IPG PHOTONICS CORP
For the period ended Sep 30, 2024. Filed Oct 29, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 29, 2024
IPGP$65.31+5.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-07-30.
0001111928-24-000122
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-29.
0001111928-24-000135
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 119 previous paragraphs and 118 current paragraphs.
57 unchanged; 50 reworded; 11 added; 10 removed; 2 previous and 0 current paragraphs rearranged.
Tables are not compared: 7 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (11)
Current report
Sale of our Russian Operations. On August 29, 2024, we completed the sale of our Russian subsidiary, Scientific and Technical Association “IRE-Polus”, pursuant to a share purchase agreement with a purchaser entity associated with Softline Projects LLC and existing management of IRE-Polus for $51.1 million. We recorded a loss on divestiture of $197.7 million for the quarter ended September 30, 2024, which was included in Net loss from divestiture and sale of assets in our Condensed Consolidated Statements of Income. The loss included $59.3 million related to the carrying value of net assets of our Russian subsidiary that was in excess of net proceeds received on the sale. Included in the net assets sold was cash and cash equivalents of $74.0 million. Also included in the loss was $135.3 million related to the cumulative translation adjustment component of other comprehensive income that was previously included in Stockholders' equity of our Condensed Consolidated Balance Sheets. As a result of the Russia-Ukraine conflict and related sanctions, our ability to ship and receive components from our Russian operations was significantly curtailed. In response, we expanded our manufacturing capacity in Germany, the United States and Italy, and added new manufacturing capacity in Poland which effectively offset our inability to utilize the Russian operations.
Current report
We continue to review our operations in Belarus including potential strategic alternatives. We have qualified third party vendors to supply components previously supplied from Belarus and have begun purchasing from them. Our Board of Directors monitors and continues to assess risks associated with our Belarusian operations.
Current report
As noted above, we recorded $26.6 million impairment of long-lived assets included in Impairment of long-lived assets in our Condensed Consolidated Statements of Income. After impairment, the remaining carrying value of the long-lived assets in Belarus is $3.8 million.
Current report
Net loss from divestiture and sale of assets. During the three months ended September 30, 2024, we divested our Russia operations for $51.1 million. The divestiture resulted in a loss of $197.7 million.
Current report
Impairment of long-lived assets. During the three months ended September 30, 2024, we completed an impairment analysis of the assets in Belarus as a result of new EU sanctions that will limit our ability to supply laser cabinets and other mechanical components from our factory in Belarus. We recorded $26.6 million of impairment of long-lived assets.
Current report
Results of Operations for the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Current report
•Other revenue for materials processing decreased due to lower sales of accessories and parts and service.
Current report
Impairment of long-lived assets. During the nine months ended September 30, 2024, we completed an impairment analysis of the assets in Belarus as a result of new EU sanctions that will limit our ability to supply laser cabinets and other mechanical components from our factory in Belarus. We recorded $26.6 million of impairment of long-lived asset.
Current report
Provision for income taxes. Provision for income taxes was $5.4 million for the nine months ended September 30, 2024 compared to $55.3 million for the nine months ended September 30, 2023. There was tax expense provided on the Loss before provision for income taxes for thenine months ended September 30, 2024. The effective tax rate was 23.8% for thenine months ended September 30, 2023. The decrease in tax expense was primarily due to a decrease of income before provision for income taxes for thenine months ended September 30, 2024 as compared to thenine months ended September 30, 2023. There was a tax detriment of $41.5 million primarily from the loss on divestiture of Russian operations for the nine months ended
Current report
September 30, 2024. The other discrete tax items for thenine months ended September 30, 2024 were $1.4 million tax detriment primarily related to the increase in tax expense for equity-based compensation which was partially offset by the reductions in tax reserves. Thediscrete detriment for the nine months ended September 2023 did not have a significant effect on our tax rate.
