UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-33155

IPG PHOTONICS CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			04-3444218
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification Number)

~~50 Old Webster Road, Oxford,~~377 Simarano Drive, Marlborough, Massachusetts			~~01540~~01752
(Address of principal executive offices)			(Zip code)

Registrant’s telephone number, including area code: (508) 373-1100

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	IPGP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☑

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~August 2, 2022,~~July 31, 2023, there were ~~50,207,950~~47,367,033 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS



Part I. Financial Information			1
Item 1. Unaudited Interim Financial Statements			1
Condensed Consolidated Balance Sheets: June 30 , ~~2022~~2023 and December 31, ~~2021~~2022			1
Condensed Consolidated Statements of Income: Three and Six Months Ended June 303 0 , ~~2022~~2023 and ~~2021~~2022			2
Condensed Consolidated Statements of Comprehensive Income: Three and Six Months Ended June 30 , ~~2022~~2023 and ~~2021~~2022			3
Condensed Consolidated Statements of Cash Flows: Six Months Ended ~~June~~J une 30 , ~~2022~~2023 and ~~2021~~2022			4
Condensed Consolidated Statements of Equity: Three ~~Three a~~and Six nd ~~Six~~Months Ended June 30 , ~~2022~~2023 and ~~2021~~2022			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			1716
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2728
Item 4. Controls and Procedures			28
Part II. Other Information			2930
Item 1. Legal Proceedings			2930
Item 1A. Risk Factors			2930
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2930
Item 3. Defaults Upon Senior Securities			2930
Item 4. Mine Safety Disclosures			30
Item 5. Other Information			30
Item 6. Exhibits			3031
Signatures			3132

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. UNAUDITED INTERIM FINANCIAL STATEMENTS

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,		December 31,			June 30,		December 31,
		2022		2021			2023		2022
		(In thousands, except share and per share data)					(In thousands, except share and per share data)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	771,788	$	709,105	Cash and cash equivalents	$	573,071	$	698,209
Short-term investments	Short-term investments	462,865		805,400		Short-term investments	523,341		479,374
Accounts receivable, net	Accounts receivable, net	246,877		262,121		Accounts receivable, net	231,125		211,347
Inventories	Inventories	556,747		460,747		Inventories	491,301		509,363
Prepaid income taxes	Prepaid income taxes	52,912		36,990		Prepaid income taxes	50,748		40,934
Prepaid expenses and other current assets	Prepaid expenses and other current assets	79,662		73,320		Prepaid expenses and other current assets	54,482		47,047

Total current assets	Total current assets	2,170,851		2,347,683		Total current assets	1,924,068		1,986,274
Deferred income taxes, net	Deferred income taxes, net	60,563		47,761		Deferred income taxes, net	69,644		75,152
Goodwill	Goodwill	39,285		38,609		Goodwill	38,494		38,325
Intangible assets, net	Intangible assets, net	46,866		52,678		Intangible assets, net	30,086		34,120
Property, plant and equipment, net	Property, plant and equipment, net	680,321		635,302		Property, plant and equipment, net	609,344		580,561
Other assets	Other assets	50,883		48,507		Other assets	24,781		28,848
Total assets	Total assets	$	3,048,769	$	3,170,540	Total assets	$	2,696,417	$	2,743,280
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:

Current portion of long-term debt	Current portion of long-term debt	$	32,225	$	18,126	Current portion of long-term debt	$	—	$	16,031
Accounts payable	Accounts payable	57,276		55,839		Accounts payable	37,418		46,233
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	210,813		230,826		Accrued expenses and other current liabilities	184,156		202,764

Income taxes payable	Income taxes payable	15,588		8,642		Income taxes payable	6,613		9,618
Total current liabilities	Total current liabilities	315,902		313,433		Total current liabilities	228,187		274,646
Other long-term liabilities and deferred income taxes	Other long-term liabilities and deferred income taxes	92,516		93,855		Other long-term liabilities and deferred income taxes	69,680		83,274
Long-term debt, net of current portion		—		16,031

Total liabilities	Total liabilities	408,418		423,319		Total liabilities	297,867		357,920

Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)	0		0		Commitments and contingencies (Note 11)
IPG Photonics Corporation equity:	IPG Photonics Corporation equity:					IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,967,254 and 50,206,255 shares issued and outstanding, respectively, at June 30, 2022; 55,788,246 and 53,010,265 shares issued and outstanding, respectively, at December 31, 2021.		6		6
Treasury stock, at cost, 5,760,999 and 2,777,981 shares held at June 30, 2022 and December 31, 2021, respectively.		(750,109)		(438,503)
Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,242,504 and 47,364,320 shares issued and outstanding, respectively, at June 30, 2023; 56,017,672 and 48,138,257 shares issued and outstanding, respectively, at December 31, 2022.						Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,242,504 and 47,364,320 shares issued and outstanding, respectively, at June 30, 2023; 56,017,672 and 48,138,257 shares issued and outstanding, respectively, at December 31, 2022.	6		6
Treasury stock, at cost, 8,878,184 and 7,879,415 shares held at June 30, 2023 and December 31, 2022, respectively.						Treasury stock, at cost, 8,878,184 and 7,879,415 shares held at June 30, 2023 and December 31, 2022, respectively.	(1,051,040)		(938,009)
Additional paid-in capital	Additional paid-in capital	930,950		908,423		Additional paid-in capital	969,889		951,371
Retained earnings	Retained earnings	2,593,147		2,466,607		Retained earnings	2,698,972		2,576,516
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(134,778)		(189,951)		Accumulated other comprehensive loss	(219,277)		(204,524)
Total IPG Photonics Corporation equity		2,639,216		2,746,582
Non-controlling interests		1,135		639

Total equity	Total equity	2,640,351		2,747,221		Total equity	2,398,550		2,385,360
Total liabilities and equity	Total liabilities and equity	$	3,048,769	$	3,170,540	Total liabilities and equity	$	2,696,417	$	2,743,280

See notes to condensed consolidated financial statements.

Table of Contents

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In thousands, except per share data)									(In thousands, except per share data)
Net sales	Net sales	$	377,023	$	371,658	$	747,002	$	717,243	Net sales	$	339,971	$	377,023	$	687,145	$	747,002
Cost of sales	Cost of sales	204,679		191,130		402,837		372,724		Cost of sales	192,280		204,679		392,516		402,837
Gross profit	Gross profit	172,344		180,528		344,165		344,519		Gross profit	147,691		172,344		294,629		344,165
Operating expenses:	Operating expenses:									Operating expenses:
Sales and marketing	Sales and marketing	19,010		19,193		39,384		38,076		Sales and marketing	20,187		19,010		41,275		39,384
Research and development	Research and development	30,608		35,191		64,058		68,530		Research and development	23,512		30,608		46,282		64,058
General and administrative	General and administrative	33,411		31,066		64,075		61,158		General and administrative	29,660		33,411		59,788		64,075

Other restructuring charges										Other restructuring charges	963		—		1,144		—
Loss (gain) on foreign exchange	Loss (gain) on foreign exchange	17,640		2,826		11,830		(4,339)		Loss (gain) on foreign exchange	1,306		17,640		(1,349)		11,830
Total operating expenses	Total operating expenses	100,669		88,276		179,347		163,425		Total operating expenses	75,628		100,669		147,140		179,347
Operating income	Operating income	71,675		92,252		164,818		181,094		Operating income	72,063		71,675		147,489		164,818
Other income (expense), net:
Interest income (expense), net		1,177		(407)		1,107		(902)
Other income, net:										Other income, net:
Interest income, net										Interest income, net	9,264		1,177		16,797		1,107
Other income, net	Other income, net	618		28		382		281		Other income, net	285		618		616		382
Total other income (expense)		1,795		(379)		1,489		(621)
Total other income										Total other income	9,549		1,795		17,413		1,489
Income before provision for income taxes	Income before provision for income taxes	73,470		91,873		166,307		180,473		Income before provision for income taxes	81,612		73,470		164,902		166,307
Provision for income taxes	Provision for income taxes	16,139		22,196		39,348		42,574		Provision for income taxes	19,291		16,139		42,446		39,348
Net income	Net income	57,331		69,677		126,959		137,899		Net income	62,321		57,331		122,456		126,959
Less: net income (loss) attributable to non-controlling interests		363		(123)		419		(28)
Less: net income attributable to non-controlling interests										Less: net income attributable to non-controlling interests	—		363		—		419
Net income attributable to IPG Photonics Corporation common stockholders	Net income attributable to IPG Photonics Corporation common stockholders	$	56,968	$	69,800	$	126,540	$	137,927	Net income attributable to IPG Photonics Corporation common stockholders	$	62,321	$	56,968	$	122,456	$	126,540
Net income attributable to IPG Photonics Corporation per common share:	Net income attributable to IPG Photonics Corporation per common share:									Net income attributable to IPG Photonics Corporation per common share:
Basic	Basic	$	1.10	$	1.31	$	2.42	$	2.58	Basic	$	1.32	$	1.10	$	2.58	$	2.42
Diluted	Diluted	$	1.10	$	1.29	$	2.41	$	2.55	Diluted	$	1.31	$	1.10	$	2.57	$	2.41
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	51,687		53,472		52,111		53,548		Basic	47,316		51,687		47,429		52,111
Diluted	Diluted	51,795		53,999		52,311		54,145		Diluted	47,453		51,795		47,618		52,311

See notes to condensed consolidated financial statements.

Table of Contents

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In thousands)									(In thousands)
Net income	Net income	$	57,331	$	69,677	$	126,959	$	137,899	Net income	$	62,321	$	57,331	$	122,456	$	126,959
Other comprehensive income (loss), net of tax:
Other comprehensive (loss) income, net of tax:										Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments and other	Foreign currency translation adjustments and other	94,244		19,116		54,918		(13,363)		Foreign currency translation adjustments and other	(15,082)		94,244		(14,601)		54,918

Unrealized gain on derivatives		119		51		332		119
Unrealized (loss) gain on derivatives										Unrealized (loss) gain on derivatives	(63)		119		(152)		332

Total other comprehensive income (loss)		94,363		19,167		55,250		(13,244)
Total other comprehensive (loss) income										Total other comprehensive (loss) income	(15,145)		94,363		(14,753)		55,250
Comprehensive income	Comprehensive income	151,694		88,844		182,209		124,655		Comprehensive income	47,176		151,694		107,703		182,209
Less: comprehensive income attributable to non-controlling interests	Less: comprehensive income attributable to non-controlling interests	135		194		496		70		Less: comprehensive income attributable to non-controlling interests	—		135		—		496
Comprehensive income attributable to IPG Photonics Corporation	Comprehensive income attributable to IPG Photonics Corporation	$	151,559	$	88,650	$	181,713	$	124,585	Comprehensive income attributable to IPG Photonics Corporation	$	47,176	$	151,559	$	107,703	$	181,713

See notes to condensed consolidated financial statements.

Table of Contents

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
2022 2021
(In thousands)
Cash flows from operating activities:
Net income $ 126,959 $ 137,899
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 47,104 47,976
Deferred income taxes (11,204) (1,856)
Stock-based compensation 20,439 18,678
Unrealized loss (gain) on foreign currency transactions 12,584 (1,728)
Other 3,760 3,571
Provisions for inventory, warranty and bad debt 38,644 32,654
Changes in assets and liabilities that provided (used) cash, net of acquisitions:
Accounts receivable 1,560 12,525
Inventories (99,233) (61,220)
Prepaid expenses and other assets 4,922 (2,187)
Accounts payable 3,131 24,879
Accrued expenses and other liabilities (35,842) 595
Income and other taxes payable (17,663) (8,596)
Net cash provided by operating activities 95,161 203,190
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment (59,903) (54,344)
Proceeds from sales of property, plant and equipment 645 258
Purchases of short-term investments (583,828) (1,014,033)
Proceeds from short-term investments 925,657 785,023
Acquisitions of businesses, net of cash acquired (2,000) —
Other (350) (547)
Net cash provided by (used in) investing activities 280,221 (283,643)
Cash flows from financing activities:
Principal payments on long-term borrowings (1,932) (1,896)
Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards 2,088 10,567
Purchase of treasury stock, at cost (311,606) (41,731)
Payment of purchase price holdback from business combination — (2,624)
Net cash used in financing activities (311,450) (35,684)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash (1,249) (8,217)
Net increase (decrease) in cash, cash equivalents and restricted cash 62,683 (124,354)
Cash, cash equivalents and restricted cash — Beginning of period 709,105 878,553
Cash and cash equivalents — End of period $ 771,788 $ 754,199
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,600 $ 1,388
Cash paid for income taxes $ 61,715 $ 41,809
Non-cash transactions:
Demonstration units transferred from inventory to other assets $ 2,204 $ 2,704
Inventory transferred to machinery and equipment $ 1,764 $ 1,353
Changes in accounts payable related to property, plant and equipment $ 92 $ 416
Leased assets obtained in exchange for new operating lease liabilities $ 5,697 $ 1,258

~~See Note 3 for reconciliation of cash, cash equivalents and restricted cash between the condensed consolidated balance sheets and condensed consolidated statements of cash flows.~~


	Six Months Ended June 30,
	2023		2022
	(In thousands)
Cash flows from operating activities:
Net income	$	122,456	$	126,959
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	35,343		47,104
Deferred income taxes	5,065		(11,204)
Stock-based compensation	19,249		20,439


Unrealized (gain) loss on foreign currency transactions	(1,816)		12,584

Provisions for inventory, warranty and bad debt	31,846		38,644
Other	(8,883)		3,760
Changes in assets and liabilities that (used) provided cash, net of acquisitions:
Accounts receivable	(23,876)		1,560
Inventories	(12,103)		(99,233)
Prepaid expenses and other assets	(15,480)		4,922
Accounts payable	(7,472)		3,131
Accrued expenses and other liabilities	(27,736)		(35,842)
Income and other taxes payable	(12,647)		(17,663)

Net cash provided by operating activities	103,946		95,161
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment	(59,139)		(59,903)

Proceeds from sales of property, plant and equipment	1,740		645
Purchases of short-term investments	(583,347)		(583,828)
Proceeds from short-term investments	549,879		925,657
Acquisitions of businesses, net of cash acquired	—		(2,000)

Other	326		(350)
Net cash (used in) provided by investing activities	(90,541)		280,221
Cash flows from financing activities:




Principal payments on long-term borrowings	(16,031)		(1,932)
Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards	(731)		2,088


Purchase of treasury stock, at cost	(113,031)		(311,606)


Net cash used in financing activities	(129,793)		(311,450)
Effect of changes in exchange rates on cash and cash equivalents	(8,750)		(1,249)
Net (decrease) increase in cash and cash equivalents	(125,138)		62,683
Cash and cash equivalents — Beginning of period	698,209		709,105
Cash and cash equivalents — End of period	$	573,071	$	771,788
Supplemental disclosure of cash flow information:
Cash paid for interest	$	947	$	1,600
Cash paid for income taxes	$	58,178	$	61,715
Non-cash transactions:
Demonstration units transferred from inventory to other assets	$	2,737	$	2,204
Inventory transferred to machinery and equipment	$	1,731	$	1,764
Changes in accounts payable related to property, plant and equipment	$	1,189	$	92
Leased assets obtained in exchange for new operating lease liabilities	$	788	$	5,697

See notes to condensed consolidated financial statements.

