IPG PHOTONICS CORP

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, 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.

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, we 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. In addition, we have ceased new investment in our Belarusian operations and have outsourced the supply laser cabinets and mechanical components that were supplied by that operation.We have sales and service offices and applications laboratories worldwide.

Previous 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.

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 Operations. At March 31, 2025, the remaining value of the long-lived assets in Belarus was $4.0 million. Net working capital excluding cash was $0.4 million and cash on hand was $2.2 million. The net asset value of our Belarus subsidiary has been reduced by $17.8 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 Operations.

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 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.

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 86% of our revenues for the first quarter of 2025, and 88% for the full fiscal year of 2024 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

We are also susceptible to global or regional disruptions such as political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, natural disasters and pandemics to the extent that they affect macroeconomic conditions, global supply chains or individual IPG locations.

Current wording

In recent years, our net sales and margins have been negatively impacted by tariffs and trade policy. New tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments. We are also susceptible to global or regional disruptions such as political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, natural disasters and pandemics to the extent that they affect macroeconomic conditions, global supply chains or individual IPG locations.

Previous wording

The secular shift to fiber laser technology in large materials processing applications, such as welding and cutting applications, had a positive effect on our sales trends in the past such that our sales trends were often better than other capital equipment manufacturers in both positive and negative economic cycles. As the secular shift to fiber laser technology matures in such applications, our sales trends are more susceptible to economic cycles, which can broadly affect the demand for capital equipment including machine tools and industrial lasers, and competition from other fiber laser manufacturers.

Current wording

The secular shift to fiber laser technology in large materials processing applications, such as welding and cutting applications, had a positive effect on our sales trends in the past such that our sales trends were often better than other capital equipment manufacturers in both positive and negative economic cycles. As the secular shift to fiber laser technology matures in such applications, our sales trends are more susceptible to economic cycles, which can broadly affect the demand for capital equipment including machine tools and industrial lasers, and competition from other fiber laser manufacturers. Additionally, as our technology matures, we become subject to more competition which can affect sales trends.

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 $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.

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 $9.5 million and $12.8 million for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Selling and general and administrative expenses. In the past, we invested in selling and general and administrative costs in order to support continued growth in the Company. As the secular shift to fiber laser technology matures, our sales growth becomes more susceptible to the cyclical trends typical of capital equipment manufacturers. Accordingly, our future management of and investments in selling and general and administrative expenses will also be influenced by these trends, although we may still invest in selling or general and administrative functions to support certain initiatives even in economic down cycles. Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter based primarily upon the level of acquisitions, litigation and project related consulting expenses.

Current wording

Selling and general and administrative expenses. In the past, we invested in selling and general and administrative costs in order to support continued growth in the Company. As the secular shift to fiber laser technology matures, our sales growth becomes more susceptible to the cyclical trends typical of capital equipment manufacturers. Accordingly, our future management of and investments in selling and general and administrative expenses will also be influenced by these trends, although we may still invest in selling or general and administrative functions to support certain initiatives even in economic down cycles. Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter based primarily upon the level of acquisitions, litigation and project-related consulting expenses. Additionally, selling and general and administrative expenses will also be influenced by accruals for variable compensation and performance stock unit expense both of which are dependent upon our performance relative to preestablished targets.

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 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.

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 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, 2025, 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 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.

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 14% for the three months ended March 31, 2025 and 13%, and 13% for the full years 2024 and 2023, respectively. One of our customers accounted for 16% and 12% of our net accounts receivable as of March 31, 2025 and December 31, 2024, 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 $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.

Current wording

Net sales. Net sales decreased by $24.2 million, or 9.6%, to $227.8 million for the three months ended March 31, 2025 from $252.0 million for the three months ended March 31, 2024.

Previous 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.

Current wording

Cost of sales and gross margin. Cost of sales decreased by $16.5 million, or 10.7%, to $138.0 million for the three months ended March 31, 2025 from $154.5 million for the three months ended March 31, 2024. Our gross margin increased to 39.4% for the three months ended March 31, 2025 from 38.7% for the three months ended March 31, 2024. The increase in gross margin was driven primarily by decreased provisions for excess and obsolete inventory and a decrease in unabsorbed manufacturing costs, partially offset by higher product costs, as a percentage of sales.

Previous 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.