Current report
•a decrease in cash used by accrued expenses and other liabilities due to timing of billings in excess of costs and estimated earnings on custom systems and less cash used for personnel accruals, partially offset by an increase in cash used by customer deposits and deferred revenue due to lower sales; and
Removed paragraphs (10)
Previous report
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 report
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 report
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 report
We evaluated the recoverability of certain assets located in Russia during the fourth quarter of 2022 and incurred impairment charges that reduced the value of fixed assets, inventory and other current assets. We also incurred restructuring charges in 2022 and 2023. As of December 31, 2023, we have substantially completed the restructuring program in Russia.
Previous report
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 report
Our Board of Directors has been monitoring and continues to assess and monitor risks to our business associated with the Russia-Ukraine conflict and our Russian and Belarus operations. Our Directors request and receive management reports from management regarding our Russian and Belarus operations, contingency planning and execution, and impacts on our business at
Previous report
its quarterly and special meetings.
Previous report
Results of Operations for the Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Previous report
•QCW laser sales increased due to higher demand in welding for consumer electronics and e-mobility applications.
Previous report
Provision for income taxes. Provision for income taxes was $14.4 million for the six months ended June 30, 2024 compared to $42.4 million for the six months ended June 30, 2023, representing an effective tax rate of 24.5% and 25.7% for the six 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 was a net discrete tax detriment of $1.9 million and a net discrete tax detriment of $0.2 million for the six months ended June 30, 2024 and 2023, respectively. In both years, the detriment related to the tax impact from tax deductions for stock-based compensation that were less than the compensation expense recognized for books; this detriment was substantially offset by 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.
Reworded paragraphs (50)
Previous wording
We develop, manufacture and sell high-performance fiber lasers and diode lasers that are used for diverse applications, primarily in materials processing. We also manufacture and sell complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers. In addition, we offer laser-based and non-laser based systems for certain markets and applications. Our portfolio of laser solutions is used in materials processing, medical, advanced applications and communications. We sell our products globally to original equipment manufacturers ("OEMs"), system integrators and end users. We market our products internationally, primarily through our direct sales force. Our major manufacturing facilities are located in the United States and Germany. In response to the risks from the Russia-Ukraine conflict, we have substantially reduced our reliance on our Russian operations, and have ceased new investments in our Russian and Belarus operations. We have and will continue to expand our manufacturing operations in Germany and the United States, and have added manufacturing capacity in Poland and expanded capacity in Italy to meet the demand for our products and our sales and support needs. We have sales and service offices and applications laboratories worldwide.
Current wording
We develop, manufacture and sell high-performance fiber lasers and diode lasers that are used for diverse applications, primarily in materials processing. We also manufacture and sell complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers. In addition, we offer laser-based and non-laser based systems for certain markets and applications. Our portfolio of laser solutions is used in materials processing, medical, and advanced applications. We sell our products globally to original equipment manufacturers ("OEMs"), system integrators and end users. We market our products internationally, primarily through our direct sales force. Our major manufacturing facilities are located in the United States and Germany. In response to the risks from the Russia-Ukraine conflict, have ceased new investment in our Belarusian operations and expanded our manufacturing operations in Germany, the United States and Italy, and have added manufacturing capacity in Poland to meet the demand for our products and our sales and support needs. We have sales and service offices and applications laboratories worldwide.
Previous 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.
Current wording
Belarusian Operations. We manufacture laser cabinets and other mechanical components in Belarus. In response to the Russia-Ukraine conflict, the EU issued additional sanctions impacting commerce with Belarus on June 29, 2024, which restricted the supply of laser cabinets and other mechanical components from our factory in Belarus to our Germany operations after October 2, 2024. As a result of the sanctions and their impact on our Belarus operations, we completed an impairment analysis of our Belarus assets during the third quarter of 2024 and recorded $26.6 million of impairment of long-lived asset in our Condensed Consolidated Statements of Income. At September 30, 2024, the remaining value of the long-lived assets in Belarus was $3.8 million, net working capital excluding cash was $0.4 million and cash was $5.8 million. The net asset value of our Belarus subsidiary has been reduced by $17.9 million due to the cumulative translation effect of the Belarusian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. We may incur additional asset impairment charges related to the Belarus operations and the other comprehensive loss that is currently in the equity section of our condensed consolidated balance sheets could be charged to our condensed consolidated statements of income.
