IPG PHOTONICS CORP

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared by IPG Photonics Corporation, or "IPG", "its" or the "Company". Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The condensed consolidated financial statements include the Company's accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

In the opinion of the Company's management, the financial information for the interim periods presented reflects all adjustments necessary for a fair presentation of the Company's financial position, results of operations and cash flows. The results reported in these condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year.

Accounts Receivable and Allowance for Credit Losses — The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected. The allowance is based upon an estimate of expected credit losses over the life of outstanding receivables. The estimate involves an assessment of customer creditworthiness, historical payment experience, an assumption of future expected credit losses, and the age of outstanding receivables.

Activity related to the allowance for doubtful accounts was as follows:

Comprehensive Income — Comprehensive income includes charges and credits to equity that are not the result of transactions with stockholders. Included within comprehensive income is the cumulative foreign currency translation adjustments. These adjustments are accumulated within the condensed consolidated statements of comprehensive income.

Total components of accumulated other comprehensive loss were as follows:

Subsequent Events — The Company has considered the impact of subsequent events through the filing date of these financial statements. There were no events through the filing date of these financial statements required to be disclosed.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted Pronouncements — In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis. Under the new guidance an entity is required to disclose the title and position of the chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU also requires that an entity that has a single reportable segment provide all the disclosures required by this ASU and all existing segment disclosures in Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted this standard during fiscal year 2024, and will start disclosing the required information in fiscal year ending December 31, 2024. The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company's consolidated financial statements.

Pronouncements Currently Under Evaluation —In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires an entity on an annual basis to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The guidance also requires an entity to disclose on an annual basis information about income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this ASU. The adoption of this standard only impacts disclosures and is not expected to have a material impact on the Company's consolidated financial statements.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Sales are derived from products for different applications: fiber lasers, diode lasers, systems and accessories for materials processing; fiber lasers, diodes and amplifiers for advanced applications; and fiber lasers, systems and fibers for medical applications.

The following tables represent a disaggregation of revenue from contracts with customers:

One of the Company's customers accounted for 17% and 14% of the Company's net accounts receivable as of June 30, 2024 and December 31, 2023, respectively.

The Company enters into contracts to sell lasers and spare parts, for which revenue is generally recognized upon shipment or delivery, depending on the terms of the contract. The Company also provides installation services and extended warranties. The Company frequently receives consideration from a customer prior to transferring goods to the customer under the terms of a sales contract. The Company records customer deposits related to these prepayments, which represent a contract liability. The Company also records deferred revenue related to installation services when consideration is received before the services have been performed. The standalone selling price for installation services is determined based on the estimated number of days of service technician time required for installation at standard service rates. The Company recognizes customer deposits and deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria are met. The Company bills customers for extended warranties upon entering into the agreement with the customer, resulting in deferred revenue that is recognized over the period of the extended warranty contract. The Company recognizes revenue over time on contracts for the sale of large scale materials processing systems. The timing of customer payments on these contracts generally differs from the timing of revenue recognized. If revenue recognized exceeds customer payments, a contract asset is recorded and if customer payments exceed revenue recognized, a contract liability is recorded. Contract assets are included within prepaid expense and other current assets on the condensed consolidated balance sheets. Contract liabilities are included within accrued expenses and other current liabilities on the condensed consolidated balance sheets. Certain deferred revenues related to extended warranties in excess of one year from the balance sheet date are included within other long-term liabilities and deferred income taxes on the condensed consolidated balance sheets.

The following table reflects the changes in the Company's contract assets and liabilities for the six months ended June 30, 2024 and 2023:

During the three months ended June 30, 2024 and 2023 the Company recognized revenue of $12,716 and $14,431, respectively, that was included in contract liabilities at the beginning of each year. During the six months ended June 30, 2024 and 2023 the Company recognized revenue of $43,216 and $43,443 respectively, that was included in contract liabilities at the beginning of each year.

The following table represents the Company's remaining performance obligations from contracts that are recognized over time as of June 30, 2024:

(a)For the six-month period beginning July 1, 2024.

4. FAIR VALUE MEASUREMENTS

The Company's financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable, and revolving lines of credit.

The valuation techniques used to measure fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company classifies its financial instruments according to the prescribed criteria.

The fair value of money market fund deposits, cash equivalent term deposits, accounts receivable, accounts payable and drawings on revolving lines of credit is reasonably close to their carrying amounts due to the short maturity of most of these instruments or as a result of the competitive market interest rates, which have been negotiated. The fair value of the Company's commercial paper, corporate bonds, U.S. Treasury and agency obligations and term deposits are based on Level 2 inputs.

The following table presents fair value information related to the Company's assets and liabilities measured at amortized cost on the condensed consolidated balance sheets:

There wereno impairments for the investments considered held-to-maturity during the quarters ended June 30, 2024 and 2023. There wereno current expected credit loss allowances for the investments considered held-to-maturity at June 30, 2024 and 2023. The Company holds highly-rated held-to-maturity instruments that are within one year of maturity.

The following table presents the effective maturity dates of debt investments, which are held-to-maturity:

5. INVENTORIES

Inventories consist of the following:

The Company recorded inventory provisions totaling $14,009 and $11,218 for the three months ended June 30, 2024 and 2023, respectively, and $26,851 and $23,314 for the six months ended June 30, 2024 and 2023. These provisions relate to the recoverability of the value of inventories due to technological changes and excess quantities. These provisions are reported as a reduction to components and raw materials, work-in-process and finished goods.

