IPG PHOTONICS CORP

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by IPG Photonics Corporation, or "IPG", "its" or the "Company". Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Condensed Consolidated Financial Statements include the Company's accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

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

Change in Accounting Estimate — During the fourth quarter of 2024, the Company completed an assessment of the useful lives of certain machinery and equipment, resulting in a change in the upper end of the range for these assets from 7 years to 10 years based upon the Company's experience of historical usage. The change in estimate resulted in a decrease of depreciation expense reflected in the Company's Condensed Consolidated Statements of Operations. As a result of this change, Operating income increased approximately $900 and $1,800 for the three and six months ended June 30, 2025, respectively, Net income increased approximately $700 and $1,400 for the three and six months ended June 30, 2025, respectively and diluted net income per common share increased approximately $0.02 and $0.03 for the three and six months ended June 30, 2025, respectively.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted Pronouncement — In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis. Under the new guidance an entity is required to disclose the title and position of the chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU also requires that an entity that has a single reportable segment provide all the disclosures required by this ASU and all existing segment disclosures in Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has adopted ASU 2023-07. Refer to Note 15, "Segment Reporting."

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

In November 2024, the FASB issued ASU No. 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Aggregation Disclosures (Subtopic 220-40)" ("ASU 2024-03"), which requires more detailed disaggregated disclosure of income statement expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The Company is evaluating the impact of this ASU and does not expect that this standard will have a material impact on the Company's disclosures.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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

One of the Company's customers accounted for 15% and 12% of the Company's net accounts receivable as of June 30, 2025 and December 31, 2024, respectively.

The Company recognizes revenue over time on contracts for the sale of large scale materials processing systems. The timing of customer payments on these contracts generally differs from the timing of revenue recognized. If revenue recognized exceeds customer payments, a contract asset is recorded and if customer payments exceed revenue recognized, a contract liability is recorded. Contract assets are included within prepaid expense and other current assets on the Condensed Consolidated Balance Sheets. Contract liabilities are included within accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. Certain deferred revenues related to extended warranties in excess of one year from the balance sheet date are included within other long-term liabilities and deferred income taxes on the Condensed Consolidated Balance Sheets.

The following table reflects the changes in the Company's contract assets and liabilities for the six months ended June 30, 2025 and 2024:

During the three months ended June 30, 2025 and 2024, the Company recognized revenue of $12,825 and $12,716, respectively, that was included in contract liabilities at the beginning of each year. During the six months ended June 30, 2025 and 2024, the Company recognized revenue of $34,039 and $43,216 respectively, that was included in contract liabilities at the beginning of each year.

The following table represents the Company's remaining performance obligations from contracts that are recognized over time as of June 30, 2025:

(a)For the six-month period beginning July 1, 2025.

4. FAIR VALUE MEASUREMENTS

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

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

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

The following table presents fair value information related to the Company's assets and liabilities measured at amortized cost on the Condensed Consolidated Balance Sheets:

There wereno impairments for the investments considered held-to-maturity during the quarters ended June 30, 2025 and 2024. There wereno current expected credit loss allowances for the investments considered held-to-maturity at June 30, 2025 and 2024. The Company holds highly-rated held-to-maturity instruments that are within one year of maturity.

The Company did not have any allowance for credit losses other than the allowance for uncollectible accounts receivable. As of June 30, 2025 and December 31, 2024, the allowance for credit losses on trade receivables was $2,957 and $2,462, respectively.

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

5. INVENTORIES

Inventories consist of the following:

The Company recorded inventory provisions totaling $7,839 and $14,009 for the three months ended June 30, 2025 and 2024, respectively, and $17,309 and $26,851 for the six months ended June 30, 2025 and 2024 respectively. These provisions relate to the recoverability of the value of inventories due to technological changes and excess quantities, and are reported as a reduction to components and raw materials, work-in-process and finished goods.

6. BUSINESS COMBINATION

During the fourth quarter of 2024, the Company acquired 100% of the shares of Clean‐Lasersysteme GmbH ("cleanLASER") a leader in laser cleaning systems for $66,738, net of cash acquired, subject to a net working capital adjustment to be finalized in the second half of 2025. As of June 30, 2025, the purchase price allocations included in the Company's Condensed Consolidated Financial Statements are not complete, pending finalization of the working capital adjustment to the purchase price.