Previous wording
Supply Chain. Because of disruptions to our supply chain caused by the COVID-19 pandemic and Russia-Ukraine related sanctions, we increased our inventory safety stocks and placed non-cancellable orders for long lead time items. These caused our inventory levels and our days inventory on hand to increase. Our ability to reduce inventory will depend on sales volume and demand for the items we have on stock. If inventory on hand becomes excess or obsolete, our inventory reserves may increase. We may also be affected by changes in freight costs as a result of other global supply chain disruptions that may occur from time to time.
Current wording
Supply chain and inventory balances. Because of disruptions to our supply chain caused by the COVID-19 pandemic and Russia-Ukraine related sanctions, we increased our inventory safety stocks and placed non-cancellable orders for long lead time items. These caused our inventory levels and our days inventory on hand to increase. During the third quarter of 2024, we undertook an analysis of the safety stock and recorded additional provisions for excess inventory reserves of approximately $20.7 million. In addition, we recorded $8.8 million of inventory reserves related to inventory that became obsolete due to the launch of new components.
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 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.
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 three quarters 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
In response to inflation in recent years, some global central banks have adopted less accommodating monetary policy and have increased benchmark interest rates in several major global economies. The increase in interest rates is intended to dampen demand that could lead to regional or global recession that may reduce demand for our products. In addition, an increase in interest rates would increase the cost of equipment financed with leases or debt. If inflation starts to moderate in 2024, global central banks may adopt more accommodating monetary policy and reduce benchmark interest rates.
Current wording
In response to inflation in recent years, some global central banks have adopted less accommodating monetary policy and have increased benchmark interest rates in several major global economies. The increase in interest rates is intended to dampen demand that could lead to regional or global recession that may reduce demand for our products. In addition, an increase in interest rates would increase the cost of equipment financed with leases or debt. As we start to see inflation moderate in the second half of 2024, global central banks may adopt more accommodating monetary policy and reduce benchmark interest rates.
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 $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.
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 $43.4 million and $9.1 million for the three months ended September 30, 2024 and 2023, respectively, and $70.3 million and $32.4 million for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024, we recorded additional inventory provisions of $29.5 million attributed to items previously considered safety stock and items that became technologically obsolete.
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 $30.9 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.
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.
Previous 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.
Current 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 September 30, 2024, the foreign exchange loss was primarily attributed to the appreciation of the euro as compared to the U.S. dollar. Our European subsidiaries have certain net assets 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 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.
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 12% for the nine months ended September 30, 2024 and 13%, and 15% for the full years 2023 and 2022, respectively. One of our customers accounted for 14% of our net accounts receivable as of both September 30, 2024 and December 31, 2023. 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 $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.
Current wording
Net sales. Net sales decreased by $68.3 million, or 22.6%, to $233.1 million for the three months ended September 30, 2024 from $301.4 million for the three months ended September 30, 2023.
Previous 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.
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, laser and non-laser systems and other laser products and services.
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 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.
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 primarily in Europe and the U.S., increased competition from Chinese fiber laser suppliers and inventory management by OEM customers, while welding applications were primarily impacted by a delay in e-mobility investments in China and soft general industrial demand in Europe.
Previous wording
•Pulsed laser sales, including high power pulsed lasers, decreased due to lower demand for foil cutting and solar cell manufacturing applications.
Current wording
•Pulsed laser sales, including high power pulsed lasers, decreased due to lower demand for foil cutting and cleaning and stripping applications.
Previous wording
•Laser and non-laser systems sales increased driven by higher demand for LightWELD and other laser systems.
Current wording
•Laser and non-laser systems sales decreased, partially offset by higher demand for LightWELD systems.
Previous wording
Sales from other applications decreased due to decreased sales in medical procedures and advanced applications.
Current wording
Sales from other applications decreased due to decreased demand for lasers used in medical procedures and advanced applications.