Table of Contents

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY


		Three Months Ended June 30,																									Three Months Ended June 30,
		Common Stock			Treasury Stock			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive (Loss) Income				Non- controlling Interest					Total Stockholders' Equity				Common Stock									Treasury Stock						Additional Paid-In Capital					Retained Earnings					Accumulated Other Comprehensive (Loss) Income					Non- controlling Interest					Total Stockholders' Equity
(In thousands, except share data)	(In thousands, except share data)	Shares	Amount		Shares	Amount										(In thousands, except share data)	Shares									Amount					Shares				Amount
Balance, April 1, 2023																										Balance, April 1, 2023	47,305,551					$	6			(8,878,184)			$	(1,051,103)					$	957,103				$	2,636,651				$	(204,132)				$	—				$	2,338,525
Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes																										Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes	28,366					—				—			—			620					—					—					—					620
Common stock issued under employee stock purchase plan																										Common stock issued under employee stock purchase plan	30,403					—				—			—			2,494					—					—					—					2,494
Purchased common stock																										Purchased common stock	—					—				—			63			—					—					—					—					63
Stock-based compensation																										Stock-based compensation	—					—				—			—			9,672					—					—					—					9,672

Net income																										Net income	—					—				—			—			—					62,321					—					—					62,321
Foreign currency translation adjustments and other																										Foreign currency translation adjustments and other	—					—				—			—			—					—					(15,082)					—					(15,082)

Unrealized loss on derivatives, net of tax																										Unrealized loss on derivatives, net of tax	—					—				—			—			—					—					(63)					—					(63)

Balance, June 30, 2023																										Balance, June 30, 2023	47,364,320					$	6			(8,878,184)			$	(1,051,040)		$	969,889				$	2,698,972				$	(219,277)				$	—				$	2,398,550

Balance, April 1, 2022	Balance, April 1, 2022	52,542,466	$	6	(3,379,096)	$	(517,260)			$	917,693			$	2,536,179					$	(229,369)				$	1,000				$	2,708,249	Balance, April 1, 2022		52,542,466			$	6			(3,379,096)			$	(517,260)				$	917,693				$	2,536,179				$	(229,369)				$	1,000				$	2,708,249
Exercise of stock options and vesting of RSUs and PSUs		16,515	—		—	—		478				—		—				—					478
Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes																										Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes	16,515					—				—			—			478					—					—					—					478
Common stock issued under employee stock purchase plan																										Common stock issued under employee stock purchase plan	29,177					—				—			—			2,334					—					—					—					2,334
Purchased common stock																										Purchased common stock	(2,381,903)					—				(2,381,903)			(232,849)			—					—					—					—					(232,849)
Stock-based compensation																										Stock-based compensation	—					—				—			—			10,445					—					—					—					10,445

Net income																										Net income	—					—				—			—			—					56,968					—					363					57,331
Foreign currency translation adjustments and other																										Foreign currency translation adjustments and other	—					—				—			—			—					—					94,472					(228)					94,244
Unrealized gain on derivatives, net of tax																										Unrealized gain on derivatives, net of tax	—					—				—			—			—					—					119					—					119

Balance, June 30, 2022																										Balance, June 30, 2022	50,206,255					$	6			(5,760,999)			$	(750,109)		$	930,950				$	2,593,147				$	(134,778)				$	1,135				$	2,640,351

																											Six Months Ended June 30,
																											Common Stock									Treasury Stock						Additional Paid In Capital					Retained Earnings					Accumulated Other Comprehensive (Loss) Income					Non- controlling Interest					Total Stockholders' Equity
(In thousands, except share data)																										(In thousands, except share data)	Shares					Amount				Shares			Amount
Balance, January 1, 2023																										Balance, January 1, 2023	48,138,257					$	6			(7,879,415)			$	(938,009)					$	951,371						$	2,576,516				$	(204,524)				$	—				$	2,385,360
Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes																										Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes	194,429					—				—			—			(3,224)					—					—					—					(3,224)
Common stock issued under employee stock purchase plan																										Common stock issued under employee stock purchase plan	30,403					—				—			—			2,493					—					—					—					2,493
Purchased common stock																										Purchased common stock	(998,769)					—				(998,769)			(113,031)			—					—					—					—					(113,031)
Stock-based compensation																										Stock-based compensation	—					—				—			—			19,249					—					—					—					19,249

Net income																										Net income	—					—				—			—			—					122,456					—					—					122,456
Foreign currency translation adjustments and other																										Foreign currency translation adjustments and other	—					—				—			—			—					—					(14,601)					—					(14,601)

Unrealized loss on derivatives, net of tax																										Unrealized loss on derivatives, net of tax	—					—				—			—			—					—					(152)					—					(152)

Balance, June 30, 2023																										Balance, June 30, 2023	47,364,320					$	6			(8,878,184)			$	(1,051,040)		$	969,889				$	2,698,972				$	(219,277)				$	—				$	2,398,550

Balance, January 1, 2022																										Balance, January 1, 2022	53,010,265					$	6			(2,777,981)			$	(438,503)		$	908,423				$	2,466,607				$	(189,951)				$	639				$	2,747,221
Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes																										Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes	149,831					—				—			—			(246)					—					—					—					(246)
Common stock issued under employee stock purchase plan	Common stock issued under employee stock purchase plan	29,177	—		—	—		2,334				—		—				—					2,334			Common stock issued under employee stock purchase plan	29,177					—				—			—			2,334					—					—					—					2,334
Purchased common stock	Purchased common stock	(2,381,903)	—		(2,381,903)	(232,849)		—				—		—				—					(232,849)			Purchased common stock	(2,983,018)					—				(2,983,018)			(311,606)			—					—					—					—					(311,606)
Stock-based compensation	Stock-based compensation	—	—		—	—		10,445				—		—				—					10,445			Stock-based compensation	—					—				—			—			20,439					—					—					—					20,439

Net income	Net income	—	—		—	—		—				56,968		—				363					57,331			Net income	—					—				—			—			—					126,540					—					419					126,959
Foreign currency translation adjustments and other	Foreign currency translation adjustments and other	—	—		—	—		—				—		94,472				(228)					94,244			Foreign currency translation adjustments and other	—					—				—			—			—					—					54,841					77					54,918
Unrealized gain on derivatives, net of tax	Unrealized gain on derivatives, net of tax	—	—		—	—		—				—		119				—					119			Unrealized gain on derivatives, net of tax	—					—				—			—			—					—					332					—					332

Balance, June 30, 2022	Balance, June 30, 2022	50,206,255	$	6	(5,760,999)	$	(750,109)	$	930,950			$	2,593,147	$	(134,778)			$	1,135				$	2,640,351		Balance, June 30, 2022	50,206,255					$	6			(5,760,999)			$	(750,109)		$	930,950				$	2,593,147				$	(134,778)				$	1,135				$	2,640,351

Balance, April 1, 2021		53,623,865	$	6	(2,048,918)	$	(306,662)	$	868,097			$	2,256,318	$	(178,257)			$	1,168				$	2,640,670
Exercise of stock options and vesting of RSUs and PSUs		37,824	—		—	—		2,886				—		—				—					2,886
Common stock issued under employee stock purchase plan		15,071	—		—	—		2,700				—		—				—					2,700
Purchased common stock		(184,871)	—		(184,871)	(38,683)		—				—		—				—					(38,683)
Stock-based compensation		—	—		—	—		9,863				—		—				—					9,863

Net income		—	—		—	—		—				69,800		—				(123)					69,677
Foreign currency translation adjustments and other		—	—		—	—		—				—		18,799				317					19,116
Unrealized gain on derivatives, net of tax		—	—		—	—		—				—		51				—					51

Balance, June 30, 2021		53,491,889	$	6	(2,233,789)	$	(345,345)	$	883,546			$	2,326,118	$	(159,407)			$	1,362				$	2,706,280

		Six Months Ended June 30,
		Common Stock			Treasury Stock			Additional Paid In Capital				Retained Earnings		Accumulated Other Comprehensive (Loss) Income				Non- controlling Interest					Total Stockholders' Equity
(In thousands, except share data)		Shares	Amount		Shares	Amount
Balance, January 1, 2022		53,010,265	$	6	(2,777,981)	$	(438,503)			$	908,423			$	2,466,607						$	(189,951)						$	639				$	2,747,221
Exercise of stock options and vesting of RSUs and PSUs		149,831	—		—	—		(246)				—		—				—					(246)
Common stock issued under employee stock purchase plan		29,177	—		—	—		2,334				—		—				—					2,334
Purchased common stock		(2,983,018)	—		(2,983,018)	(311,606)		—				—		—				—					(311,606)
Stock-based compensation		—	—		—	—		20,439				—		—				—					20,439

Net income		—	—		—	—		—				126,540		—				419					126,959
Foreign currency translation adjustments and other		—	—		—	—		—				—		54,841				77					54,918
Unrealized gain on derivatives, net of tax		—	—		—	—		—				—		332				—					332

Balance, June 30, 2022		50,206,255	$	6	(5,760,999)	$	(750,109)	$	930,950			$	2,593,147	$	(134,778)			$	1,135				$	2,640,351

Balance, January 1, 2021		53,427,234	$	6	(2,034,012)	$	(303,614)	$	854,301			$	2,188,191	$	(146,065)			$	1,292				$	2,594,111
Exercise of stock options and vesting of RSUs and PSUs		249,361	—		—	—		7,867				—		—				—					7,867
Common stock issued under employee stock purchase plan		15,071	—		—	—		2,700				—		—				—					2,700
Purchased common stock		(199,777)	—		(199,777)	(41,731)		—				—		—				—					(41,731)
Stock-based compensation		—	—		—	—		18,678				—		—				—					18,678

Net income		—	—		—	—		—				137,927		—				(28)					137,899
Foreign currency translation adjustments and other		—	—		—	—		—				—		(13,461)				98					(13,363)
Unrealized gain on derivatives, net of tax		—	—		—	—		—				—		119				—					119

Balance, June 30, 2021		53,491,889	$	6	(2,233,789)	$	(345,345)	$	883,546			$	2,326,118	$	(159,407)			$	1,362				$	2,706,280

See notes to condensed consolidated financial statements.

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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, ~~2021.~~2022.

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

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

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Balance, beginning of period	Balance, beginning of period	$	1,937	$	2,307	$	2,108	$	2,156	Balance, beginning of period	$	2,363	$	1,937	$	2,639	$	2,108
Provision for bad debts, net of (recoveries)	Provision for bad debts, net of (recoveries)	(15)		(47)		(161)		141		Provision for bad debts, net of (recoveries)	58		(15)		(151)		(161)
Uncollectable accounts written off	Uncollectable accounts written off	(78)		(59)		(79)		(59)		Uncollectable accounts written off	(191)		(78)		(241)		(79)
Foreign currency translation	Foreign currency translation	28		50		4		13		Foreign currency translation	(61)		28		(78)		4
Balance, end of period	Balance, end of period	$	1,872	$	2,251	$	1,872	$	2,251	Balance, end of period	$	2,169	$	1,872	$	2,169	$	1,872

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

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

Total components of accumulated other comprehensive loss were as follows:


									Foreign currency translation adjustments and other		Unrealized gain (loss) on derivatives, net of tax		Total
Balance, April 1, 2023								Balance, April 1, 2023	$	(204,195)	$	63	$	(204,132)
Other comprehensive loss, net of tax:								Other comprehensive loss, net of tax:
Foreign currency translation adjustments and other, net of tax expense of $69								Foreign currency translation adjustments and other, net of tax expense of $69	(15,082)		—		(15,082)
Unrealized loss on derivatives, net of tax benefit of $20								Unrealized loss on derivatives, net of tax benefit of $20	—		(63)		(63)
Total other comprehensive loss								Total other comprehensive loss	(15,082)		(63)		(15,145)
Balance, June 30, 2023								Balance, June 30, 2023	$	(219,277)	$	—	$	(219,277)
		Foreign currency translation adjustments		Unrealized gain (loss) on derivatives, net of tax		Total
Balance, April 1, 2022	Balance, April 1, 2022	$	(229,398)	$	29	$	(229,369)	Balance, April 1, 2022	$	(229,398)	$	29	$	(229,369)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other		94,472		—		94,472
Foreign currency translation adjustments and other, net of tax expense of $98								Foreign currency translation adjustments and other, net of tax expense of $98	94,472		—		94,472
Unrealized gain on derivatives, net of tax expense of $37	Unrealized gain on derivatives, net of tax expense of $37	—		119		119		Unrealized gain on derivatives, net of tax expense of $37	—		119		119
Total other comprehensive income (loss)	Total other comprehensive income (loss)	94,472		119		94,591		Total other comprehensive income (loss)	94,472		119		94,591
Balance, June 30, 2022	Balance, June 30, 2022	$	(134,926)	$	148	$	(134,778)	Balance, June 30, 2022	$	(134,926)	$	148	$	(134,778)

Balance, April 1, 2021		$	(177,863)	$	(394)	$	(178,257)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other		18,799		—		18,799
Unrealized gain on derivatives, net of tax expense of $15		—		51		51
Total other comprehensive income (loss)		18,799		51		18,850
Balance, June 30, 2021		$	(159,064)	$	(343)	$	(159,407)
									Foreign currency translation adjustments and other		Unrealized gain (loss) on derivatives, net of tax		Total
Balance, January 1, 2023								Balance, January 1, 2023	$	(204,676)	$	152	$	(204,524)
Other comprehensive loss, net of tax:								Other comprehensive loss, net of tax:
Foreign currency translation adjustments and other, net of tax expense of $104								Foreign currency translation adjustments and other, net of tax expense of $104	(14,601)		—		(14,601)
Unrealized loss on derivatives, net of tax benefit of $46								Unrealized loss on derivatives, net of tax benefit of $46	—		(152)		(152)
Total other comprehensive loss								Total other comprehensive loss	(14,601)		(152)		(14,753)
Balance, June 30, 2023								Balance, June 30, 2023	$	(219,277)	$	—	$	(219,277)
		Foreign currency translation adjustments		Unrealized gain (loss) on derivatives, net of tax		Total
Balance, January 1, 2022	Balance, January 1, 2022	$	(189,767)	$	(184)	$	(189,951)	Balance, January 1, 2022	$	(189,767)	$	(184)	$	(189,951)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other		54,841		—		54,841
Foreign currency translation adjustments and other, net of tax expense of $142								Foreign currency translation adjustments and other, net of tax expense of $142	54,841		—		54,841
Unrealized gain on derivatives, net of tax expense of $103	Unrealized gain on derivatives, net of tax expense of $103	—		332		332		Unrealized gain on derivatives, net of tax expense of $103	—		332		332
Total other comprehensive (loss) income		54,841		332		55,173
Total other comprehensive income (loss)								Total other comprehensive income (loss)	54,841		332		55,173
Balance, June 30, 2022	Balance, June 30, 2022	$	(134,926)	$	148	$	(134,778)	Balance, June 30, 2022	$	(134,926)	$	148	$	(134,778)

Balance, January 1, 2021		$	(145,603)	$	(462)	$	(146,065)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other		(13,461)		—		(13,461)
Unrealized gain on derivatives, net of tax expense of $36		—		119		119
Total other comprehensive (loss) income		(13,461)		119		(13,342)
Balance, June 30, 2021		$	(159,064)	$	(343)	$	(159,407)

2. 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; fiber amplifiers and transceivers for communications~~ applications; and fiber lasers, systems and fibers for medical applications.