Current wording

Sales and marketing expense. Sales and marketing expense increased by $1.4 million, or 6.1%, to $24.4 million for the three months ended March 31, 2025 from $23.0 million for the three months ended March 31, 2024. The increase is due to increases in personnel and related expenses as well as in depreciation and amortization expense. As a percentage of sales, sales and marketing expense increased to 10.7% from 9.1% for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

Research and development expense. Research and development expense decreased by $1.1 million, or 3.7%, to $28.3 million for the three months ended March 31, 2025, compared to $29.4 million for the three months ended March 31, 2024. The decrease is due to a gain on lease termination as well as a decrease in personnel and related expenses. The decrease in personnel and related expenses was partly attributed to the disposal of our Russian operations. As a percentage of sales, research and development expense increased to 12.4% from 11.7% for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

General and administrative expense. General and administrative expense increased by $1.6 million, or 5.1%, to $32.8 million for the three months ended March 31, 2025 from $31.2 million for the three months ended March 31, 2024. The increase was due to increases in personnel and related expenses and bad debt provision, partially offset by decreases in premises costs and information systems. As a percentage of sales, general and administrative expense increased to 14.4% from 12.4% for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

Gain on sale of assets. There was no gain on sale of assets for the three months ended March 31, 2025. 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.

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 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.

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, Japanese yen 148 and Chinese yuan 7.17, respectively, we estimate that net sales for the three months ended March 31, 2025 would have been $4.6 million higher, gross profit would have been $2.0 million higher and total sales and marketing, research and development, and general and administrative expenses would have been $1.1 million higher.

Previous 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.

Current wording

Loss on foreign exchange. We incurred a foreign exchange transaction loss of $2.4 million for the three months ended March 31, 2025 as compared to a $1.7 million loss for the three months ended March 31, 2024. 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.

Previous 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.

Current wording

Interest income, net. Interest income, net was $7.4 million for the three months ended March 31, 2025 as compared to $14.2 million of income for three months ended March 31, 2024. The change in interest income, net was due to lower weighted average interest rates across our investment portfolio and geographic mix in the current period as compared to the prior year.

Previous 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.

Current wording

The decrease in tax expense was primarily due to lower Income before provision for income taxes for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This decrease was partially offset by an increase in discrete tax expense items for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Previous 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.

Current wording

Net income. Net income decreased by $20.3 million to a net income of $3.8 million for the three months ended March 31, 2025 compared to a net income of $24.1 million for the three months ended March 31, 2024 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 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.

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, assess acquisition opportunities, repurchase shares of our stock in accordance with our repurchase program, carry out research and development and invest in resources to strengthen our organization. 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 and tariffs, 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 March 31, 2025, 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 $5.8 million of cash located in Belarus, as of September 30, 2024.

Current wording

Included in cash and cash equivalents is $2.2 million of cash located in Belarus, as of March 31, 2025.

Previous wording

(1) This facility is available to certain foreign subsidiaries in their respective local currencies. At September 30, 2024, there were no amounts drawn on this line; however, there were $1.9 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 March 31, 2025, there were no amounts drawn on this line; however, there were $2.1 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 September 30, 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 March 31, 2025, there were no amounts drawn on this line; however, there were $1.5 million of guarantees issued against the line which reduces total availability.

Previous wording

At September 30, 2024, our committed credit line is with Bank of America N.A. in the amount of $75.0 million and it is not syndicated. We are required to meet certain financial covenants associated with this credit line. These covenants, tested quarterly, include an interest coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio. The interest coverage covenant requires that we maintain a trailing twelve-month ratio of EBITDA to interest on all obligations that is at least 3.0:1.0. The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis be less than three times our trailing twelve months EBITDA. Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S.A. in excess of $50 million up to a maximum of $500 million. We were in compliance with all such financial covenants as of and for the three months ended September 30, 2024.

Current wording

At March 31, 2025, our committed credit line is with Bank of America N.A. in the amount of $75.0 million, which is not syndicated. On April 4, 2025, we amended the U.S. revolving line of credit with Bank of America N.A., extending its maturity through June 2025. We are in the process of negotiating a new credit facility. We are required to meet certain financial covenants associated with this credit line. These covenants, tested quarterly, include an interest coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio. The interest coverage covenant requires that we maintain a trailing twelve-month ratio of EBITDA to interest on all obligations that is at least 3.0:1.0. The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis be less than three times our trailing twelve months EBITDA. Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S.A. in excess of $50 million up to a maximum of $500 million. We were in compliance with all such financial covenants as of and for the three months ended March 31, 2025.