Previous 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.
Current wording
Cost of sales and gross margin. Cost of sales increased by $10.6 million, or 6.3%, to $179.1 million for the three months ended September 30, 2024 from $168.5 million for the three months ended September 30, 2023. Our gross margin decreased to 23.2% for the three months ended September 30, 2024 from 44.1% for the three months ended September 30, 2023. The decrease in gross margin was driven primarily by increased provisions for excess and obsolete inventory. For the three months ended September 30, 2024, we recorded additional inventory provisions of $29.5 million attributed to items previously considered safety stock and items that became technologically obsolete. In addition to provisions for inventory reserves, gross margin declined due to an increase in unabsorbed manufacturing costs, partially offset by a decrease in shipping costs and tariffs, as a percentage of sales.
Previous 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.
Current wording
Sales and marketing expense. Sales and marketing expense were $22.2 million for both the three months ended September 30, 2024 and the three months ended September 30, 2023. Increases in personnel and related expenses were fully offset by reductions in depreciation and amortization expense. As a percentage of sales, sales and marketing expense increased to 9.5% from 7.4% for the three months ended September 30, 2024 and 2023, respectively.
Previous wording
Research and development expense. Research and development expense increased by $10.6 million, or 22.9%, to $56.9 million for the six months ended June 30, 2024, compared to $46.3 million for the six 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 11.2% from 6.7% for the six months ended June 30, 2024 and 2023, respectively.
Current wording
Research and development expense. Research and development expense increased by $2.5 million, or 10.1%, to $27.2 million for the three months ended September 30, 2024, compared to $24.7 million for the three months ended September 30, 2023. The increase is due to an increase in personnel and related expenses as well as an increase in premises expense. As a percentage of sales, research and development expense increased to 11.7% from 8.2% for the three months ended September 30, 2024 and 2023, respectively.
Previous 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.
Current wording
General and administrative expense. General and administrative expense increased by $1.7 million, or 5.5%, to $32.7 million for the three months ended September 30, 2024 from $31.0 million for the three months ended September 30, 2023. The increase was due to increases in personnel and related expenses and bad debt provision. As a percentage of sales, general and administrative expense increased to 14.0% from 10.3% for the three months ended September 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 0.92, 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.
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 94, Japanese yen 145 and Chinese yuan 7.24, respectively, we estimate that net sales for the three months ended September 30, 2024 would have been $0.5 million lower, gross profit would have been $0.7 million higher and total sales and marketing, research and development, and general and administrative expenses would have been $0.1 million lower.
Previous 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.
Current wording
Loss on foreign exchange. We incurred a foreign exchange transaction loss of $1.1 million for the three months ended September 30, 2024 as compared to a $0.4 million gain for the three months ended September 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 September 30, 2024 was primarily attributable to an appreciation of the euro as compared to the U.S. dollar.
Previous 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.
Current wording
Interest income, net. Interest income, net was $11.1 million for the three months ended September 30, 2024 as compared to $11.6 million of income for three months ended September 30, 2023. The change in interest income, net was due to holding fewer short term investments in the current period as compared to the prior year.
Previous 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.
Current wording
Provision for income taxes. Provision for income taxes was $8.9 million benefit for the three months ended September 30, 2024 compared to $12.8 million expense for the three months ended September 30, 2023. The effective tax rates were 3.7% and 18.9% for the three months ended September 30, 2024 and 2023, respectively. The decrease in tax expense was primarily due to a decrease of income before provision for income taxes for thethree months ended September 30, 2024 as compared to the three months ended September 30, 2023. There was a net discrete tax detriment for the three months ended September 30, 2024 related primarily to $41.5 million losses not benefitted from the loss on divestiture of the Russian operations. The other discrete tax items for the three months ended September 30, 2024 did not have a significant effect on our tax rate. The discrete detriment for the three months ended September 30, 2023 did not have a significant effect on our tax rate.
Previous 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.