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Sales by Application	Sales by Application									Sales by Application
Materials processing	Materials processing	$	343,357	$	345,653	$	682,320	$	662,894	Materials processing	$	314,184	$	343,357	$	627,153	$	682,320
Other applications	Other applications	33,666		26,005		64,682		54,349		Other applications	25,787		33,666		59,992		64,682
Total	Total	$	377,023	$	371,658	$	747,002	$	717,243	Total	$	339,971	$	377,023	$	687,145	$	747,002


Sales by Product	Sales by Product									Sales by Product
High Power Continuous Wave ("CW") Lasers	High Power Continuous Wave ("CW") Lasers	$	162,997	$	189,744	$	330,688	$	360,226	High Power Continuous Wave ("CW") Lasers	$	145,992	$	162,997	$	300,026	$	330,688
Medium Power CW Lasers	Medium Power CW Lasers	18,923		18,177		42,591		34,059		Medium Power CW Lasers	22,370		18,923		36,209		42,591
Pulsed Lasers	Pulsed Lasers	69,852		61,773		136,784		117,168		Pulsed Lasers	53,002		69,852		109,149		136,784
Quasi-Continuous Wave ("QCW") Lasers	Quasi-Continuous Wave ("QCW") Lasers	14,079		15,525		26,859		29,191		Quasi-Continuous Wave ("QCW") Lasers	13,840		14,079		25,122		26,859
Laser and Non-Laser Systems	Laser and Non-Laser Systems	38,443		29,597		73,040		56,713		Laser and Non-Laser Systems	38,187		38,443		79,571		73,040
Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	72,729		56,842		137,040		119,886		Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	66,580		72,729		137,068		137,040
Total	Total	$	377,023	$	371,658	$	747,002	$	717,243	Total	$	339,971	$	377,023	$	687,145	$	747,002


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Sales by Geography	Sales by Geography									Sales by Geography
North America	North America	$	88,151	$	66,134	$	165,376	$	139,518	North America	$	78,220	$	88,151	$	154,300	$	165,376
Europe:	Europe:									Europe:
Germany	Germany	22,792		21,748		50,209		48,008		Germany	28,962		22,792		48,795		50,209
Other including Eastern Europe/CIS		75,407		74,339		155,407		132,932
Asia and Australia:
Other Europe										Other Europe	72,865		75,407		153,285		155,407
Asia:										Asia:
China	China	137,380		159,075		267,128		298,908		China	98,567		137,380		199,854		267,128
Japan	Japan	14,741		10,322		27,627		21,199		Japan	16,749		14,741		38,367		27,627
Other	Other	33,695		37,654		72,370		70,764		Other	38,062		33,695		81,716		72,370
Rest of World	Rest of World	4,857		2,386		8,885		5,914		Rest of World	6,546		4,857		10,828		8,885
Total	Total	$	377,023	$	371,658	$	747,002	$	717,243	Total	$	339,971	$	377,023	$	687,145	$	747,002


Timing of Revenue Recognition	Timing of Revenue Recognition									Timing of Revenue Recognition
Goods and services transferred at a point in time	Goods and services transferred at a point in time	$	363,255	$	357,345	$	718,670	$	689,877	Goods and services transferred at a point in time	$	329,571	$	363,255	$	662,696	$	718,670
Goods and services transferred over time	Goods and services transferred over time	13,768		14,313		28,332		27,366		Goods and services transferred over time	10,400		13,768		24,449		28,332
Total	Total	$	377,023	$	371,658	$	747,002	$	717,243	Total	$	339,971	$	377,023	$	687,145	$	747,002

One of the Company's customers accounted for ~~24%~~15% and ~~22%~~14% of the Company's net accounts receivable as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The Company enters into contracts to sell lasers and spare parts, for which revenue is generally recognized upon shipment or delivery, depending on the terms of the contract. The Company also provides installation services and extended warranties. The Company frequently receives consideration from a customer prior to transferring goods to the customer under the terms of a sales contract. The Company records customer deposits related to these prepayments, which represent a contract liability. The Company also records deferred revenue related to installation services when consideration is received before the services have been performed. The standalone selling price for installation services is determined based on the estimated number of days of service technician time required for installation at standard service rates. The Company recognizes customer deposits and deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria are met. The Company bills customers for extended warranties upon entering into the agreement with the customer, resulting in deferred revenue that is recognized over the period of the extended warranty contract. The Company

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

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, ~~2022~~2023 and ~~2021:~~2022:


		June 30,		December 31,				June 30,		December 31,					June 30,		January 1,				June 30,		January 1,
		2022		2021		Change		2021		2020		Change			2023		2023		Change		2022		2022		Change

Contract assets	Contract assets													Contract assets
Contract assets	Contract assets	$	10,896	$	9,345	$	1,551	$	7,044	$	8,999	$	(1,955)	Contract assets	$	17,460	$	8,620	$	8,840	$	10,896	$	9,345	$	1,551
Contract liabilities	Contract liabilities													Contract liabilities
Contract liabilities - current	Contract liabilities - current	87,155		89,659		(2,504)		80,366		71,246		9,120		Contract liabilities - current	75,785		80,068		(4,283)		87,155		89,659		(2,504)
Contract liabilities - long-term	Contract liabilities - long-term	2,728		2,691		37		2,856		2,189		667		Contract liabilities - long-term	3,054		3,142		(88)		2,728		2,691		37

During the three months ended June 30, ~~2022~~2023 and ~~2021~~2022 the Company recognized revenue of ~~$13,507~~$14,431 and ~~$17,519,~~$13,507, respectively, that was included in contract liabilities at the beginning of each period. During the six months ended June 30, ~~2022~~2023 and ~~2021~~2022 the Company recognized revenue of ~~$34,531~~$43,443 and ~~$47,897~~$34,531 respectively, that was included in contract liabilities at the beginning of each period.

The following table represents the Company's remaining performance obligations from contracts that are recognized over time as of June 30, ~~2022:~~2023:


		Remaining Performance Obligations															Remaining Performance Obligations
		2022 (a)		2023		2024		2025		2026		Thereafter		Total			2023 (a)		2024		2025		2026		2027		Thereafter		Total
Revenue expected to be recognized for extended warranty agreements	Revenue expected to be recognized for extended warranty agreements	$	2,570	$	2,206	$	1,022	$	695	$	306	$	56	$	6,855	Revenue expected to be recognized for extended warranty agreements	$	2,149	$	1,936	$	1,055	$	800	$	417	$	62	$	6,419
Revenue to be earned over time from contracts to sell large scale materials processing systems	Revenue to be earned over time from contracts to sell large scale materials processing systems	16,593		7,341		5,196		—		—		—		29,130		Revenue to be earned over time from contracts to sell large scale materials processing systems	10,333		11,884		—		—		—		—		22,217
Total	Total	$	19,163	$	9,547	$	6,218	$	695	$	306	$	56	$	35,985	Total	$	12,482	$	13,820	$	1,055	$	800	$	417	$	62	$	28,636

(a) For the six-month period beginning July 1, ~~2022.~~2023.

3. ~~RESTRICTED CASH~~

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows.

June 30, December 31,
2022 2021 2021 2020
Cash and cash equivalents $ 771,788 $ 754,199 $ 709,105 $ 876,231
Restricted cash included in prepaid expenses and other current assets — — — 2,322
Cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows $ 771,788 $ 754,199 $ 709,105 $ 878,553

During the first quarter of 2021, the Company released $2,127 of restricted cash held back related to the Company's acquisition of the submarine networks division (SND) of Padtec SA, for indemnities provided by the seller.

4. FAIR VALUE MEASUREMENTS

The Company's financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable, drawings on revolving lines of credit, long-term debt and interest rate ~~swaps and contingent purchase consideration.~~

~~Table of Contents~~

~~IPG PHOTONICS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(In thousands, except share and per share data)~~

swaps.

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 ~~carrying amounts~~fair value of money market fund deposits, term deposits, accounts receivable, accounts payable and drawings on revolving lines of credit ~~are considered reasonable estimates of~~is reasonably close to their ~~fair market value~~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 ~~bond securities is based upon quoted prices for instruments with identical terms in active markets. The Company's~~ commercial paper, ~~securities reported at fair value~~corporate bonds, U.S. Treasury and agency obligations and term deposits are based ~~upon model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term~~on Level 2 inputs.

Table of ~~the asset or liability,~~Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and ~~are therefore classified as Level 2.~~per share data)

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 with the exception of the interest rate swap, ~~and contingent purchase consideration,~~ which ~~are~~was measured at fair value:

Fair Value Measurements at June 30, 2022
Total Level 1 Level 2 Level 3
Assets
Cash equivalents:
Money market fund deposits and term deposits $ 439,816 $ 439,816 $ — $ —
Commercial paper 14,986 — 14,986 —
Short-term investments:
Commercial paper 305,371 — 305,371 —
Corporate bonds 75,259 — 75,259 —
U.S. Treasury and agency obligations 67,991 — 67,991 —
Municipal bonds 10,694 — 10,694 —
Certificates of deposit 3,004 — 3,004 —
Other assets:
Interest rate swap 193 — 193 —
Total $ 917,314 $ 439,816 $ 477,498 $ —
Liabilities
Term notes $ 32,210 $ — $ 32,210 $ —
Contingent purchase consideration 1,460 — — 1,460
Total $ 33,670 $ — $ 32,210 $ 1,460


	Fair Value Measurements at June 30, 2023
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market fund deposits	$	150,417	$	150,417	$	—	$	—
Commercial paper	93,559		—		93,559		—
Term deposits	40,326		—		40,326		—
U.S. Treasury and agency obligations	11,910		—		11,910		—
Corporate bonds	1,496		—		1,496		—
Short-term investments:
Commercial paper	373,265		—		373,265		—
U.S. Treasury and agency obligations	82,803		—		82,803		—
Corporate bonds	63,631		—		63,631		—

Term deposits	3,009		—		3,009		—





Total assets	$	820,416	$	150,417	$	669,999	$	—

~~Table of Contents~~

~~IPG PHOTONICS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(In thousands, except share and per share data)~~

Fair Value Measurements at December 31, 2021
Total Level 1 Level 2 Level 3
Assets
Cash equivalents:
Money market fund deposits and term deposits $ 279,066 $ 279,066 $ — $ —
Commercial paper 117,663 — 117,663 —
Corporate bonds 11,459 — 11,459 —
Municipal bonds 3,220 — 3,220 —
Short-term investments:
Commercial paper 557,955 — 557,955 —
Corporate bonds 215,754 — 215,754 —
U.S. Treasury and agency obligations 21,980 — 21,980 —
Municipal bonds 4,546 — 4,546 —
Certificate of deposit 3,000 — 3,000 —
Foreign government bonds 2,015 — 2,015 —
Total $ 1,216,658 $ 279,066 $ 937,592 $ —
Liabilities
Term notes $ 34,226 $ — $ 34,226 $ —
Contingent purchase consideration 1,371 — — 1,371
Interest rate swap 242 — 242 —
Total $ 35,839 $ — $ 34,468 $ 1,371
























	Fair Value Measurements at December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents:
Money market fund deposits	$	195,654	$	195,654	$	—	$	—
Commercial paper	94,661		—		94,661		—
Term deposits	68,827		—		68,827		—
Corporate bonds	1,497		—		1,497		—

Short-term investments:
Commercial paper	363,991		—		363,991		—
Corporate bonds	65,022		—		65,022		—
U.S. Treasury and agency obligations	39,611		—		39,611		—

Term deposits	10,113		—		10,113		—

Other assets:


Interest rate swaps	198		—		198		—
Total assets	$	839,574	$	195,654	$	643,920	$	—
Liabilities
Term debt	$	16,031	$	—	$	16,031	$	—


Total liabilities	$	16,031	$	—	$	16,031	$	—

Short-term investments consist of liquid investments with original maturities of greater than three months but less than one year and are recorded at amortized cost. There were no impairments for the investments considered held-to-maturity during the quarters ended June 30, ~~2022~~2023 and ~~2021.~~2022. There were no current expected credit loss allowances for the investments considered held-to-maturity at June 30, ~~2022~~2023 and ~~2021.~~2022. The Company holds highly-rated held-to-maturity instruments that are within one year of maturity.

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

June 30, 2022 December 31, 2021
Book Value Fair Value Book Value Fair Value
Investment maturity
Less than 1 year $ 462,865 $ 462,319 $ 805,400 $ 805,250

The Company entered into an interest rate swap that is designated as a cash flow hedge associated with a long-term note issued during the second quarter of 2016 that will terminate with the long-term note in May 2023. The fair value at June 30, 2022 for the interest rate swap considered pricing models whose inputs are observable for the securities held by the Company.

At June 30, 2022 and December 31, 2021, the Company's long-term notes consisted of a variable rate note and a fixed rate note, and are reported at amortized cost on the condensed consolidated balance sheets. For disclosure purposes, the fair value of the long-term notes was estimated using a discounted cash flow model using observable market interest rates and is classified as Level 2. Based on the discounted cash flow model, the fair values of the long-term notes, including the current portion, at June 30, 2022 and December 31, 2021 were $32,210 and $34,226 respectively, as compared to the book value of $32,225 and $34,157, respectively.

The fair values of contingent purchase consideration at June 30, 2022 and December 31, 2021 were determined using an income approach at the respective business combination date and at the reporting date. The approach is based on significant inputs that are not observable in the market and include key assumptions such as assessing the probability of meeting certain milestones required to earn the contingent purchase consideration.

1110

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

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


	June 30, 2023				December 31, 2022
	Book Value		Fair Value		Book Value		Fair Value
Investment maturity

Less than 1 year	$	523,341	$	522,708	$	479,374	$	478,737

The Company entered into an interest rate swap that was designated as a cash flow hedge associated with a long-term note issued during the second quarter of 2016. The Company terminated the interest rate swap as the long-term note matured in May 2023. The fair value at December 31, 2022 for the interest rate swap considered pricing models whose inputs are observable for the securities held by the Company.

In May 2023, the Company's ~~movement in~~long-term variable rate note matured. At December 31, 2022, the carrying value of the note approximates the estimated fair value of $16,031. The long-term note was reported at amortized cost on the condensed consolidated balance sheets and was classified within Level ~~3 assets and liabilities measured at~~2 of the fair ~~value:~~

Six Months Ended June 30,
2022 2021
Contingent purchase consideration
Balance, beginning of period $ 1,371 $ 1,963
Cash payments — (466)
Foreign exchange adjustment 89 32
Balance, end of period $ 1,460 $ 1,529
value hierarchy.

5.4. INVENTORIES

Inventories consist of the following:


		June 30,		December 31,			June 30,		December 31,
		2022		2021			2023		2022
Components and raw materials	Components and raw materials	$	350,015	$	270,146	Components and raw materials	$	295,166	$	322,506
Work-in-process	Work-in-process	43,780		32,506		Work-in-process	58,546		18,911
Finished goods	Finished goods	162,952		158,095		Finished goods	137,589		167,946
Total	Total	$	556,747	$	460,747	Total	$	491,301	$	509,363

The Company recorded inventory provisions totaling ~~$14,700~~$11,218 and ~~$7,620~~$14,700 for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$25,480~~$23,314 and ~~$15,647~~$25,480 for the six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. These provisions relate to the recoverability of the value of inventories due to technological changes and excess quantities. These provisions are reported as a reduction to components and raw materials, work-in-process and finished goods.