Previous wording

Operating activities. Net cash provided by operating activities decreased by $15.8 million to $174.1 million for the nine months ended September 30, 2024 from $189.9 million for the nine months ended September 30, 2023, primarily due to a decrease in sales, partially offset by 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 decrease in cash flow from operating activities in 2024 primarily resulted from:

Current wording

Operating activities. Net cash provided by operating activities decreased by $41.2 million to $13.4 million for the three months ended March 31, 2025 from $54.6 million for the three months ended March 31, 2024, primarily due to an increase in cash used by working capital and a decrease in cash provided by net income after adding back non-cash expenses. 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 decrease in cash flow from operating activities in first quarter of 2025 when compared to the first quarter of 2024 primarily resulted from:

Previous 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 our transition tax liability from the Tax Reform Act of 2017.

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;

Previous wording

•a decrease in cash provided by net income after adjusting for non-cash operating activities, mainly due to lower sales; and

Current wording

•a decrease in cash provided by net income after adjusting for non-cash operating activities, mainly due to lower revenues.

Previous wording

The decreases in cash provided by operating activities were partially offset by:

Current wording

The decreases in cash provided by operating activities in the first quarter of 2025 when compared to the first quarter of 2024 were partially offset by:

Previous wording

•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

Current wording

•a decrease in cash used by accrued expenses and other liabilities due to an increase in cash provided by customer deposits, a decrease in cash used for personnel and earn-out accruals, an increase in cash provided by deferred revenue and timing of billings in excess of costs and estimated earnings on custom systems, partially offset by an increase in cash used by lease liabilities;

Previous wording

•an increase in cash provided by accounts payable due to timing of payments;

Current wording

•an increase in cash provided by accounts payable due to timing of payments; and

Previous wording

Investing activities. Net cash provided by investing activities was $471.3 million for the nine months ended September 30, 2024 as compared to cash used in investing activities of $163.0 million in 2023. The cash provided by investing activities in 2024 related to $543.0 million of net proceeds of short-term investments and $28.5 million of cash provided by sales of property, plant and equipment; partially offset by $75.4 million of cash used for capital expenditures, and $25.3 million of net cash outflow from the divestiture of our Russian operation. The cash proceeds from the sale of our Russian operation were lower than the cash and cash equivalents on hand, resulting in a cash outflow from divestiture. The cash used in investing activities in 2023 related to $108.6 million of net purchases of short-term investments and $85.3 million of cash used for capital expenditures; partially offset by $30.4 million of cash provided by sales of property, plant and equipment.

Current wording

Investing activities. Net cash used in investing activities was $274.4 million for the three months ended March 31, 2025 as compared to cash provided by investing activities of $23.7 million in 2024. The cash used in investing activities in 2025 related to $249.8 million of net purchases of short-term investments and $24.8 million of cash used for capital expenditures. 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.

Previous wording

Financing activities. Net cash used in financing activities was $284.6 million for the nine months ended September 30, 2024 as compared to net cash used of $176.0 million in 2023. The cash used in financing activities in 2024 primarily related to the purchase of treasury stock of $286.5 million. The cash used in financing activities in 2023 primarily related to the purchase of treasury stock of $159.5 million and principal payments on our long-term borrowings of $16.0 million.

Current wording

Financing activities. Net cash used in financing activities was $5.7 million for the three months ended March 31, 2025 as compared to net cash used of $90.8 million in 2024. The cash used in financing activities in 2025 primarily related to the net cash outflow of $5.8 million from amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units. The cash used in financing activities in 2024 primarily related to the purchase of treasury stock of $89.6 million.

Previous wording

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to accurately predict and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 1, "Business" and Item 1A, "Risk Factors" of Part I of the Form 10-K filed with the SEC for the year ended December 31, 2023 (the "Annual Report"). Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to rely on such forward-looking information. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Current wording

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to accurately predict and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 1, "Business" and Item 1A, "Risk Factors" of Part I of the Form 10-K filed with the SEC for the year ended December 31, 2024 (the "Annual Report") and in Item 1A, "Risk Factors" of Part II of this Quarterly Report. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to rely on such forward-looking information. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.