Current wording
Net (loss) income attributable to IPG Photonics Corporation. Net (loss) income attributable to IPG Photonics Corporation decreased by $288.6 million to a net loss of $233.6 million for the three months ended September 30, 2024 compared to a net income of $55.0 million for the three months ended September 30, 2023 due to the factors described above.
Previous wording
Net sales. Net sales decreased by $177.4 million, or 25.8% to $509.7 million for the six months ended June 30, 2024 from $687.1 million for the six months ended June 30, 2023.
Current wording
Net sales. Net sales decreased by $245.7 million, or 24.9% to $742.8 million for the nine months ended September 30, 2024 from $988.5 million for the nine months ended September 30, 2023.
Previous wording
Sales for materials processing applications decreased due to decreases in sales of high power CW lasers, medium power CW lasers, pulsed lasers, laser and non-laser systems and other laser products and service, partially offset by higher sales of QCW lasers.
Current wording
Sales for materials processing applications decreased due to decreases in sales of high power CW lasers, medium power CW lasers, pulsed lasers, laser and non-laser systems and other laser products and service.
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 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.
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 primarily in Europe and the U.S., increased competition from Chinese fiber laser suppliers and inventory management by OEM customers, while welding application was primarily impacted by a delay in e-mobility investments.
Previous wording
•Pulsed laser sales decreased due to lower demand in solar cell manufacturing applications and foil cutting applications, as well as a decrease in sales for marking and engraving applications.
Current wording
•Pulsed laser sales decreased due to lower demand in micro material processing applications and foil cutting applications.
Previous wording
Sales from other applications increased driven by increased demand for lasers used in medical procedures and advanced applications.
Current wording
Sales from other applications decreased due to decreased demand for lasers used in medical procedures and advanced applications.
Previous wording
Cost of sales and gross margin. Cost of sales decreased by $76.6 million, or 19.5%, to $315.9 million for the six months ended June 30, 2024 from $392.5 million for the six months ended June 30, 2023. Our gross margin decreased to 38.0% for the six months ended June 30, 2024 from 42.9% for the six months ended June 30, 2023. Gross margin decreased mainly 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.
Current wording
Cost of sales and gross margin. Cost of sales decreased by $66.0 million, or 11.8%, to $495.0 million for the nine months ended September 30, 2024 from $561.0 million for the nine months ended September 30, 2023. Our gross margin decreased to 33.4% for the nine months ended September 30, 2024 from 43.2% for the nine months ended September 30, 2023. Gross margin decreased mainly driven by increased provisions for excess and obsolete inventory. For the nine months ended September 30, 2024, we recorded additional inventory provisions of $29.5 million attributed to items previously considered safety stock and items that became technologically obsolete. In addition to provisions for inventory reserves, gross margin declined due to an increase in unabsorbed manufacturing costs, partially offset by a decrease in shipping costs and tariffs, as a percentage of sales.
Previous wording
Sales and marketing expense. Sales and marketing expense increased by $4.2 million, or 10.2%, to $45.5 million for the six months ended June 30, 2024 compared with $41.3 million for the six months ended June 30, 2023. The increase is due to higher personnel and related costs, partially offset by lower depreciation and amortization expenses. As a percentage of sales, sales and marketing expense increased to 8.9% from 6.0% for the six months ended June 30, 2024 and 2023, respectively.
Current wording
Sales and marketing expense. Sales and marketing expense increased by $4.2 million, or 6.6%, to $67.7 million for the nine months ended September 30, 2024 compared with $63.5 million for the nine months ended September 30, 2023. The increase is due to higher personnel and related expenses and premises expenses, partially offset by lower depreciation and amortization expenses. As a percentage of sales, sales and marketing expense increased to 9.1% from 6.4% for the nine months ended September 30, 2024 and 2023, respectively.
Previous 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.
