of 28.3% and 27.8% for the three months ended March 31, 2024 and 2023, respectively. The decrease in tax expense was primarily due to a decrease income before provision for income taxes for 2024 as compared to 2023. There were net discrete tax detriments of $2.0 million for the three months ended March 31, 2024 and net discrete detriment of $2.0 million for the three months ended March 31, 2023. Both 2024 and 2023 discrete items included an increase in tax expense from equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes. However, the 2024 discrete tax detriment from equity-based compensation was partially offset by a decrease in uncertain tax positions due the conclusion of tax audits.

Current wording

Provision for income taxes. Provision for income taxes was $4.9 million for the three months ended June 30, 2024 compared to $19.3 million for the three months ended June 30, 2023, representing an effective tax rate of 19.4% and 23.6% for the three months ended June 30, 2024 and 2023, respectively. The decrease in tax expense was primarily due to a decrease of income before provision for income taxes for 2024 as compared to 2023. There were net discrete tax benefits of $0.1 million for the three months ended June 30, 2024 and $1.8 million for the three months ended June 30, 2023. For 2024, discrete items included additional tax benefits realized in the completion of 2023 tax returns filed in 2024. For 2023, discrete items included a benefit for reductions in tax liability as a result of reductions in tax reserves for the expiration of the statute of limitations and for agreements with tax authorities for prior year audits.

Previous wording

Net income attributable to IPG Photonics Corporation. Net income attributable to IPG Photonics Corporation decreased by $36.0 million to $24.1 million for the three months ended March 31, 2024 compared to $60.1 million for the three months ended March 31, 2023. Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 7.7 percentage points to 9.6% for the three months ended March 31, 2024 from 17.3% for the three months ended March 31, 2023 due to the factors described above.

Current wording

Net income attributable to IPG Photonics Corporation. Net income attributable to IPG Photonics Corporation decreased by $42.1 million to $20.2 million for the three months ended June 30, 2024 compared to $62.3 million for the three months ended June 30, 2023. Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 10.5 percentage points to 7.8% for the three months ended June 30, 2024 from 18.3% for the three months ended June 30, 2023 due to the factors described above.

Previous wording

•QCW laser sales increased driven by higher demand in fine processing for consumer electronics applications.

Current wording

•QCW laser sales increased due to higher demand in welding for consumer electronics and e-mobility applications.

Previous wording

•Laser and non-laser systems sales declined due to lower demand for LightWELD.

Current wording

•Laser and non-laser systems sales decreased driven by lower demand for non-laser systems.

Previous wording

Sales from other applications decreased due to decreased demand for lasers used in advanced applications and medical procedures applications.

Current wording

Sales from other applications decreased due to decreased sales in medical procedures and advanced applications.

Previous wording

Gain on sale of assets. The gain on sale of assets of $6.8 million for the three months ended March 31, 2024 was related to the sales of a building in the U.S. and a building in the U.K.

Current wording

Gain on sale of assets. The gain on sale of assets of $7.5 million for the six months ended June 30, 2024 was related to the sales of a building and land in the U.S. and a building in the U.K.

Previous wording

We believe that our existing cash and cash equivalents, short-term investments, our cash flows from operations and our existing line of credit provide us with the financial flexibility to meet our liquidity and capital needs. We expect to continue making investments in capital expenditures, to assess acquisition opportunities and to repurchase shares of our stock in accordance with our repurchase program. The extent and timing of such expenditures may vary from period to period. Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. In the near term, we will incur capital expenditures related to the expansion of capacity outside of Russia because of the reduction in manufacturing activity and capacity at our Russian factory that we can access due to sanctions. As of March 31, 2024, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Current wording

We believe that our existing cash and cash equivalents, short-term investments, our cash flows from operations and our existing lines of credit provide us with the financial flexibility to meet our liquidity and capital needs. We expect to continue making investments in capital expenditures, to assess acquisition opportunities and to repurchase shares of our stock in accordance with our repurchase program. The extent and timing of such expenditures may vary from period to period. Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. In the near term, we will incur capital expenditures related to the expansion of capacity outside of Russia because of the reduction in manufacturing activity and capacity at our Russian factory that we can access due to sanctions. As of June 30, 2024, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Previous wording

Included in cash and cash equivalents are $73.6 million of cash and cash equivalents located in Russia, and $3.5 million of cash and cash equivalents located in Belarus, as of March 31, 2024. Cash and cash equivalents in Russia are subject to capital controls that prevent repatriation by dividend or distribution of capital. There are currently no restrictions on our ability to use cash and cash equivalents in Russia for operating purposes including converting cash to foreign currency for the payment of goods received from vendors outside of Russia. The Russian operations are self-funding. Approximately 6% of our consolidated working capital including cash, cash equivalents and short-term investments is located in Russia. We are making no new investments in Russia.