6. GOODWILL AND INTANGIBLES

The following table sets forth the changes in the carrying amount of goodwill:

Intangible assets, subject to amortization, consisted of the following:

Amortization expense for the three months ended June 30, 2024 and 2023 was $1,377 and $2,021, respectively. Amortization expense for the six months ended June 30, 2024 and 2023 was $2,802 and $4,042, respectively. The estimated future amortization expense for intangibles for the remainder of 2024 and subsequent years is as follows:

(a) For the six-month period beginning July 1, 2024.

7. OTHER LIABILITIES

Accrued expenses and other current liabilities consist of the following:

Other long-term liabilities and deferred income taxes consist of the following:

8. PRODUCT WARRANTIES

The Company typically providesone tofive years parts and service warranties on lasers, laser and non-laser systems, and amplifiers. Most of the Company's sales offices provide support to customers in their respective geographic areas. Warranty reserves have generally been sufficient to cover product warranty repair and replacement costs.

Activity related to the warranty accrual was as follows:

Accrued warranty reported in the accompanying condensed consolidated financial statements as of June 30, 2024 and December 31, 2023 consist of $24,754 and $27,283 in accrued expenses and other current liabilities, respectively, and $16,320 and $19,926 in other long-term liabilities and deferred income taxes, respectively.

9. FINANCING ARRANGEMENTS

Revolving Line of Credit Facilities:

The Company maintains a $75,000 U.S. revolving line of credit, which is available to certain foreign subsidiaries and allows for borrowings in the local currencies of those subsidiaries. At June 30, 2024 and December 31, 2023, there wereno amounts drawn on the U.S. line-of-credit, and there were $2,153 and $2,487, respectively, of guarantees issued against the facility, which reduce the amount of the facility available to draw. After providing for the guarantees used, the remaining availability under this line was $72,847 at June 30, 2024. In addition, the Company maintains Euro lines of credit facilities with a total principal amount of €6,500 ($6,964 as of June 30, 2024), which are available to certain European subsidiaries.

10. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in legal disputes and other proceedings in the ordinary course of its business. These matters may include allegations of infringement of intellectual property, commercial disputes and employment matters. As of June 30, 2024 and through the filing date of these condensed consolidated financial statements, the Company is aware ofno ongoing legal proceedings that management estimates could have a material effect on the Company's Condensed Consolidated Financial Statements.

11. INCOME TAXES

The effective tax rates were 19.4% and 23.6% for the three months ended June 30, 2024 and 2023, respectively, and 24.5% and 25.7% for the six months ended June 30, 2024 and 2023 respectively. There was a net discrete tax benefit of $85 for the three months ended June 30, 2024 and a net discrete tax benefit of $1,751 for the three months ended June 30, 2023. There was a net discrete tax detriment of $1,912 for the six months ended June 30, 2024 and a net discrete tax detriment of $221 for the six months ended June 30, 2023. The detriment in 2024 and 2023 relates primarily to the increase in tax expense for equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes as well as reductions in tax reserves for the expiration of the statute of limitations and for agreements with tax authorities for prior year audits. Excluding discrete items, the overall effective tax rate in 2024 decreased as compared to 2023 due to an increase in US tax benefits and credits, as well as an increase in tax benefits from the use of foreign tax benefits that previously were offset by a full valuation allowance.

The Company accounts for its uncertain tax positions in accordance with the accounting standards for income taxes. The Company classifies interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The following is a summary of the activity of the Company’s unrecognized tax benefits for the six months ended June 30, 2024 and 2023:

The liability for uncertain tax benefits is included in other long-term liabilities and deferred income taxes at June 30, 2024 and December 31, 2023. Substantially all of the liability for uncertain tax benefits related to various federal, state and foreign income tax matters would benefit the Company's effective tax rate, if the tax benefits are recognized.

12. NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER COMMON SHARE

The following table sets forth the computation of diluted net income attributable to IPG Photonics Corporation per common share following the treasury stock method:

The computation of diluted weighted average common shares excludes common stock equivalents including non-qualified stock options, performance stock units ("PSUs"), restricted stock units ("RSUs") and employee stock purchase plan ("ESPP") because the effect of including them would be anti-dilutive. The weighted average anti-dilutive shares outstanding for the three and six months ended June 30, 2024 and 2023 were as follows:

On February 13, 2024, the Company announced that its Board of Directors has authorized the purchase of up to $300,000 of IPG common stock. This authorization is in addition to the Company's stock repurchase programs authorized in May 2023.

For the three months ended June 30, 2024, the Company repurchased 1,404,249 shares under the May 2023 authorization and February 2024 authorization with a weighted average price of $86.32 per share in the open market. For the six months ended June 30, 2024, the Company repurchased 2,362,174 shares under the May 2023 authorization and February 2024 authorization with a weighted average price of $88.92 per share in the open market. The impact on the reduction of weighted average shares for the three and six months ended June 30, 2024 was 662,348 shares and 1,028,573 shares, respectively. As of June 30, 2024, the Company has completed all the repurchases under the May 2023 authorization and up to $180,484 remains available under the February 2024 authorization.