Current wording
Research and development expense. Research and development expense increased by $13.0 million, or 18.3%, to $84.0 million for the nine months ended September 30, 2024, compared to $71.0 million for the nine months ended September 30, 2023. The increase is due to higher personnel and related expenses and premises expenses. As a percentage of sales, research and development expense increased to 11.3% from 7.2% for the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
General and administrative expense. General and administrative expense increased by $3.0 million, or 5.0%, to $62.8 million for the six months ended June 30, 2024 from $59.8 million for the six months ended June 30, 2023, primarily as a result of increases in consultant, legal, information system, and premises costs, partially offset by a decrease in personnel and related costs. As a percentage of sales, general and administrative expense increased to 12.3% from 8.7% for the six months ended June 30, 2024 and 2023, respectively.
Current wording
General and administrative expense. General and administrative expense increased by $4.7 million, or 5.2%, to $95.4 million for the nine months ended September 30, 2024 from $90.7 million for the nine months ended September 30, 2023, primarily as a result of increases in consultant, legal, and information system expenses. As a percentage of sales, general and administrative expense increased to 12.8% from 9.2% for the nine months ended September 30, 2024 and 2023, respectively.
Previous 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.
Current wording
Net loss from divestiture and sale of assets. During the nine months ended September 30, 2024 we incurred a net loss of $190.2 million. The loss was primarily related to the divestiture of our Russian operations for $197.7 million, partially offset by a gain on sale of assets of $7.5 million related to the sales of a building and land in the U.S. and a building in the U.K.
Previous wording
Effect of exchange rates on net sales, gross profit and operating expenses. We estimate that, 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 77, Japanese yen 135 and Chinese yuan 6.93, respectively, we would have expected net sales for the six months ended June 30, 2024 to be $13.7 million higher, gross profit to be $7.5 million higher and total operating expenses would have been $3.2 million higher.
Current wording
Effect of exchange rates on net sales, gross profit and operating expenses. We estimate that, 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 83, Japanese yen 138 and Chinese yuan 7.03, respectively, we would have expected net sales for the nine months ended September 30, 2024 to be $13.2 million higher, gross profit to be $8.2 million higher and total sales and marketing, research and development, and general and administrative expenses would have been $2.9 million higher.
Previous wording
Loss on foreign exchange. We incurred a foreign exchange transaction loss of $4.9 million for the six months ended June 30, 2024 as compared to a gain of $1.3 million for the six months ended June 30, 2023. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Asian subsidiaries have certain net liabilities denominated in U.S. dollars. The loss for the six months ended June 30, 2024 was primarily attributable to loss from the depreciation of the Chinese yuan and the Korean won, as compared to the U.S. dollar.
Current wording
Loss on foreign exchange. We incurred a foreign exchange transaction loss of $6.1 million for the nine months ended September 30, 2024 as compared to a gain of $1.8 million for the nine months ended September 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 loss for the nine months ended September 30, 2024 was primarily attributable to loss from the depreciation of the Chinese yuan for most of the year and appreciation of the euro, as compared to the U.S. dollar.
Previous wording
Interest income, net. Interest income, net, was $27.0 million for the six months ended June 30, 2024 as compared to $16.8 million of income for the six months ended June 30, 2023. The increase 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 $38.1 million for the nine months ended September 30, 2024 as compared to $28.4 million of income for the nine months ended September 30, 2023. The increase 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
Net income attributable to IPG Photonics Corporation. Net income attributable to IPG Photonics Corporation decreased by $78.2 million to $44.3 million for the six months ended June 30, 2024 compared to $122.5 million for the six months ended June 30, 2023. Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 9.1 percentage point to 8.7% from 17.8% for the six months ended June 30, 2024 and 2023, respectively, due to the factors described above.
Current wording
Net (loss) income attributable to IPG Photonics Corporation. Net (loss) income attributable to IPG Photonics Corporation decreased by $366.8 million to a net loss of $189.3 million for the nine months ended September 30, 2024 compared to a net income of $177.5 million for the nine months ended September 30, 2023, due to the factors described above.
Previous 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.
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 and Belarus. As of September 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 $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.
Current wording
Included in cash and cash equivalents are $5.8 million of cash located in Belarus, as of September 30, 2024.
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Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
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 report — wording carried elsewhere
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