7. GOODWILL AND INTANGIBLES

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

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

Amortization expense for the three months ended June 30, 2025 and 2024 was $2,593 and $1,377, respectively. Amortization expense for the six months ended June 30, 2025 and 2024 was $5,096 and $2,802, respectively. The estimated future amortization expense for intangibles for the remainder of 2025 and subsequent years is as follows:

(a) For the six-month period beginning July 1, 2025.

8. OTHER LIABILITIES

Accrued expenses and other current liabilities consist of the following:

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

9. PRODUCT WARRANTIES

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

Activity related to the warranty accrual was as follows:

Accrued warranty reported in the accompanying Condensed Consolidated Financial Statements as of June 30, 2025 and December 31, 2024 consist of $20,304 and $21,398 in Accrued expenses and other current liabilities, respectively, and $12,986 and $12,954 in Other long-term liabilities and deferred income taxes, respectively.

10. FINANCING ARRANGEMENTS

Revolving Line of Credit Facilities:

On June 24, 2025, the Company entered into a new credit agreement with Bank of America, N.A. which matures on June 24, 2030. The credit agreement provides a $200,000 unsecured, revolving credit facility, of which $25,000 may be used for the issuance of letters of credit. The new facility replaced the previous $75,000 U.S. revolving line of credit with a scheduled maturity date of June 30, 2025.

At June 30, 2025 and December 31, 2024, there were no amounts drawn on the credit facilities, and there were $1,263 and $2,103 respectively, of guarantees issued, which reduced the amount of the availability under the facilities. After providing for the guarantees used, the remaining availability under the new line was $198,737 at June 30, 2025.

Under the credit agreement, the Company is required to meet certain financial covenants, which are tested quarterly and include an interest coverage ratio and a net leverage ratio. The interest coverage covenant requires the Company maintain a trailing twelve-month ratio of consolidated EBITDA to consolidated interest expense on all obligations that is at least 3.0 times. The net leverage covenant requires the Company maintain a trailing twelve-month ratio, which is the sum of all indebtedness for borrowed money on a consolidated basis, less cash and available marketable securities not classified as long-term investments in the U.S. in excess of $50,000 up to a maximum of $500,000, to consolidated EBITDA that is less than 3.0 times. The Company was in compliance with the financial covenants as of June 30, 2025.

In addition to the financial covenants the Company's credit agreement contains additional customary events of default, including non-payment of principal, interest or fees, violation of covenants, cross default to certain other indebtedness, invalidity of any loan document, material judgments, bankruptcy and insolvency events and change of control, subject, in certain instances, to cure periods. Upon the occurrence of an event of default, the lenders may elect to declare amounts outstanding under the credit agreement immediately due and payable.

In addition, the Company maintains Euro lines of credit with a total principal amount of €6,500 ($7,632 and $6,751 as of June 30, 2025 and December 31, 2024, respectively), which are available to certain European subsidiaries. At June 30, 2025 and December 31, 2024, there were no amounts drawn on the Euro lines of credit, and there were $1,862 and $1,533, respectively, of guarantees issued against one of the facilities, which reduces the amount of the availability under the facility.

Additionally, the Company has lines of credit totaling $20,600 in various countries, which are used for the issuance of letters of credit, guarantees and overdrafts. As of June 30, 2025 the amounts drawn were immaterial and there were $1,912 of guarantees issued against these facilities.

11. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in legal disputes and other proceedings in the ordinary course of its business. These matters may include allegations of infringement of intellectual property, commercial disputes and employment matters. As of June 30, 2025 and through the filing date of these Condensed Consolidated Financial Statements, the Company is aware ofno ongoing legal proceedings that management estimates could have a material effect on the Company's Condensed Consolidated Financial Statements.

Effective January 1, 2025, the Company is self-insured for employee medical benefits in the United States. The employee medical obligations are managed by a third-party provider and the related liabilities are included in the Condensed Consolidated Financial Statements. To limit the Company’s potential liabilities for these risks, the Company purchases insurance from a third party that provides stop-loss protection for medical costs in the United States that exceed $225 per person per annum.

The Company provides product warranties on its lasers, laser and non-laser systems, and amplifiers. Refer to Note 9, "Product Warranties" for information related to the Company's warranty accrual.

12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Total components of accumulated other comprehensive loss were as follows:

13. INCOME TAXES

The provision for income taxes was an expense of $1,666 and $4,858, for the three months ended June 30, 2025, and 2024, respectively and $8,523 and $14,361 for the six months ended June 30, 2025, and 2024, respectively. The effective tax rate was 20.1% and 19.4% for the three months ended June 30, 2025 and 2024, respectively, and 45.1% and 24.5% for the six months ended June 30, 2025, and 2024, respectively.