Current wording

Included in cash and cash equivalents are $78.1 million of cash and cash equivalents located in Russia, and $3.5 million of cash located in Belarus, as of June 30, 2024. Cash and cash equivalents in Russia are subject to capital controls that prevent repatriation by dividend or distribution of capital. There are currently no restrictions on our ability to use cash and cash equivalents in Russia for operating purposes including converting cash to foreign currency for the payment of goods received from vendors outside of Russia. The Russian operations are self-funding. Approximately 8% of our consolidated working capital including cash, cash equivalents and short-term investments is located in Russia. We are making no new investments in Russia.

Previous wording

(1) This facility is available to certain foreign subsidiaries in their respective local currencies. At March 31, 2024, there were no amounts drawn on this line; however, there were $2.7 million of guarantees issued against the line which reduces total availability.

Current wording

(1) This facility is available to certain foreign subsidiaries in their respective local currencies. At June 30, 2024, there were no amounts drawn on this line; however, there were $2.2 million of guarantees issued against the line which reduces total availability.

Previous wording

(2) This facility is available to certain foreign subsidiaries in their respective local currencies. At March 31, 2024, there were no amounts drawn on this line; however, there were $1.6 million of guarantees issued against the line which reduces total availability.

Current wording

(2) This facility is available to certain foreign subsidiaries in their respective local currencies. At June 30, 2024, there were no amounts drawn on this line; however, there were $1.2 million of guarantees issued against the line which reduces total availability.

Previous wording

Operating activities. Net cash provided by operating activities increased by $17.3 million to $54.6 million for the three months ended March 31, 2024 from $37.3 million for the three months ended March 31, 2023, primarily due to an increase in cash provided by working capital. Our largest working capital items typically are inventory and accounts receivable. Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other liabilities are not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure. Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items. The increase in cash flow from operating activities in 2024 primarily resulted from:

Current wording

Operating activities. Net cash provided by operating activities increased by $4.2 million to $108.1 million for the six months ended June 30, 2024 from $103.9 million for the six months ended June 30, 2023, primarily due to an increase in cash provided by working capital. Our largest working capital items typically are inventory and accounts receivable. Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other liabilities are not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure. Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items. The increase in cash flow from operating activities in 2024 primarily resulted from:

Previous wording

•an increase in cash provided by accounts receivable due to timing of collection;

Current wording

•an increase in cash provided by accounts receivable due to timing of collection and lower accounts receivable resulting from lower sales;

Previous wording

•an increase in cash provided by inventory, as we moderate investment in safety stock related to supply chain disruptions for third party electronic parts and internally manufactured components;

Current wording

•an increase in cash provided by inventory, as we moderate investment in safety stock related to supply chain disruptions for third party electronic parts and internally manufactured components and reduce inventory levels;

Previous wording

•a decrease in cash used by income and other taxes payable driven by lower taxable income and the timing of estimated tax payments made and refunds received from filing tax returns;

Current wording

•an increase in cash used by income and other taxes payable due to the timing of estimated tax payments made and refunds received from filing tax returns, including an installment due on the company's transition tax liability from the Tax Reform Act of 2017.

Previous wording

Investing activities. Net cash provided by investing activities was $23.7 million for the three months ended March 31, 2024 as compared to cash used in investing activities of $96.0 million in 2023. The cash provided by investing activities in 2024 related to $26.4 million of net proceeds of short-term investments and $25.3 million of cash provided by sales of property, plant and equipment; partially offset by $28.1 million of cash used for capital expenditures. The cash used in investing activities in 2023 related to $64.3 million of net purchases of short-term investments and $33.4 million of cash used for capital expenditures.

Current wording

Investing activities. Net cash provided by investing activities was $308.6 million for the six months ended June 30, 2024 as compared to cash used in investing activities of $90.5 million in 2023. The cash provided by investing activities in 2024 related to $332.5 million of net proceeds of short-term investments and $28.3 million of cash provided by sales of property, plant and equipment; partially offset by $52.3 million of cash used for capital expenditures. The cash used in investing activities in 2023 related to $33.5 million of net purchases of short-term investments and $59.1 million of cash used for capital expenditures.

Previous wording

Financing activities. Net cash used in financing activities was $90.8 million for the three months ended March 31, 2024 as compared to net cash used of $117.2 million in 2023. The cash used in financing activities in 2024 primarily related to the purchase of treasury stock of $89.6 million. The cash used in financing activities in 2023 primarily related to the purchase of treasury stock of $113.1 million and the net cash outflow of $3.8 million from the issuance of common stock under the employee stock purchase plan and the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units.

Current wording

Financing activities. Net cash used in financing activities was $210.2 million for the six months ended June 30, 2024 as compared to net cash used of $129.8 million in 2023. The cash used in financing activities in 2024 primarily related to the purchase of treasury stock of $212.0 million. The cash used in financing activities in 2023 primarily related to the purchase of treasury stock of $113.0 million and principal payments on our long-term borrowings of $16.0 million.