5. RESTRUCTURING

In the fourth quarter of 2022, the Company implemented a restructuring program at its Russian subsidiary. The program resulted in personnel-related restructuring charges of $963 and $1,144 for the three and six months ended June 30, 2023, respectively. All personnel-related restructuring charges are expected to be paid within 6 months. There was no restructuring related activity for the three or six months ended June 30, 2022.

The restructuring accrual was included in accrued expenses and other current liabilities in the Company's condensed consolidated balance sheets. Activity related to the restructuring accrual was as follows:


	Six Months Ended June 30,
	2023
Balance, beginning of period	$	4,869
Charges	1,144
Cash payments	(3,384)
Foreign exchange adjustment	(669)
Balance, end of period	$	1,960

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

6. GOODWILL AND INTANGIBLES

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


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Balance, beginning of period	Balance, beginning of period	$	38,609	$	41,366	Balance, beginning of period	$	38,325	$	38,609
Goodwill arising from business combinations	Goodwill arising from business combinations	1,000		—		Goodwill arising from business combinations	—		1,000
Adjustment to goodwill during measurement period		—		(2,205)

Foreign exchange adjustment	Foreign exchange adjustment	(324)		(161)		Foreign exchange adjustment	169		(324)

Balance, end of period	Balance, end of period	$	39,285	$	39,000	Balance, end of period	$	38,494	$	39,285

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


		June 30, 2022							December 31, 2021								June 30, 2023							December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Lives	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Lives		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Lives	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted- Average Lives
Customer relationships	Customer relationships	$	59,726	$	(26,395)	$	33,331	10 years	$	59,729	$	(23,556)	$	36,173	10 years	Customer relationships	$	48,189	$	(23,873)	$	24,316	11 years	$	48,155	$	(21,734)	$	26,421	11 years
Technology, trademark and trade name	Technology, trademark and trade name	40,545		(28,763)		11,782		7 years	40,536		(26,269)		14,267		7 years	Technology, trademark and trade name	30,039		(24,549)		5,490		7 years	30,360		(23,189)		7,171		7 years
Production know-how	Production know-how	10,339		(8,940)		1,399		7 years	10,384		(8,723)		1,661		7 years	Production know-how	9,134		(8,996)		138		7 years	9,109		(8,818)		291		7 years
Patents	Patents	8,036		(7,682)		354		8 years	8,036		(7,459)		577		8 years	Patents	8,034		(7,892)		142		8 years	8,034		(7,797)		237		8 years
Total	Total	$	118,646	$	(71,780)	$	46,866		$	118,685	$	(66,007)	$	52,678		Total	$	95,396	$	(65,310)	$	30,086		$	95,658	$	(61,538)	$	34,120

Amortization expense for the three months ended June 30, 2023 and 2022 was $2,021 and $2,909, respectively. Amortization expense for the six months ended June 30, 2023 and 2022 was $4,042 and $5,930, respectively. The estimated future amortization expense for intangibles for the remainder of 2023 and subsequent years is as follows:


2023 (a)		2024		2025		2026		2027		Thereafter		Total
$	3,855	$	5,556	$	4,977	$	4,217	$	4,004	$	7,477	$	30,086

(a) For the six-month period beginning July 1, 2023.

7. OTHER LIABILITIES

Accrued expenses and other current liabilities consist of the following:


	June 30,		December 31,
	2023		2022
Contract liabilities	$	75,785	$	80,068
Accrued compensation	64,369		78,251
Current portion of accrued warranty	28,428		28,504

Short-term lease liabilities	4,309		5,234
Other	11,265		10,707
Total	$	184,156	$	202,764

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

~~Amortization expense for the three months ended June 30, 2022~~Other long-term liabilities and 2021 was $2,909 and $3,079, respectively. Amortization expense for the six months ended June 30, 2022 and 2021 was $5,930 and $6,336, respectively. The estimated future amortization expense for intangibles for the remainder of 2022 and subsequent years is as follows:

2022 (a)
2023 2024 2025 2026 Thereafter Total
$ 5,544 $ 10,576 $ 8,046 $ 6,522 $ 4,702 $ 11,476 $ 46,866

~~(a)~~ ~~For the six-month period beginning July 1, 2022.~~

~~7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES~~

~~Accrued expenses and other current liabilities~~deferred income taxes consist of the following:

June 30, December 31,
2022 2021
Contract liabilities $ 87,155 $ 89,659
Accrued compensation 75,212 94,857
Current portion of accrued warranty 27,331 26,204
Short-term lease liabilities 6,420 5,454
Other 14,695 14,652
Total $ 210,813 $ 230,826


	June 30,		December 31,
	2023		2022
Accrued warranty	$	23,206	$	24,358
Transition tax related to 2017 U.S. tax reform act	11,010		19,874
Long-term lease liabilities	13,836		16,787
Unrealized tax benefits	15,036		15,841
Deferred income taxes	1,477		1,469
Other	5,115		4,945
Total	$	69,680	$	83,274

8. PRODUCT WARRANTIES

The Company typically provides one to five 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:


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Balance, beginning of period	Balance, beginning of period	$	49,864	$	45,669	Balance, beginning of period	$	52,862	$	49,864
Provision for warranty accrual	Provision for warranty accrual	12,179		16,706		Provision for warranty accrual	7,089		12,179
Warranty claims	Warranty claims	(8,971)		(13,764)		Warranty claims	(8,533)		(8,971)
Foreign currency translation	Foreign currency translation	(1,822)		(954)		Foreign currency translation	216		(1,822)
Balance, end of period	Balance, end of period	$	51,250	$	47,657	Balance, end of period	$	51,634	$	51,250

Accrued warranty reported in the accompanying condensed consolidated financial statements as of June 30, ~~2022~~2023 and December 31, ~~2021 consisted~~2022 consist of ~~$27,331~~$28,428 and ~~$26,204~~$28,504 in accrued expenses and other current liabilities, respectively, and ~~$23,919~~$23,206 and ~~$23,660~~$24,358 in other long-term liabilities and deferred income taxes, respectively.

9. FINANCING ARRANGEMENTS

Term Debt:

The Company's unsecured long-term note matured and was paid in May 2023, at which time the outstanding principal balance was $15,438. At June 30, 2023, the Company has no long-term note outstanding.

Revolving Line of Credit Facilities:

The Company maintains a $75,000 U.S. revolving line of credit and a €50,000 ($54,422) line-of-credit in Germany, both of which are available to certain foreign subsidiaries and allow for borrowings in the local currencies of those subsidiaries. The German line-of-credit expired on July 31, 2023. The Company also maintains a €1,500 ($1,633) Italian overdraft facility. At June 30, 2023 and December 31, 2022, there were no amounts drawn on the U.S. line-of-credit, and there were $2,512 and $2,396, respectively, of guarantees issued against the facility, which reduce the amount of the facility available to draw. At June 30, 2023 and December 31, 2022, there were no amounts drawn on the euro line-of-credit, and there were $2,014 and $1,737, respectively, of guarantees issued against those facilities, which reduce the amount available to draw. At June 30, 2023 and December 31, 2022, there were no amounts drawn on the euro overdraft facility. After providing for the guarantees used, the total unused lines-of-credit and overdraft facilities are $126,529 at June 30, 2023.

Table of Contents

IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

~~9. FINANCING ARRANGEMENTS~~

~~The Company's borrowings under existing financing arrangements consist of the following:~~

June 30, December 31,
2022 2021
Total debt $ 32,225 $ 34,157
Less: current portion (32,225) (18,126)
Long-term debt, net of current portion $ — $ 16,031

~~Term Debt:~~

At June 30, 2022, the Company has an unsecured long-term note with an outstanding principal balance of $16,625, all of which is current. The interest on this unsecured long-term note is variable at 1.20% above LIBOR and is fixed using an interest rate swap at 2.85% per annum. The unsecured long-term note matures in May 2023, at which time the outstanding principal balance will be $15,438. Also at June 30, 2022, the Company has another long-term note that is secured by its corporate aircraft with an outstanding principal balance of $15,600, all of which is current. The interest on this collateralized long-term note is fixed at 2.74% per annum. The collateralized long-term note matured in July 2022, at which time the outstanding principal balance was $15,375.

~~The future principal payments for the Company’s Notes as of June 30, 2022 are as follows:~~

2022 (a)
$ 16,194
2023 16,031
Total $ 32,225

~~(a)~~ ~~For the six-month period beginning July 1, 2022.~~

~~Revolving Line of Credit Facilities:~~

The Company maintains a $75,000 U.S. revolving line of credit and a €50,000 ($52,247) line-of-credit in Germany, both of which are available to certain foreign subsidiaries and allow for borrowings in the local currencies of those subsidiaries. The Company also maintains a €1,500 ($1,567) Italian overdraft facility. At June 30, 2022 and December 31, 2021, there were no amounts drawn on the U.S. line-of-credit, and there were $2,532 and $2,478, respectively, of guarantees issued against the facility, which reduce the amount of the facility available to draw. At June 30, 2022 and December 31, 2021, there were no amounts drawn on the Euro line-of-credit, and there were $2,050 and $2,161, respectively, of guarantees issued against those facilities, which reduce the amount available to draw. At June 30, 2022 and December 31, 2021, there were no amounts drawn on the Euro overdraft facility. After providing for the guarantees used, the total unused lines-of-credit and overdraft facilities are $124,232 at June 30, 2022.

10. DERIVATIVE FINANCIAL INSTRUMENTS

The Company's ~~only~~previous outstanding derivative financial instrument iswas an interest rate swap that iswas classified as a cash flow hedge of its variable rate debt. The ~~fair value amounts~~interest rate swap matured with the long-term note in ~~the condensed consolidated balance sheets were:~~

June 30, December 31,
2022 2021
Notional amounts (1)
$ 16,625 $ 17,219
Fair values:
Other assets $ 193 $ —
Other long-term liabilities and deferred income taxes — 242

~~(1)~~ ~~Notional amounts represent the gross contract/notional amount of the derivatives outstanding.~~May 2023.

~~Table of Contents~~

~~IPG PHOTONICS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(In thousands, except share and per share data)~~

The derivative gains and losses in the condensed consolidated financial statements related to the Company's ~~current and~~ previous interest rate swap ~~contracts~~contract were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Effective portion recognized in other comprehensive income, pretax:	Effective portion recognized in other comprehensive income, pretax:									Effective portion recognized in other comprehensive income, pretax:
Interest rate swap	Interest rate swap	$	156	$	66	$	435	$	155	Interest rate swap	$	(83)	$	156	$	(198)	$	435

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, ~~2022~~2023 and through the filing date of these condensed consolidated financial statements, the Company is aware of no ongoing legal proceedings that management estimates could have a material effect on the Company's Consolidated Financial Statements.

The Company has submitted a limited number of voluntary self-disclosures regarding compliance with export control laws and regulations to the Bureau of Industry and Security of the U.S. Department of Commerce. In October 2021, the U.S. Department of Justice is("DOJ") advised the Company it was conducting an investigation into certain shipments of equipment. The Company believes the DOJ's investigation has concluded; however, other agencies of the Federal government continue an investigation regarding our export practices. At this time, the Company is not able to ~~estimate~~conclude whether it is probable that the ~~amount~~Federal government will assert a claim or ~~probability of any monetary penalties or other~~assessment against the Company, nor can the Company estimate expenses that the Company may incur as a result of ~~this~~the investigation.

12. INCOME TAXES

The effective tax rates were ~~22.0%~~23.6% and ~~24.2%~~22.0% for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~23.7%~~25.7% and ~~23.6%~~23.7% for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022 respectively. There were net discrete tax benefits of ~~$2,909 and $137~~$1,751 for the three months ended June 30, ~~2022~~2023 and ~~2021, respectively,~~$2,909 for the three months ended June 30, 2022. There was a net discrete tax detriment of $221 and a net discrete tax benefit of $3,162 ~~and $4,425~~ for the six months ended June 30, 2023 and 2022, ~~and 2021, respectively, which were~~respectively. In 2023, the detriment related ~~in part~~ to the tax impact from tax deductions for ~~equity-based~~stock-based compensation that ~~were~~was less than the compensation expense recognized for ~~books in 2022 and exceeded compensation expense recognized for books in 2021. In 2022, the~~books; this detriment ~~for equity based compensation~~ was ~~more than~~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. The 2022 discrete items include a reduction in taxes ~~related~~as a result of filing amended returns to obtain foreign tax incentives for capital investments in prior years and to changes in tax position agreed to with tax authorities for prior year ~~audits.~~audits which were partly offset by the impact from tax deductions for equity-based compensation that were less than the compensation expense recognized for books.

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, ~~2022~~2023 and ~~2021:~~2022:

Six Months Ended June 30,
2022 2021
Balance, beginning of period $ 19,209 $ 14,706
Change in prior period positions (603) —
Additions for tax positions in current period 500 2,000
Foreign currency translation 1,876 155
Balance, end of period $ 20,982 $ 16,861

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IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)


	Six Months Ended June 30,
	2023		2022
Balance, beginning of period	$	15,841	$	19,209
Change in prior period positions	(1,273)		(603)
Additions for tax positions in current period	950		500
Foreign currency translation	(482)		1,876
Balance, end of period	$	15,036	$	20,982

The liability for uncertain tax benefits is included in other long-term liabilities and deferred income taxes at June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Substantially all of the liability for uncertain tax benefits related to various federal, state and foreign income tax matters would benefit the Company's effective tax rate, if recognized.