The decrease in tax expense was primarily due to lower Income before provision for income taxes for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, respectively. The six month decrease as compared to the prior year was partially offset by an increase in discrete tax items for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024.

The discrete tax detriment was $275 for the three months ended June 30, 2025 and is related primarily to equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes. This compares to a discrete tax benefit of $85 for the three months ended June 30, 2024 which is related primarily to a decrease in uncertain tax positions due to the conclusion of tax audits which was partially offset by equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes.

The discrete tax detriment of $4,889 for the six months ended June 30, 2025 relates primarily to equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes. This compares to a discrete tax detriment of $1,912 for the six months ended June 30, 2024 related primarily to equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes, which was partially offset by a decrease in uncertain tax positions due to the conclusion of tax audits.

The Company accounts for its uncertain tax positions in accordance with the accounting standards for income taxes. The Company classifies interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The following is a summary of the activity of the Company’s unrecognized tax benefits for the six months ended June 30, 2025 and 2024:

The liability for uncertain tax benefits is included in Other long-term liabilities and deferred income taxes. Substantially all of the liability for uncertain tax benefits related to various federal, state and foreign income tax matters that would benefit the Company's effective tax rate if those tax benefits are recognized.

14. NET INCOME PER COMMON SHARE

The following table sets forth the computation of diluted net income per common share following the treasury stock method:

The computation of diluted weighted average common shares excludes common stock equivalents including non-qualified stock options, performance stock units ("PSUs"), restricted stock units ("RSUs") and employee stock purchase plan ("ESPP") because the effect of including them would be anti-dilutive. The weighted average anti-dilutive shares outstanding for the three and six months ended June 30, 2025 and 2024 were as follows:

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

For the three and six months ended June 30, 2025, the Company repurchased 490,982 shares under the February 2024 authorization, with a weighted average price of $61.10 per share in the open market. For the three and six months ended June 30, 2024, the Company repurchased 1,404,249 and 2,362,174 shares under the May 2023 authorization and February 2024 authorization with a weighted average price of $86.32 and $88.92 per share in the open market, respectively. The impact on the reduction of weighted average shares for the three and six months ended June 30, 2025 was 264,454 and 132,954 shares, respectively. The impact for the three and six months ended June 30, 2024 was 662,348 and 1,028,573 shares, respectively. As of June 30, 2025, the Company had $20,000 remaining under the February 2024 authorization.

15. SEGMENT REPORTING

The Company operates inone segment which involves the design, development, production and distribution of fiber lasers, laser and non-laser systems, fiber amplifiers, and related optical components. The Company has a single, company-wide management team that administers the enterprise as a whole rather than as discrete operating segments. The chief operating decision maker ("CODM"), who is the Company's chief executive officer, also measures financial performance as a single enterprise, and not on geography, legal entity, or end market basis. Throughout the year, the CODM allocates capital resources on a project-by-project basis across the Company's entire asset base, as reflected in the Company's Condensed Consolidated Balance Sheets, to maximize profitability without regard to geography, legal entity, or end market basis. The Company operates in a number of countries throughout the world in a variety of product lines. Information regarding product lines and geographic financial information is provided in Note 3, "Revenue from Contracts with Customers."

The CODM primarily utilizes "Net income," as well as "Net income per common share” included in the Company's Condensed Consolidated Statements of Operations as the key indicators in assessing the enterprise’s performance and allocating resources. In evaluating Net income, the CODM also reviews gross profit as well the Company's income before foreign exchange and other segment items to set and evaluate performance targets.

The following table presents the break-down of Net income, including significant segment expenses.

(a)Includes cost materials, shipping costs, scrap, and inventory reserves.

(b) Includes depreciation and amortization, service, warranty, and other manufacturing expenses.

(c)Sales and marketing, research and development and general and administrative expenses are disclosed by period in the Company's Condensed Consolidated Statements of Operations.

(d) Other segment items include gain on sale of assets and other income, net.

16. SUBSEQUENT EVENTS

On July 4, 2025, the U.S. enacted H.R. 1 "A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14", commonly referred to as the One Big Beautiful Bill Act (OBBBA). The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the 2017 Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. Changes in tax laws may affect recorded deferred tax assets and deferred tax liabilities and the Company's effective tax rate in the future. The Company is currently evaluating the impacts that new legislation will have on the Condensed Consolidated Financial Statements.