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~~IPG PHOTONICS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(In thousands, except share and per share data)~~

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

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income attributable to IPG Photonics Corporation common stockholders	Net income attributable to IPG Photonics Corporation common stockholders	$	56,968	$	69,800	$	126,540	$	137,927	Net income attributable to IPG Photonics Corporation common stockholders	$	62,321	$	56,968	$	122,456	$	126,540

Basic weighted average common shares	Basic weighted average common shares	51,687,494		53,471,512		52,111,167		53,547,757		Basic weighted average common shares	47,316,342		51,687,494		47,428,639		52,111,167
Dilutive effect of common stock equivalents	Dilutive effect of common stock equivalents	107,454		527,470		199,374		597,488		Dilutive effect of common stock equivalents	136,918		107,454		189,523		199,374
Diluted weighted average common shares	Diluted weighted average common shares	51,794,948		53,998,982		52,310,541		54,145,245		Diluted weighted average common shares	47,453,260		51,794,948		47,618,162		52,310,541
Basic net income attributable to IPG Photonics Corporation per common share	Basic net income attributable to IPG Photonics Corporation per common share	$	1.10	$	1.31	$	2.42	$	2.58	Basic net income attributable to IPG Photonics Corporation per common share	$	1.32	$	1.10	$	2.58	$	2.42

Diluted net income attributable to IPG Photonics Corporation per common share	Diluted net income attributable to IPG Photonics Corporation per common share	$	1.10	$	1.29	$	2.41	$	2.55	Diluted net income attributable to IPG Photonics Corporation per common share	$	1.31	$	1.10	$	2.57	$	2.41

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, ~~2022~~2023 and ~~2021~~2022 were as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
Non-qualified stock options	Non-qualified stock options	609,132	202,000	611,034	202,700	Non-qualified stock options	538,442	609,132	540,912	611,034
Restricted stock units	Restricted stock units	429,455	124,200	367,900	90,200	Restricted stock units	420,750	429,455	397,861	367,900
Performance stock units	Performance stock units	95,562	30,100	76,697	22,000	Performance stock units	64,590	95,562	47,818	76,697

Total weighed average anti-dilutive shares outstanding	Total weighed average anti-dilutive shares outstanding	1,134,149	356,300	1,055,631	314,900	Total weighed average anti-dilutive shares outstanding	1,023,782	1,134,149	986,591	1,055,631

On ~~February 15, 2022,~~May 2, 2023, the Company announced that its Board of Directors has authorized the purchase of up to $200,000 of IPG common stock. ~~This authorization is in addition to the Company's stock repurchase program authorized in May 2020.~~

For the three months ended June 30, ~~2022,~~2023, the Company ~~repurchased 2,381,903 shares of common stock~~has no repurchase under the May ~~2020 authorization and February 2022 authorization with an average price of $97.73 per share in the open market.~~ 2023 authorization.For the six months ended June 30, ~~2022,~~2023, the Company repurchased ~~2,983,018~~998,769 shares of common stock under a $300,000 purchase plan approved by the ~~May 2020 authorization and February~~Board of Directors in August 2022 ~~authorization with an~~at a weighted average price of ~~$104.43~~$112.29 per share in the open market. The impact on the reduction of weighted average shares for the ~~three and~~ six months ended June 30, ~~2022~~2023 was ~~1,130,055 shares and 1,000,972 shares, respectively. As of June 30, 2022, the Company completed all of the repurchases under the May 2020 authorization and February 2022 authorization.~~

~~14. SUBSEQUENT EVENTS~~

On August 2, 2022, the Company announced that its Board of Directors has authorized the purchase of up to $300,000 of IPG common stock. Share repurchases may be made periodically in open-market transactions, and are subject to market conditions, legal requirements and other factors. The share repurchase program authorization does not obligate the Company to repurchase any dollar amount or number of its shares, and repurchases may be commenced or suspended from time to time without prior notice.831,221 shares.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements."

Overview

We develop, manufacture and sell high-performance fiber lasers ~~fiber amplifiers~~ 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, ~~communications,~~ 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 ~~Germany, Russia~~ and ~~Belarus.~~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 Italy and Poland to meet the demand for our products and our sales and support needs. We have sales and service offices and applications laboratories worldwide.

We are vertically integrated such that we design and manufacture most of the key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers ~~amplifiers~~ and complementary products. Our vertically integrated operations allow us to reduce manufacturing costs, control quality, rapidly develop and integrate advanced products and protect our proprietary technology.

Factors and Trends That Affect Our Operations and Financial Results

In reading our financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our financial performance.

~~Recent Events.~~Russia-Ukraine Conflict. The Russia-Ukraine conflict and the sanctions imposed in response to this crisis have significantly curtailed our ability to use our manufacturing operations in Russia to supply other IPG operations outside of Russia. The conflict and the risk of additional sanctions has also increased the levels of uncertainty and risks facing the Company. While sales to third-parties in Russia were approximately 2% of our revenue in the first half of 2022, we rely on our facility in Russia to manufacture certain components that are used in our other manufacturing facilities and for certain finished product sold to the Chinese market, which amounted to approximately $100 million in 2021. We also have a factory in Belarus that supplies certain componentsCompany due to our ~~other~~ manufacturing ~~facilities. In~~operations in Belarus. Since the ~~first half~~start of ~~2022, we managed to navigate~~ the complex and evolving regulations, including sanctions, without material disruption to our ability to meet customer demand. We have increased inventory levels in Russia and Belarus in order to build safety stock. In addition, certain sanctions increased the cost of operating in Russia and Belarus as a result of shipping limitations, logistics challenges and changes in tariffs. The U.S. increased tariffs on Russian and Belarus goods late in the first quarter of 2022, resulting in a greater impact going forward than reflected in our first half of 2022 results.

~~In response to the risks from the Russia-Ukraine~~ conflict, we ~~initiated~~have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries, increasing inventories ~~in the U.S. and Europe~~worldwide and qualifying third-party suppliers. In ~~the first half of~~ 2022, we began hiring and training additional employees, ~~allocating workspace~~expanding capacity for increased production, and running ~~second~~additional shifts in the U.S., and ~~Germany. These~~Germany and adding additional manufacturing capacity in Italy and Poland.

In October 2022, the European Union introduced new sanctions that restrict our ability to ship and receive components from our factory in Russia to the E.U. beginning in January 2023. We believe the contingency measures outlined above that we have already put in place mitigate substantially all the effects of the recent sanctions on our ability to supply finished products to customers. If we have not fully mitigated the effect of these and other trade restrictions, or if new sanctions are adopted, our ability to supply finished products to customers could be impacted. Although we believe our contingency plans ~~also include~~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 ~~other~~ 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 ~~cost reductions,~~lower labor costs than the United States and Germany, with ongoing product expense reduction initiatives, higher productivity from automation, improved yields and product specifications.

~~Our Board of Directors has been monitoring and continues~~ We are also continuing to ~~assess and monitor risks to~~review our business associated with the Russia-Ukraine conflict through management reports and discussions with management at quarterly and special meetings since the conflict began. Although we continue to operateoperations in Russia and Belarus while we execute on plans to reduce reliance, if current conditions change such that we are no longer able to operate in or must significantly curtail operations in Russia or Belarus, we would then need to assess the net realizable value of our working capital and whether our long lived assets are impaired.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 II of Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, 2022.

Sales to third-parties in Russia were approximately 3% of our revenue for both the first half of 2023 and the full year ended December 31, 2022. 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

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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 $9 million for the six months ended June 30, 2023 and $62 million for the full year ended December 31, 2022.

Given the sanctions introduced by the European Union in October 2022, which imposed further restrictions on our Russian operations, 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. Refer to Note 5 "Restructuring" in the notes to the condensed consolidated financial statements for further information. At June 30, 2023, we had working capital excluding cash and cash equivalents of $22.0 million in Russia of which $19.2 million is inventory. We had $63.4 million of cash and cash equivalents in Russia. The net asset value of our long lived assets was $2.7 million. In addition to the impairment charges referenced above, the net value of assets in Russia has been reduced by $136.9 million due to the cumulative translation affect of the Russian ruble compared to the U.S. dollar, which is included in the accumulated comprehensive loss component of stockholders' equity. Depending upon the outcome of our review of our Russian operations, the cumulative translation effect of foreign exchange fluctuations that is currently included in accumulated comprehensive loss on our condensed consolidated balance sheets may be charged to our condensed consolidated statements of income.

We continue to manufacture laser cabinets and other mechanical components in Belarus. Trade sanctions to date have not significantly affected our ability to supply these items from Belarus to other manufacturing locations. The value of the long lived assets in Belarus was $34.3 million at June 30, 2023, and we had working capital excluding cash of $5.2 million in Belarus of which $4.9 million is inventory. In addition, we had $5.7 million of cash in Belarus.

COVID-19. Global demand trends have been impacted by the ongoing COVID-19 ~~pandemic and therefore remain uncertain at this time~~.pandemic. While business conditions generally improved from the severe contraction experienced in 2020, it is difficult to predict whether conditions could change if there are additional restrictions imposed as a result of a resurgence in COVID-19 infections. To date, we have been able to accommodate these changes to our business operations and continue to meet customer demand. If guidelines or mandates from relevant authorities becomes more restrictive due to a resurgence of COVID-19 in a particular region, the effect on our operations could be more significant. ~~This uncertainty continues to make forecasting our business challenging in the near to medium-term.~~

Supply Chain. We and our customers are experiencing increased lead times and costs for certain components purchased from third party suppliers; particularly electronic components. We, our customers and our suppliers continue to face constraints related to supply chain and logistics, including availability of capacity, materials, air cargo space, sea containers and higher freight rates. ~~Supply~~While supply chain and logistics constraints ~~are expected~~have moderated, they have not yet fully returned to ~~continue for the foreseeable future and could impact our ability to supply products and our customers' demand for our product or readiness to accept deliveries.~~pre-pandemic conditions. Supply chain constraints have not significantly affected our business but they have moderately increased our freight costs, caused us to carry higher levels of safety stock for certain inventory items, and increased the cost of certain electronic components, pushed out customer deliveries and caused delays in recognizing revenue for certain custom processing systems in our Genesis business due to delays in receiving robots. Notwithstanding these effects, we believe we have the ability to meet the near-term demand for our products, but the situation is fluid and subject to change.components.

Net sales. Our net sales have historically fluctuated from quarter to quarter. The increase or decrease in sales from a prior quarter can be affected by the timing of orders received from customers, the timing of shipments, the mix of OEM orders and one-time orders for products with large purchase prices, competitive pressures, acquisitions, economic and political conditions in a certain country or region and seasonal factors such as the purchasing patterns and levels of activity throughout the year in the regions where we operate. Net sales can be affected by the time taken to qualify our products for use in new applications in the end markets that we serve. Our sales cycle varies substantially, ranging from a period of a few weeks to as long as one year or more, but is typically several months. The adoption of our products by a new customer or qualification in a new application can lead to an increase in net sales for a period, which may then slow until we penetrate new markets or obtain new customers. Foreign exchange rates also affect our net sales, due to changes in the U.S. ~~Dollar~~dollar value of sales made in foreign currencies.

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 91% and 90% of our revenues for ~~both~~ the first half of ~~2022~~2023 and the full ~~2021~~2022 fiscal year, respectively, 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.

In response to inflation, some global central banks are adopting less accommodative monetary policy and have or expect to increase benchmark interest rates. An increase in interest rates could impact global demand and/or could lead to a recession that may reduce the demand for our products. In addition, an increase in interest rates would increase the cost of equipment financed with leases or debt.

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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, macroeconomic concerns and the impact of the COVID-19 outbreak that affect the level of capital expenditures or global commerce. With respect to the COVID-19 outbreak specifically, ~~while our net sales for the six months ended June 30, 2022 improved as compared to net sales achieved for the six months ended June 30, 2021,~~ the possible affect over the longer term remains uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of COVID-19 or new variants, the extent and effectiveness of containment actions taken, the approval, effectiveness, timing and widespread vaccination of the global population, and the impact of these and other factors on our customer base and general commercial activity.

The average selling prices of our products generally decrease as the products mature. These decreases result from factors such as increased competition, decreased manufacturing costs and increased unit volumes. We may also reduce selling prices in order to penetrate new markets and applications. Furthermore, we may negotiate discounted selling prices from time to time with certain customers that place high unit-volume orders.

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The secular shift to fiber laser technology in large materials processing applications, such as 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 affect other capital equipment manufacturers broadly and the machine tool and industrial laser industries more specifically.

Gross margin. Our total gross margin in any period can be significantly affected by a number of factors, including net sales, production volumes, competitive factors, product mix, and by other factors such as changes in foreign exchange rates relative to the U.S. ~~Dollar,~~dollar, tariffs and shipping costs. Many of these factors are not under our control. The following are examples of factors affecting gross margin:

•As our products mature, we can experience additional competition which tends to decrease average selling prices and affects gross margin;

•Our gross margin can be significantly affected by product mix. Within each of our product categories, the gross margin is generally higher for devices with greater average power. These higher power products often have better performance, more difficult specifications to attain and fewer competing products in the marketplace;

•Higher power lasers also use a greater number of optical components, improving absorption of fixed overhead costs and enabling economies of scale in manufacturing;

•The gross margin for certain specialty products may be higher because there are fewer or sometimes no equivalent competing products;

•Customers that purchase devices in greater unit volumes generally are provided lower prices per device than customers that purchase fewer units. In general, lower selling prices to high unit volume customers reduce gross margin although this may be partially offset by improved absorption of fixed overhead costs associated with larger product volumes, which drive economies of scale;

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

•Persistent inflation leading to increases in average manufacturing salaries as well as an increase in the purchase price of components including, but not limited to, electronic components and metal parts could negatively impact gross margin if we are not able to pass those increases on to customers by increasing the selling price of our ~~products.~~products; and finally,

•Changes in relative exchange rates between currencies we receive when selling our products and currencies we use to pay our manufacturing expenses.

We expect that some new technologies, products and systems will have returns above our cost of capital but may have gross margins below our corporate average. If we are able to develop opportunities that are significant in size, competitively advantageous or leverage our existing technology base and leadership, our current gross margin levels may not be maintained. Instead, we aim to deliver industry-leading levels of gross margins by growing sales, by taking market share in existing markets, or by developing new applications and markets we address, by reducing the cost of our products and by optimizing the efficiency of our manufacturing operations.

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A high proportion of our costs is fixed so costs are generally difficult to adjust or may take time to adjust in response to changes in demand. In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than is required by sales growth, gross margins could be negatively affected. Gross margins generally decline if production volumes are lower as a result of a decrease in sales or a reduction in inventory because the absorption of fixed manufacturing costs will be reduced. Gross margins generally improve when the opposite occurs. If both sales and inventory decrease in the same period, the decline in gross margin may be greater if we cannot reduce fixed costs or choose not to reduce fixed costs to match the decrease in the level of production. If we experience a decline in sales that reduces absorption of our fixed costs, or if we have production issues, our gross margins will be negatively affected.

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 ~~$14.7~~$11.2 million and ~~$7.6~~$14.7 million for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$25.5~~$23.3 million and ~~$15.6~~$25.5 million for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

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

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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, divestitures and litigation.

Research and development expenses. We plan to continue to invest in research and development to improve our existing components and products and develop new components, products, systems and applications technology. We believe that these investments will sustain our position as a leader in the fiber laser industry and will support development of new products that can address new markets and growth opportunities. The amount of research and development expense we incur may vary from period to period.

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 are evaluating certain U.S.-based assets for sale, including land and buildings. If the estimated sales value of any of these assets is below carrying value, then we may need to record an asset impairment charge when they are classified as held-for-sale. We have long-lived assets in Belarus with a carrying value of $34.3 million. If sanctions increase or if the geopolitical situation changes such that we can no longer use Belarus as a source of supply for our laser cabinets and other mechanical components, we may need to evaluate those assets for impairment, which may result in impairment charges.

Our valuation methodology for assessing impairment requires management to make significant judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance at many points during the analysis. Also, the process of evaluating the potential impairment of goodwill is subjective. We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results. If our analysis indicates potential impairment to goodwill in one or more of our reporting units, we may be required to record charges to earnings in our financial statements, which could negatively affect our results of operations.

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~~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.~~, Germany, Russia~~ and ~~Belarus)~~Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the ~~Euro,~~euro, the Russian ~~Ruble,~~ruble, and the Chinese ~~Yuan and the Japanese Yen~~yuan have had and could have an additional significant impact on our sales, costs and earnings. For the quarter ended June 30, ~~2022,~~2023, the ~~appreciation of the Russian Ruble and~~foreign exchange loss primarily created by depreciation of the Chinese ~~Yuan created a foreign exchange loss,~~yuan was partially offset by ~~the~~a foreign exchange gain created by the depreciation of the ~~Euro,~~Russian ruble as compared to the U.S. ~~Dollar. This is because our~~dollar. Our European and Russian subsidiaries have certain net assets denominated in U.S. ~~Dollars,~~dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. ~~Dollars.~~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

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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.

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 ~~19%~~17% for the six months ended June 30, ~~2022~~2023 and ~~19%~~15%, and ~~24%~~19% for the full years ~~2021~~2022 and ~~2020,~~2021, respectively. One of our customers accounted for ~~24%~~15% and ~~22%~~14% of our net accounts receivable at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.

Results of Operations for the Three Months Ended June 30, ~~2022~~2023 Compared to the Three Months Ended June 30, ~~2021~~2022

Net sales. Net sales ~~increased~~decreased by ~~$5.3~~$37.0 million, or ~~1.4%~~9.8%, to $340.0 million for the three months ended June 30, 2023 from $377.0 million for the three months ended June 30, ~~2022 from $371.7 million for the three months ended June 30, 2021.~~2022.

The table below sets forth sales by application:

Three Months Ended June 30,
2022 2021 Change
(In thousands, except for percentages)
Sales by Application % of Total % of Total
Materials processing $ 343,357 91.1 % $ 345,653 93.0 % $ (2,296) (0.7) %
Other applications 33,666 8.9 % 26,005 7.0 % 7,661 29.5 %
Total $ 377,023 100.0 % $ 371,658 100.0 % $ 5,365 1.4 %

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	Three Months Ended June 30,
	2023				2022				Change
	(In thousands, except for percentages)
Sales by Application			% of Total				% of Total
Materials processing	$	314,184	92.4	%	$	343,357	91.1	%	$	(29,173)	(8.5)	%
Other applications	25,787		7.6	%	33,666		8.9	%	(7,879)		(23.4)	%
Total	$	339,971	100.0	%	$	377,023	100.0	%	$	(37,052)	(9.8)	%

The table below sets forth sales by type of product and other revenue:


		Three Months Ended June 30,													Three Months Ended June 30,
		2022				2021				Change					2023				2022				Change
		(In thousands, except for percentages)													(In thousands, except for percentages)
Sales by Product	Sales by Product			% of Total				% of Total						Sales by Product			% of Total				% of Total
High Power Continuous Wave ("CW") Lasers	High Power Continuous Wave ("CW") Lasers	$	162,997	43.2	%	$	189,744	51.1	%	$	(26,747)	(14.1)	%	High Power Continuous Wave ("CW") Lasers	$	145,992	42.9	%	$	162,997	43.2	%	$	(17,005)	(10.4)	%
Medium Power CW Lasers	Medium Power CW Lasers	18,923		5.0	%	18,177		4.9	%	746		4.1	%	Medium Power CW Lasers	22,370		6.6	%	18,923		5.0	%	3,447		18.2	%
Pulsed Lasers	Pulsed Lasers	69,852		18.5	%	61,773		16.6	%	8,079		13.1	%	Pulsed Lasers	53,002		15.6	%	69,852		18.5	%	(16,850)		(24.1)	%
Quasi-Continuous Wave ("QCW") Lasers	Quasi-Continuous Wave ("QCW") Lasers	14,079		3.8	%	15,525		4.2	%	(1,446)		(9.3)	%	Quasi-Continuous Wave ("QCW") Lasers	13,840		4.1	%	14,079		3.8	%	(239)		(1.7)	%
Laser and Non-Laser Systems	Laser and Non-Laser Systems	38,443		10.2	%	29,597		8.0	%	8,846		29.9	%	Laser and Non-Laser Systems	38,187		11.2	%	38,443		10.2	%	(256)		(0.7)	%
Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	72,729		19.3	%	56,842		15.2	%	15,887		27.9	%	Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	66,580		19.6	%	72,729		19.3	%	(6,149)		(8.5)	%
Total	Total	$	377,023	100.0	%	$	371,658	100.0	%	$	5,365	1.4	%	Total	$	339,971	100.0	%	$	377,023	100.0	%	$	(37,052)	(9.8)	%

Materials processing

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

•High power CW laser sales decreased due to lower sales for flat sheet cutting applications, primarily in China. This was partially offset by a moderate increase in sales of high power CW lasers used in welding applications.

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

•Pulsed laser sales, including high power pulsed lasers, decreased due to lower sales for foil cutting, marking and engraving applications, partially offset by an increase in sales for pulsed lasers used for solar cell manufacturing and cleaning and ablation applications.

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•QCW laser sales decreased due to lower demand in marking and engraving applications.

•Laser and non-laser systems sales decreased due to decreased revenue in non-laser systems, partially offset by higher demand for LightWELD.

•Other revenue for materials processing increased due to higher sales of options, accessories and parts and services.

Other Applications

Sales from other applications decreased due to decreased demand for lasers used in medical procedures and advanced applications, and a decrease in telecom sales due to the divestiture of the telecommunications transmission product line in the third quarter of 2022.

Cost of sales and gross margin. Cost of sales decreased by $12.4 million, or 6.1%, to $192.3 million for the three months ended June 30, 2023 from $204.7 million for the three months ended June 30, 2022. Our gross margin decreased to 43.4% for the three months ended June 30, 2023 from 45.7% for the three months ended June 30, 2022. The decrease in gross margin was driven by an increase in costs of products sold from inventory and scrap expenses, partially offset by an increase in absorption of manufacturing costs, a decrease in provisions for excess and obsolete inventory and 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 in foreign currency.

Sales and marketing expense. Sales and marketing expense increased by $1.2 million, or 6.3%, to $20.2 million for the three months ended June 30, 2023 compared with $19.0 million for the three months ended June 30, 2022. The increase is due to higher personnel and related costs, offset by lower depreciation and amortization expenses. As a percentage of sales, sales and marketing expense increased to 5.9% from 5.0% for the three months ended June 30, 2023 and 2022, respectively.

Research and development expense. Research and development expense decreased by $7.1 million, or 23.2%, to $23.5 million for the three months ended June 30, 2023, compared to $30.6 million for the three months ended June 30, 2022. Decreases in personnel and related costs, amortization of production licenses, and other R&D expense are primarily the result of the divestiture of our telecommunications transmission product line in the third quarter of 2022. Further, depreciation expenses decreases are primarily the result of impairment of Russian long-lived assets in the fourth quarter of 2022. The decrease in expense is partially offset by an increase in materials expense used for research and development projects. As a percentage of sales, research and development expense decreased to 6.9% for the three months ended June 30, 2023 from 8.1% for the three months ended June 30, 2022.

General and administrative expense. General and administrative expense decreased by $3.7 million, or 11.1%, to $29.7 million for the three months ended June 30, 2023 from $33.4 million for the three months ended June 30, 2022. This change was primarily a result of lower depreciation expenses which were driven by impairment of Russian long-lived assets and the sale of our corporate aircraft in the fourth quarter of 2022, lower consultant expenses and lower repairs and maintenance expense; partially offset by higher personnel and related costs. As a percentage of sales, general and administrative expense decreased to 8.7% from 8.9% for the three months ended June 30, 2023 and 2022, respectively.

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 0.94, Russian ruble 66, Japanese yen 130 and Chinese yuan 6.61, respectively, we estimate that net sales for the three months ended June 30, 2023 would have been $8.8 million higher, gross profit would have been $4.9 million higher and total operating expenses would have been $1.9 million higher.

Other restructuring charges. Other restructuring charges of $1.0 million for the three months ended June 30, 2023 were related to personnel related restructuring charges and other post employment benefits in Russia. Refer to above "Factors and Trends That Affect Our Operations and Financial Results", section Russia-Ukraine Conflict for further detail.

Loss on foreign exchange. We incurred a foreign exchange transaction loss of $1.3 million for the three months ended June 30, 2023 as compared to a $17.6 million loss for the three months ended June 30, 2022. Our European and Russian subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. dollars. The foreign exchange loss for the three months ended June 30, 2023 was primarily attributable to loss from the depreciation of Chinese yuan and appreciation of the euro, partially offset by gain from the depreciation of Russian ruble as compared to the U.S. dollar.

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Interest income, net. Interest income, net was $9.3 million for the three months ended June 30, 2023 as compared to $1.2 million of income for three months ended June 30, 2022. 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.

Provision for income taxes. Provision for income taxes was $19.3 million for the three months ended June 30, 2023 compared to $16.1 million for the three months ended June 30, 2022, representing an effective tax rate of 23.6% and 22.0% for the three months ended June 30, 2023 and 2022, respectively. There were net discrete tax benefits of $1.8 million for the three months ended June 30, 2023 and $2.9 million for the three months ended June 30, 2022. The 2023 discrete benefit 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 which were partially offset by a detriment related to tax deductions for equity-based compensation that was less than the compensation expense recognized for books. The 2022 discrete items include a reduction in taxes as a result of filing amended returns to obtain foreign tax incentives for capital investments in prior years and to changes in tax position agreed to with tax authorities for prior year audits which was partly offset by the impact from tax deductions for equity-based compensation that were less than the compensation expense recognized for books.

Net income attributable to IPG Photonics Corporation. Net income attributable to IPG Photonics Corporation increased by $5.3 million to $62.3 million for the three months ended June 30, 2023 compared to $57.0 million for the three months ended June 30, 2022. Net income attributable to IPG Photonics Corporation as a percentage of our net sales increased by 3.2 percentage points to 18.3% for the three months ended June 30, 2023 from 15.1% for the three months ended June 30, 2022 due to the factors described above.

Results of Operations for the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Net sales. Net sales decreased by $59.9 million, or 8.0% to $687.1 million for the six months ended June 30, 2023 from $747.0 million for the six months ended June 30, 2022.

The table below sets forth sales by application:


	Six Months Ended June 30,
	2023				2022				Change
	(In thousands, except for percentages)
Sales by Application			% of Total				% of Total
Materials processing	$	627,153	91.3	%	$	682,320	91.3	%	$	(55,167)	(8.1)	%
Other applications	59,992		8.7	%	64,682		8.7	%	(4,690)		(7.3)	%
Total	$	687,145	100.0	%	$	747,002	100.0	%	$	(59,857)	(8.0)	%

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The table below sets forth sales by type of product and other revenue:


	Six Months Ended June 30,
	2023				2022				Change
	(In thousands, except for percentages)
Sales by Product			% of Total				% of Total
High Power CW Lasers	$	300,026	43.7	%	$	330,688	44.2	%	$	(30,662)	(9.3)	%
Medium Power CW Lasers	36,209		5.3	%	42,591		5.7	%	(6,382)		(15.0)	%
Pulsed Lasers	109,149		15.9	%	136,784		18.3	%	(27,635)		(20.2)	%
QCW Lasers	25,122		3.6	%	26,859		3.6	%	(1,737)		(6.5)	%
Laser and Non-Laser Systems	79,571		11.6	%	73,040		9.8	%	6,531		8.9	%
Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	137,068		19.9	%	137,040		18.4	%	28		—	%
Total	$	687,145	100.0	%	$	747,002	100.0	%	$	(59,857)	(8.0)	%

Materials processing

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

•High power CW laser sales decreased due to lower sales for cutting applications, partially offset by an increase in sales for welding applications. Within cutting applications, the decrease in sales was attributable to softer demand in China and increased competition in China. The increase in sales of high power CW lasers used in welding applications was driven by higher sales supporting E-mobility including electric vehicles, battery manufacturing and electric motors.

•Pulsed laser sales, including high power pulsed lasers, increased due to growth in sales for foil cutting for EV battery processing applications, and cleaning and stripping applications, partially offset by a decrease in demand for green pulsed lasers used for solar cell manufacturing applications.

•~~QCW laser sales decreased due to lower demand in fine processing for consumer electronics applications.~~

•~~The increase of revenue in laser and non-laser systems was attributable to higher demand for laser systems and LightWELD.~~

•~~Other revenue for materials processing increased due to higher sales of options and accessories.~~

~~Other Applications~~

~~Sales from other applications increased due to increased demand for lasers used in medical procedures and advanced applications, partially offset by decreased demand for telecommunications products.~~

~~Cost of sales and gross margin.~~ Cost of sales increased by $13.6 million, or 7.1%, to $204.7 million for the three months ended June 30, 2022 from $191.1 million for the three months ended June 30, 2021. Our gross margin decreased to 45.7% for the three months ended June 30, 2022 from 48.6% for the three months ended June 30, 2021. The decrease in gross margin was driven by an increase in inventory provisions, shipping costs, tariffs, and manufacturing expenses as a percentage of sales, partially offset by a reduction in cost of products sold from inventory as a percentage of sales due to sales mix.

~~Sales and marketing expense.~~ Sales and marketing expense decreased by $0.2 million, or 1.0%, to $19.0 million for the three months ended June 30, 2022 compared with $19.2 million for the three months ended June 30, 2021. The decrease is due to personnel and related costs, partial offset by increase in trade fairs and exhibits costs. As a percentage of sales, sales and marketing expense decreased to 5.0% and 5.2% for the three months ended June 30, 2022 and 2021, respectively.

~~Research and development expense.~~ Research and development expense decreased by $4.6 million, or 13.1%, to $30.6 million for the three months ended June 30, 2022, compared to $35.2 million for the three months ended June 30, 2021. This change was primarily a result of decreases in personnel costs and expense for materials used for research and development projects. As a percentage of sales, research and development expense decreased to 8.1% for the three months ended June 30, 2022 from 9.5% for the three months ended June 30, 2021.

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~~General and administrative expense.~~ General and administrative expense increased by $2.3 million, or 7.4%, to $33.4 million for the three months ended June 30, 2022 from $31.1 million for the three months ended June 30, 2021. This change was primarily a result of increases in consultant costs and information systems costs. As a percentage of sales, general and administrative expense increased to 8.9% from 8.4% for the three months ended June 30, 2022 and 2021, respectively.

~~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, net sales would have been $18.4 million higher, gross margin would have been $10.1 million higher and total operating expenses would have been $0.2 million higher for the three months ended June 30, 2022. These estimates assume constant exchange rates between fiscal year 2022 and fiscal year 2021 and are calculated using the average exchange rates for the three-month period ended June 30, 2021 for the respective currencies, which were US$1=Euro 0.83, US$1=Russian Ruble 74, US$1=Japanese Yen 109 and US$1=Chinese Yuan 6.46.

~~Loss on foreign exchange.~~ We incurred a foreign exchange transaction loss of $17.6 million for the three months ended June 30, 2022 as compared to a $2.8 million loss for the three months ended June 30, 2021. Our European and Russian subsidiaries have certain net assets denominated in U.S. Dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. Dollars. The foreign exchange loss for the three months ended June 30, 2022 was primarily attributable to appreciation of the Russian Ruble and depreciation of the Chinese Yuan, partially offset by depreciation of the Euro, as compared to the U.S. Dollar.

~~Provision for income taxes~~. Provision for income taxes was $16.1 million for the three months ended June 30, 2022 compared to $22.2 million for the three months ended June 30, 2021, representing an effective tax rate of 22.0% and 24.2% for the three months ended June 30, 2022 and 2021, respectively. The decrease in tax expense in 2022 is primarily due to reduced book income before taxes and to an increase in the benefit from discrete items. The discrete items included a detriment related to equity based compensation deductions for tax in 2022 whereas there was a benefit for this discrete item in 2021. The 2022 equity compensation detriment was more than offset by reductions in taxes as a result of foreign tax incentives for capital investments in prior years and to a benefit related to agreements with tax authorities related to prior year audits.

~~Net income attributable to IPG Photonics Corporation.~~ Net income attributable to IPG Photonics Corporation decreased by $12.8 million to $57.0 million for the three months ended June 30, 2022 compared to $69.8 million for the three months ended June 30, 2021. Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 3.7 percentage points to 15.1% for the three months ended June 30, 2022 from 18.8% for the three months ended June 30, 2021 due to the factors described above.

~~Results of Operations for the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021~~

~~Net sales.~~ ~~Net sales increased by $29.8 million, or 4.1%, to $747.0 million for the six months ended June 30, 2022 from $717.2 million for the six months ended June 30, 2021.~~

~~The table below sets forth sales by application:~~

Six Months Ended June 30,
2022 2021 Change
(In thousands, except for percentages)
Sales by Application % of Total % of Total
Materials processing $ 682,320 91.3 % $ 662,894 92.4 % $ 19,426 2.9 %
Other applications 64,682 8.7 % 54,349 7.6 % 10,333 19.0 %
Total $ 747,002 100.0 % $ 717,243 100.0 % $ 29,759 4.1 %

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~~The table below sets forth sales by type of product and other revenue:~~

Six Months Ended June 30,
2022 2021 Change
(In thousands, except for percentages)
Sales by Product % of Total % of Total
High Power CW Lasers $ 330,688 44.2 % $ 360,226 50.2 % $ (29,538) (8.2) %
Medium Power CW Lasers 42,591 5.7 % 34,059 4.8 % 8,532 25.1 %
Pulsed Lasers 136,784 18.3 % 117,168 16.3 % 19,616 16.7 %
QCW Lasers 26,859 3.6 % 29,191 4.1 % (2,332) (8.0) %
Laser and Non-Laser Systems 73,040 9.8 % 56,713 7.9 % 16,327 28.8 %
Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 137,040 18.4 % 119,886 16.7 % 17,154 14.3 %
Total $ 747,002 100.0 % $ 717,243 100.0 % $ 29,759 4.1 %

~~Materials processing~~

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

•High power CW laser sales decreased due to lower sales for cutting applications partially offset by an increase in sales for welding applications. Within cutting applications, the decrease in sales was attributable to softer demand and increased competition in China.North America. The increase in sales of high power CW lasers used in welding applications was driven by higher sales supporting E-mobility including electric vehicles, battery manufacturing and electric motors.

•The ~~increase~~decrease in medium power CW sales related to ~~an increase~~a decrease in demand for ~~welding~~cutting and ~~additive manufacturing~~welding applications.

•Pulsed laser sales, including high power pulsed lasers, ~~increased~~decreased due to ~~growth~~a decrease in sales for foil cutting, ~~for EV battery processing applications, cleaning and stripping applications and~~ marking and engraving applications, ~~for general manufacturing,~~ partially offset by ~~a decrease~~growth in ~~demand~~sales for cleaning and ablation applications and green pulsed lasers used for solar cell manufacturing applications.

•QCW laser sales decreased due to lower demand in fine processing for consumer electronics applications.

•~~The increase of revenue in~~Laser and non-laser systems sales increased driven by higher demand for LightWELD, partially offset by lower demand for other laser and non-laser ~~systems was attributable to higher demand for laser systems and LightWELD.~~systems.

•Other revenue for materials processing increased due to higher sales of options, accessories, and ~~accessories.~~parts and services.

Other Applications

Sales from other applications ~~increased~~decreased due to ~~increased~~decreased sales in telecommunications products, as a result of the business divestiture during the third quarter of 2022, and decreased demand for lasers used in medical procedures, partially offset by ~~decreased~~increased demand for lasers used in ~~and~~ advanced ~~applications and telecommunication products.~~applications.

Cost of sales and gross margin. Cost of sales ~~increased~~decreased by ~~$30.1~~$10.3 million, or ~~8.1%~~2.6%, to $392.5 million for the six months ended June 30, 2023 from $402.8 million for the six months ended June 30, ~~2022 from $372.7 million~~2022. Our gross margin decreased to 42.9% for the six months ended June 30, ~~2021. Our gross margin decreased to~~2023 from 46.1% for the six months ended June 30, ~~2022 from 48.0% for the six months ended June 30, 2021.~~2022. Gross margin decreased mainly due to an increase in cost of product sold from inventory ~~provisions,~~and scrap expenses, partially offset by an increase in absorption of manufacturing costs and a decrease in shipping costs and ~~manufacturing expenses~~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. dollar as compared to our sales ~~partially offset by a reduction~~which are predominantly in ~~cost of products sold from inventory as a percentage of sales due to sales mix.~~foreign currency.

Sales and marketing expense.Sales and marketing expense increased by ~~$1.3~~$1.9 million, or ~~3.4%~~4.8%, to $41.3 million for the six months ended June 30, 2023 compared with $39.4 million for the six months ended June 30, ~~2022 from $38.1 million for the six months ended June 30, 2021, primarily as a result of increases in trade fairs~~2022. The increase is due to personnel and ~~exhibits costs.~~related costs, offset by lower depreciation and amortization expenses. As a percentage of sales, sales and marketing expense ~~maintained at~~increased to 6.0% from 5.3% ~~of sales~~ for ~~both~~ the six months ended June 30, 2023 and 2022, ~~and 2021.~~respectively.

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Research and development expense. Research and development expense decreased by ~~$4.4~~$17.8 million, or ~~6.4%~~27.8%, to $46.3 million for the six months ended June 30, 2023, compared to $64.1 million for the six months ended June 30, ~~2022, compared to $68.5 million for~~2022. Decreases in personnel and related costs, amortization of production licenses, and other R&D expense are primarily the ~~six months ended June 30, 2021,~~result of the divestiture of our telecommunications transmission product line in the third quarter of 2022. Further, depreciation expenses decreased primarily as

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a result of ~~a decrease~~the Russia long-lived asset impairment in 2022. Lastly, we did not incur as much information systems expenses ~~related to materials used for research and development projects.~~as last year. As a percentage of sales, research and development expense decreased to 6.7% for the six months ended June 30, 2023 from 8.6% for the six months ended June 30, ~~2022 from 9.6% for the six months ended June 30, 2021.~~2022.

General and administrative expense. General and administrative expense ~~increased~~decreased by ~~$2.9~~$4.3 million, or ~~4.7%~~6.7%, to $59.8 million for the six months ended June 30, 2023 from $64.1 million for the six months ended June 30, 2022, ~~from $61.2 million for the six months ended June 30, 2021,~~ primarily as a result of ~~increases~~decreases in consultant costs, ~~personnel~~repairs and maintenance costs, depreciation expenses and information systems costs, partially offset by ~~an increase~~increases in ~~bad debt recoveries.~~personnel and related costs. As a percentage of sales, general and administrative expense increased to 8.7% for the six months ended June 30, 2023 from 8.6% for the six months ended June 30, ~~2022 from 8.5% for the six months ended June 30, 2021.~~2022.

Effect of exchange rates on net sales, gross profit and operating expenses. We estimate that, if exchange rates relative to the U.S. ~~Dollar~~dollar had been the same as one year ago, which were on average ~~Euro 0.83,~~euro 0.92, Russian ~~Ruble 74,~~ruble 76, Japanese ~~Yen 108~~yen 123 and Chinese ~~Yuan 6.47,~~yuan 6.48, respectively, we would have expected net sales for the six months ended June 30, ~~2022~~2023 to be ~~$28.1~~$24.1 million higher, gross profit to be ~~$14.4~~$13.2 million higher and total operating expenses would have been ~~$2.8~~$2.1 million higher.

~~Loss~~Other restructuring charges. Other restructuring charges of $1.1 million for the six months ended June 30, 2023 were related to personnel related restructuring charges and other post employment benefits in Russia. Refer to above "Factors and Trends That Affect Our Operations and Financial Results", section Russia-Ukraine Conflict for further detail.

Gain on foreign exchange. We ~~incurred~~benefited from a foreign exchange transaction gain of $1.3 million for the six months ended June 30, 2023 as compared to a loss of $11.8 million for the six months ended June 30, ~~2022 as compared to a gain of $4.3 million for the six months ended June 30, 2021.~~2022. Our European and Russian subsidiaries have certain net assets denominated in U.S. ~~Dollars,~~dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. ~~Dollars.~~dollars. The ~~loss~~gain for the six months ended June 30, ~~2022~~2023 was primarily attributable to gain from depreciation of the Russian ruble, partially offset by loss from the appreciation of the ~~Russian Ruble~~euro and ~~and~~the depreciation of ~~the~~ Chinese ~~Yuan, partially offset by depreciation of the Euro,~~yuan as compared to the U.S. ~~Dollar.~~dollar.

Interest income, net. Interest income, net, was $16.8 million for the six months ended June 30, 2023 as compared to $1.1 million of income for the six months ended June 30, 2022. 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.

Provision for income taxes. Provision for income taxes was $42.4 million for the six months ended June 30, 2023 compared to $39.3 million for the six months ended June 30, 2022, ~~compared to $42.6~~representing an effective tax rate of 25.7% and 23.7% for the six months ended June 30, 2023 and 2022, respectively. There was a net discrete tax detriment of $0.2 million and a net discrete tax benefit of $3.2 million for the six months ended June 30, ~~2021, representing an effective tax rate of 23.7%~~2023 and ~~23.6% for~~2022, respectively. In 2023, the ~~six months ended June 30, 2022 and 2021, respectively. The decrease in expense is primarily~~detriment related ~~to a decrease in income. For the six months ended June 30, 2022 and 2021, the net discrete tax benefits were $3.2 million and $4.4 million, respectively. The discrete items related in part~~ to the tax impact from tax deductions for ~~equity-based~~stock-based compensation that were less than the compensation expense recognized for ~~books in 2022 and exceeded compensation expense recognized for books in 2021. In 2022, the~~books; this detriment ~~for equity based compensation~~ was ~~more than~~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. The 2022 discrete items include a reduction in taxes as a result of filing amended returns to obtain foreign tax incentives for capital investments in prior years and to changes in tax position agreed to with tax authorities for prior year ~~audits.~~audits which was partly offset by the impact from tax deductions for equity-based compensation that were less than the compensation expense recognized for books.

Net income attributable to IPG Photonics Corporation. Net income attributable to IPG Photonics Corporation decreased by ~~$11.4~~$4.0 million to $122.5 million for the six months ended June 30, 2023 compared to $126.5 million for the six months ended June 30, ~~2022 compared to $137.9 million for the six months ended June 30, 2021.~~2022. Net income attributable to IPG Photonics Corporation as a percentage of our net sales ~~decreased~~increased by ~~2.3~~0.9 percentage ~~points~~point to 17.8% for the six months ended June 30, 2023 from 16.9% for the six months ended June 30, 2022 ~~from 19.2% for the six months ended June 30, 2021~~ due to the factors described above.

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Liquidity and Capital Resources

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 ~~investments in European and North American manufacturing capacity in order to execute plans to reduce reliance on Russia for manufacturing capacity,~~ our level of sales, the impact of the economic environment on our growth, ~~including any ongoing impact of the COVID-19 pandemic on certain global or regional economies, global or regional recessions,~~ 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.

~~With respect~~ 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 at our Russian factory due to sanctions. As of June 30, 2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current ~~geopolitical situation involving Ukraine~~or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Included in cash and cash equivalents are $63.4 million of cash and cash equivalents located in Russia, ~~the imposition~~and $5.7 million of cash and cash equivalents located in Belarus, as of June 30, 2023. Cash and cash equivalents in Russia are subject to capital controls that prevent repatriation by ~~the Russian government restricts~~dividend or distribution of capital. There are currently no restrictions on our ability to ~~access company cash in Russia, but would not materially disrupt our liquidity as a whole. The current balance of~~use cash and cash equivalents in Russia ~~is approximately 3%~~for operating purposes including converting cash to foreign currency for the payment of ~~total current cash and cash equivalents and short term investments.~~goods received from vendors outside of Russia. The Russian operations are self-funding. ~~We attempt to keep only amounts that are needed for working capital in Russia and approximately 11%~~Approximately 5% of our consolidated working capital including cash, cash equivalents and ~~short term~~short-term investments is located in Russia. We are making no new investments in Russia.

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The following table presents our principal sources of liquidity:


		June 30,		December 31,			June 30,		December 31,
		2022		2021			2023		2022
		(In thousands)					(In thousands)
Cash and cash equivalents	Cash and cash equivalents	$	771,788	$	709,105	Cash and cash equivalents	$	573,071	$	698,209
Short-term investments	Short-term investments	462,865		805,400		Short-term investments	523,341		479,374
Unused credit lines and overdraft facilities	Unused credit lines and overdraft facilities	124,232		128,772		Unused credit lines and overdraft facilities	126,529		125,965
Working capital (excluding cash, cash equivalents and short-term investments)	Working capital (excluding cash, cash equivalents and short-term investments)	620,296		519,745		Working capital (excluding cash, cash equivalents and short-term investments)	599,469		534,045

Short-term investments at June 30, ~~2022~~2023 consist of liquid investments including commercial paper, ~~corporate bonds, municipal bonds, certificates of deposit, and~~ U.S. Treasury and agency obligations, corporate bonds and term deposits with original maturities of greater than three months but less than one year. See Note 4,3, "Fair Value Measurements" in the notes to the condensed consolidated financial statements for further information about our short-term investments.

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The following table details our line-of-credit facilities ~~and long-term notes~~ as of June 30, ~~2022:~~2023:

Description

Total Facility/ Note

Interest Rate

Maturity

Security

U.S. Revolving Line of Credit (1)

$75.0 million

BSBY plus 0.8% to 1.2%, depending on our performance

April 2025

Unsecured

Euro Credit Facility (Germany) (2)

Euro 50.0 million
($~~52.2~~54.4 million)

ESTR plus 0.8% or Euribor plus 0.65%

July 2023

Unsecured, guaranteed by parent company and German subsidiary

Other Euro Facility (3)

Euro 1.5 million
($1.6 million)

~~1.48% as of June 30, 2022 and 2.03% starting July 1, 2022~~4.65%

~~March~~August 2023

Common pool of assets of Italian subsidiary

~~Long-term Secured Note~~ ~~(4)~~

~~$15.6 million~~

~~Fixed at 2.74%~~

~~July 2022~~

~~Secured by the corporate aircraft~~

~~Long-term Unsecured Note~~ ~~(5)~~

~~$16.6 million~~

~~1.20% above LIBOR, fixed using an interest rate swap at 2.85% per annum~~

~~May 2023~~

~~Unsecured~~

(1) This facility is available to certain foreign subsidiaries in their respective local currencies. At June 30, ~~2022,~~2023, there were no amounts drawn on this line; however, there were $2.5 million of guarantees issued against the line which reduces total availability.

(2) This facility is also available to certain foreign subsidiaries in their respective local currencies. At June 30, ~~2022,~~2023, there were no drawings on this facility; however, there were ~~$2.1~~$2.0 million of guarantees issued against the line which reduces total availability. We are evaluating options for replacing this facility which is not material to our liquidity needs.

(3) At June 30, ~~2022,~~2023, there were no drawings. ~~This facility renews annually.~~

~~(4)~~ At ~~maturity, the outstanding note balance was $15.4 million, which was paid in July 2022.~~

~~(5)~~ ~~At maturity, the outstanding note balance will be $15.4 million.~~

~~Our~~June 30, 2023, our largest committed credit lines are with Bank of America N.A. and Deutsche Bank AG in the amounts of $75.0 million and ~~$52.2~~$54.4 million (or ~~50.0~~€50.0 million ~~Euro~~ as described above), respectively, and neither of them is syndicated. The banks have made amendments of our credit agreements to modify LIBOR and EONIA reference rates as these rates are phased out as borrowing rates. We do not plan to amend our long-term unsecured note as it matures prior to the final phase-out of LIBOR.

We are required to meet certain financial covenants associated with our U.S. revolving line of credit ~~and long-term debt~~ facility. 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 June 30, ~~2022.~~

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2023.

The financial covenants in our loan documents may cause us to not make or to delay investments and actions that we might otherwise undertake because of limits on capital expenditures and amounts that we can borrow or lease. In the event that we do not comply with any one of these covenants, we would be in default under the loan agreement or loan agreements, which may result in acceleration of the debt, cross-defaults on other debt or a reduction in available liquidity, any of which could harm our results of operations and financial condition.

See Note 9, "Financing Arrangements" in the notes to the condensed consolidated financial statements for further information about our facilities and term debt.

The following table presents cash flow activities:


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022
		(In thousands)					(In thousands)
Cash provided by operating activities	Cash provided by operating activities	$	95,161	$	203,190	Cash provided by operating activities	$	103,946	$	95,161
Cash provided by (used in) investing activities		280,221		(283,643)
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(90,541)		280,221
Cash used in financing activities	Cash used in financing activities	(311,450)		(35,684)		Cash used in financing activities	(129,793)		(311,450)

Operating activities. Net cash provided by operating activities ~~decreased~~increased by ~~$108.0~~$8.7 million to $103.9 million for the six months ended June 30, 2023 from $95.2 million for the six months ended June 30, 2022, ~~from $203.2 million for the six months ended June 30, 2021,~~ primarily due to ~~an increase~~a decrease in cash used byin 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

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other taxes payable are largely dependent on the timing of payments for those items. The ~~decrease~~increase in cash flow from operating activities in ~~2022~~2023 primarily resulted from:

•~~an increase~~a decrease in cash used by inventory, ~~including an increase in days inventory on hand~~ as the company ~~builds~~is moderating additions to safety stocks for supply chain disruptions related to third party electronic parts and components internally manufactured by our factory in ~~Russia,~~Russia;

•a decrease in cash used by accrued expenses due to lower bonus payments, partially offset by an increase in cash used by contract liabilities; and

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

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

•a decrease in cash provided by net income after adjusting for non-cash operating activities;

•an increase in cash used by ~~accrued expenses due to higher bonus payments and lower bonus accruals,~~

•~~a decrease in cash provided by~~ accounts ~~payable~~receivable due to timing of ~~payments,~~

•~~a decrease in cash provided by accounts receivable due to increased sales,~~collection;

•an increase in cash used by ~~income~~prepaid expenses and other ~~taxes payable; partially offset by,~~assets due to timing of billings on custom systems; and

•an increase in cash ~~provided~~used by ~~prepaid expenses and other assets.~~accounts payable due to timing of payments.

Investing activities. Net cash ~~provided by~~used in investing activities was ~~$280.2~~$90.5 million for the six months ended June 30, ~~2022~~2023 as compared to cash provided by investing activities of $280.2 million in 2022. The cash used in investing activities in 2023 related to $33.5 million of ~~$283.6~~net purchases of short-term investments and $59.1 million ~~in 2021.~~of cash used for capital expenditures. The cash provided by investing activities in 2022 related to $341.8 million of net proceeds from short-term investments, partially offset by $59.9 million of cash used for capital expenditures. ~~The cash used in investing activities in 2021 related to $229.0 million of net purchases of short-term investments and $54.3 million of capital expenditures.~~

In ~~2022,~~2023, we expect to ~~incur between~~invest approximately $130 million to $140 million in capital expenditures, excluding acquisitions. Capital expenditures include investments in property, facilities and equipment to add capacity worldwide to support anticipated revenue growth, increase vertical integration, increase redundant manufacturing capacity for critical components and enhance research and development capabilities. The timing and extent of any capital expenditures in and between periods can have a significant effect on our cash flow. If we obtain financing for certain projects, our cash expenditures would be reduced in the year of expenditure. Many of the capital expenditure projects that we undertake have long lead times and are difficult to cancel or defer to a later period once a project has been started.

Financing activities. Net cash used in financing activities was ~~$311.5~~$129.8 million for the six months ended June 30, ~~2022~~2023 as compared to net cash used of ~~$35.7~~$311.5 million in ~~2021.~~2022. The cash used in financing activities in 2023 primarily related to the purchase of treasury stock of $113.0 million and principal payments on our long-term borrowings of $16.0 million. The cash used in financing activities in 2022 primarily related to the purchase of treasury stock of $311.6 million, $1.9 million of principal payments on our long-term borrowings; partially offset by, proceeds of $2.1 million from the issuance of common stock under the employee stock purchase plan and the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units. The cash used in financing activities in 2021 related to the purchase of treasury stock of $41.7 million, $2.6 million of payments of purchase price holdbacks from business combinations and $1.9 million of principal payments on our long-term borrowings; partially offset by, proceeds of $10.6 million from the exercise of stock options net ofmillion.

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~~amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units.~~

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information are forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements.

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, ~~2021~~2022 (the "Annual Report"), and in Item 1A, "Risk Factors" of Part II ~~Item 1A~~ of ~~Form 10-Q filed with the SEC~~Quarterly Report for the quarter ended March 31, ~~2022.~~2023. 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.

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Recent Accounting Pronouncements

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash and cash equivalents ~~and our debt~~ and foreign exchange rate risk.

Interest rate risk. Certain interest rates are variable and fluctuate with current market conditions. Our investments have limited exposure to market risk. We maintain a portfolio of cash, cash equivalents and short-term investments consisting primarily of bank deposits, money market funds, certificates of deposit, commercial paper, corporate bonds and ~~municipal bonds.~~U.S treasury and agency obligations. None of these investments have a maturity date in excess of one year. Because of the short-term nature of these instruments, a sudden change in market interest rates would not be expected to have a material impact on our financial condition or results of operations.

We are also exposed to market risk as a result of increases or decreases in the amount of interest expense we must pay on our ~~bank debt and~~ borrowings on our bank credit facilities. ~~Our interest obligations on our long-term debt are fixed either by the underlying agreement or by means of an interest rate swap agreement.~~ Although our U.S. revolving line of credit and our ~~Euro~~euro credit facility have variable rates, we do not believe that a 10% change in market interest rates would have a material impact on our financial position or results of operations.

Exchange rates. Due to our international operations, a significant portion of our net sales, cost of sales and operating expenses are denominated in currencies other than the U.S. ~~Dollar,~~dollar, principally the ~~Euro,~~euro, the Russian ~~Ruble,~~ruble, and the Chinese ~~Yuan and the Japanese Yen.~~yuan. Changes in the exchange rate of the U.S. ~~Dollar~~dollar versus the functional currencies of our subsidiaries affect the translated value and relative level of sales and net income that we report from one period to the next. In addition, our subsidiaries may have assets or liabilities denominated in a currency other than their functional currency which results in foreign exchange transaction gains and losses due to changes in the value of the functional currency versus the currency the assets and liabilities are denominated in. The loss on foreign exchange transactions totaled $1.3 million for the three months ended June 30, 2023 compared to a loss of $17.6 million for the three months ended June 30, ~~2022 compared to a loss of $2.8 million for the three months ended June 30, 2021.~~2022. Management attempts to minimize these exposures by partially or fully off-setting foreign currency denominated assets and liabilities at our subsidiaries that operate in different functional currencies. The effectiveness of this strategy can be limited by the volume of underlying transactions at various subsidiaries and by our ability to accelerate or delay inter-company cash settlements. As a result, we are

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unable to create a perfect offset of the foreign currency denominated assets and liabilities. At June 30, ~~2022,~~2023, our material foreign currency exposure is net U.S. ~~Dollar~~dollar denominated assets at subsidiaries where the ~~Euro~~euro or the Russian ~~Ruble~~ruble is the functional currency and U.S. ~~Dollar~~dollar denominated liabilities where the Chinese ~~Yuan~~yuan is the functional currency. The U.S. ~~Dollar~~dollar denominated assets are comprised of cash, third party receivables and inter-company receivables. The U.S. ~~Dollar~~dollar denominated liabilities are comprised of inter-company payables. A 5% change in the relative exchange rate of the U.S. ~~Dollar~~dollar to the ~~Euro~~euro as of June 30, ~~2022~~2023 applied to the net U.S. ~~Dollar~~dollar asset balances, would result in a foreign exchange gain of ~~$3.8~~$1.5 million if the U.S. ~~Dollar~~dollar appreciated and a ~~$4.0~~$1.5 million foreign exchange loss if the U.S. ~~Dollar~~dollar depreciated. A 5% change in the relative exchange rate of the U.S. ~~Dollar~~dollar to the Russian ~~Ruble~~ruble as of June 30, ~~2022~~2023 applied to the net U.S. ~~Dollar~~dollar asset balances, would result in a foreign exchange gain of ~~$1.8~~$0.4 million if the U.S. ~~Dollar~~dollar appreciated and a ~~$1.9~~$0.4 million foreign exchange loss if the U.S. ~~Dollar~~dollar depreciated. A 5% change in the relative exchange rate of the U.S. ~~Dollar~~dollar to the Chinese ~~Yuan~~yuan as of June 30, ~~2022~~2023 applied to the net U.S. ~~Dollar~~dollar liabilities balances, would result in a foreign exchange loss of ~~$4.5~~$1.5 million if the U.S. ~~Dollar~~dollar appreciated and a ~~$4.7~~$1.6 million foreign exchange gain if the U.S. ~~Dollar~~dollar depreciated. Volatility between the U.S. ~~Dollar~~dollar and the currencies to which we are exposed may be increased by the COVID-19 pandemic, sanctions on the Russian government and changes in central bank policy.

In addition, we are exposed to foreign currency translation risk for those subsidiaries whose functional currency is not the U.S. ~~Dollar~~dollar as changes in the value of their functional currency relative to the U.S. ~~Dollar~~dollar affect the translated amounts of our assets and liabilities. Changes in the translated value of assets and liabilities due to changes in functional currency exchange rates relative to the U.S. ~~Dollar~~dollar result in foreign currency translation adjustments that are a component of other comprehensive income or loss.

Foreign currency derivative instruments can also be used to hedge exposures and reduce the risks of certain foreign currency transactions; however, these instruments provide only limited protection and can carry significant cost. We have no foreign currency derivative instruments as of June 30, ~~2022.~~2023. We will continue to analyze our exposure to currency exchange rate fluctuations and may engage in financial hedging techniques in the future to attempt to minimize the effect of these potential fluctuations. Exchange rate fluctuations may adversely affect our financial results in the future.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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Under the supervision of our chief executive officer and our chief financial officer, our management has evaluated the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based upon that evaluation, our chief executive officer and our chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

Changes in Internal Controls

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that occurred during the ~~last fiscal~~ quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ~~We are continually monitoring and assessing the changes to business processes resulting from COVID-19 to ensure the design and operating effectiveness of our controls are adequate.~~

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information with respect to this item may be found in Note 11, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and in Item 1A of Part II of our Quarterly Report on Form 10-Q for the ~~quarter~~quarterly period ended March 31, ~~2022,~~2023, which could materially and adversely affect our financial condition, results of operations or cash flows, or cause our actual results to differ materially from those projected in any forward-looking statements. We may also face other risks and uncertainties that are not presently known, are not currently believed to be material, or are not identified in our Annual Report or ~~this~~ Quarterly ~~Report~~Reports because they are common to all businesses.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

There have been no sales of unregistered securities for the three months ended June 30, ~~2022.~~2023.

Issuer Purchases of Equity Securities

The following table reflects issuer purchases of equity securities for the three months ended June 30, ~~2022:~~2023:

Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1, 2022 — April 30, 2022 675,000 (2) $ 97.49 675,000 $ 166,971
May 1, 2022 — May 31, 2022 927,681 (1), (2) 99.58 926,563 74,703
June 1, 2022 — June 30, 2022 780,340 (2) 95.73 780,340 —
Total 2,383,021 $ 97.73 2,381,903 $ —


	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs



April 1, 2023 — April 30, 2023	—		$	—	—	$	—
May 1, 2023 — May 31, 2023	1,053	(1)	117.28		—	200,000
June 1, 2023 — June 30, 2023	—		—		—	200,000



Total	1,053		$	117.28	—	$	200,000

(1) In 2012, our Board of Directors approved "withhold to cover" as a tax payment method for vesting of restricted stock awards for certain employees. Pursuant to the "withhold to cover" method, we withheld from such employees the shares noted in the table above to cover tax withholding related to the vesting of their awards. For the three months ended June 30, ~~2022~~2023, a total of ~~1,118~~1,053 and shares were withheld at an average price of ~~$101.68.~~

(2) On May 5, 2020, we announced that our Board of Directors authorized the purchase of up to $200 million of IPG common stock (the "May 2020 authorization"), exclusive of any fees, commissions or other expenses.

On February 15, 2022, we announced that our Board of Directors authorized the purchase of up to $200 million of IPG common stock (the "February 2022 authorization"). This new authorization was in addition to the Company's May 2020 authorization.

Share repurchases under both purchase authorizations were made periodically in open-market transactions using the Company's working capital, and were subject to market conditions, legal requirements and other factors. The share purchase program authorizations did not obligate us to repurchase any dollar amount or number of our shares, and repurchases could be commenced or suspended from time to time without prior notice.

We repurchased 2,381,903 shares in the second quarter of 2022 under the May 2020 authorization and February 2022 authorization. As of June 30, 2022, we completed all of the repurchases under both authorizations.$117.28.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~During the Registrant’s last fiscal quarter, the following directors and officers of the Registrant adopted Rule 10b5-1 trading arrangement plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (each, a “Rule 10b5-1 trading arrangement”):

•on May 10, 2023, Dr. Eugene Scherbakov, Director and CEO, adopted a Rule 10b5-1 trading arrangement for the sale of up to 13,000 shares, including shares acquired upon exercise of stock options, over a period beginning August 13, 2023 and ending February 28, 2024 on the open market at prevailing prices, subject to minimum price thresholds; and

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•on June 15, 2023, Ms. Agnes Tang, Director, adopted a Rule 10b5-1 trading arrangement for the sale of up to 900 shares over a period beginning September 13, 2023 and ending March 31, 2024 on the open market at prevailing prices, subject to minimum price thresholds.

ITEM 6. EXHIBITS

(a) Exhibits


Exhibit No.						Description

3.1						Restated Certificate of Incorporation of the Registrant
10.1						2006 Incentive Compensation Plan, as amended and restated effective May 23, 2023
31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32						Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350
101.INS						Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema
101.CAL						XBRL Taxonomy Extension Calculation Linkbase
101.LAB						XBRL Taxonomy Extension Label Linkbase
101.PRE						XBRL Taxonomy Extension Presentation Linkbase
101.DEF						XBRL Taxonomy Extension Definition Linkbase
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


	IPG PHOTONICS CORPORATION

Date: August ~~3, 2022~~1, 2023	By:	/s/ Eugene A. Scherbakov
		Eugene A. Scherbakov
		Chief Executive Officer (Principal Executive Officer)

Date: August ~~3, 2022~~1, 2023	By:	/s/ Timothy P.V. Mammen
		Timothy P.V. Mammen
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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