株探米国株
英語
エドガーで原本を確認する
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Table of Contents

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 September 30, 2023
OR
☐ 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
image.jpg
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)
377 Simarano Drive, Marlborough, Massachusetts
 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 October 30, 2023, there were 46,922,454 shares of the registrant's common stock outstanding.


TABLE OF CONTENTS
 


Table of Contents
PART I—FINANCIAL INFORMATION
ITEM 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2023 2022
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 528,284  $ 698,209 
Short-term investments 605,207  479,374 
Accounts receivable, net 229,597  211,347 
Inventories 479,829  509,363 
Prepaid income taxes 32,538  40,934 
Prepaid expenses and other current assets 45,005  47,047 
Total current assets 1,920,460  1,986,274 
Deferred income taxes, net 79,583  75,152 
Goodwill 38,265  38,325 
Intangible assets, net 28,056  34,120 
Property, plant and equipment, net 581,970  580,561 
Other assets 24,530  28,848 
Total assets $ 2,672,864  $ 2,743,280 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ —  $ 16,031 
Accounts payable 33,126  46,233 
Accrued expenses and other current liabilities 174,517  202,764 
Income taxes payable 12,066  9,618 
Total current liabilities 219,709  274,646 
Other long-term liabilities and deferred income taxes 69,204  83,274 
Total liabilities 288,913  357,920 
Commitments and contingencies (Note 11)
IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 56,249,626 and 46,921,754 shares issued and outstanding, respectively, at September 30, 2023; 56,017,672 and 48,138,257 shares issued and outstanding, respectively, at December 31, 2022.
 6  6 
Treasury stock, at cost, 9,327,872 and 7,879,415 shares held at September 30, 2023 and December 31, 2022, respectively.
(1,097,537) (938,009)
Additional paid-in capital 978,331  951,371 
Retained earnings 2,753,966  2,576,516 
Accumulated other comprehensive loss (250,815) (204,524)
Total equity 2,383,951  2,385,360 
Total liabilities and equity $ 2,672,864  $ 2,743,280 
See notes to condensed consolidated financial statements.
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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In thousands, except per share data)
Net sales $ 301,401  $ 349,006  $ 988,546  $ 1,096,008 
Cost of sales 168,499  198,582  561,015  601,419 
Gross profit 132,902  150,424  427,531  494,589 
Operating expenses:
Sales and marketing 22,243  19,383  63,518  58,767 
Research and development 24,708  25,436  70,990  89,494 
General and administrative 30,958  33,813  90,746  97,888 
Gain on divestiture —  (21,748) —  (21,748)
Impairment of long-lived assets 1,237  919  1,237  919 
Restructuring charges (recoveries), net (1,501) —  (357) — 
(Gain) loss on foreign exchange (449) (541) (1,798) 11,289 
Total operating expenses 77,196  57,262  224,336  236,609 
Operating income 55,706  93,162  203,195  257,980 
Other income, net:
Interest income, net 11,569  3,625  28,366  4,732 
Other income, net 545  301  1,161  683 
Total other income 12,114  3,926  29,527  5,415 
Income before provision for income taxes 67,820  97,088  232,722  263,395 
Provision for income taxes 12,826  20,390  55,272  59,738 
Net income 54,994  76,698  177,450  203,657 
Less: net income attributable to non-controlling interests —  434  —  853 
Net income attributable to IPG Photonics Corporation common stockholders $ 54,994  $ 76,264  $ 177,450  $ 202,804 
Net income attributable to IPG Photonics Corporation per common share:
Basic $ 1.16  $ 1.48  $ 3.75  $ 3.94 
Diluted $ 1.16  $ 1.47  $ 3.73  $ 3.93 
Weighted average common shares outstanding:
Basic 47,237  51,629  47,364  51,449 
Diluted 47,388  51,737  47,536  51,626 
See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In thousands)
Net income $ 54,994  $ 76,698  $ 177,450  $ 203,657 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments and other (31,538) (71,839) (46,139) (16,921)
Unrealized gain (loss) on derivatives —  51  (152) 383 
Total other comprehensive loss (31,538) (71,788) (46,291) (16,538)
Comprehensive income 23,456  4,910  131,159  187,119 
Less: comprehensive income attributable to non-controlling interests —  428  —  924 
Comprehensive income attributable to IPG Photonics Corporation $ 23,456  $ 4,482  $ 131,159  $ 186,195 

See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2023 2022
(In thousands)
Cash flows from operating activities:
Net income $ 177,450  $ 203,657 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 52,678  69,852 
Deferred income taxes (4,835) (21,550)
Stock-based compensation 27,392  29,201 
Impairment of long-lived assets and restructuring charges (recoveries), net (486) 919 
Unrealized (gain) loss on foreign currency transactions (4,322) 8,355 
Gain on divestiture —  (21,748)
Provisions for inventory, warranty and bad debt 43,889  58,990 
Other (12,997) 4,195 
Changes in assets and liabilities that (used) provided cash, net of acquisitions:
Accounts receivable (25,026) 42,517 
Inventories (20,736) (148,959)
Prepaid expenses and other assets (5,504) 6,584 
Accounts payable (10,231) (2,837)
Accrued expenses and other liabilities (39,646) (40,327)
Income and other taxes payable 12,298  (17,823)
Net cash provided by operating activities 189,924  171,026 
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment (85,256) (84,552)
Proceeds from sales of property, plant and equipment 30,425  837 
Purchases of short-term investments (898,455) (914,598)
Proceeds from short-term investments 789,844  1,355,883 
Acquisitions of businesses, net of cash acquired —  (2,000)
Proceeds from divestiture, net of cash sold —  52,141 
Other 446  (246)
Net cash (used in) provided by investing activities (162,996) 407,465 
Cash flows from financing activities:
Principal payments on long-term borrowings (16,031) (17,829)
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 (432) 2,353 
Purchase of treasury stock, at cost (159,528) (382,885)
Purchase of non-controlling interests —  (2,500)
Net cash used in financing activities (175,991) (400,861)
Effect of changes in exchange rates on cash and cash equivalents (20,862) (17,461)
Net (decrease) increase in cash and cash equivalents (169,925) 160,169 
Cash and cash equivalents — Beginning of period 698,209  709,105 
Cash and cash equivalents — End of period $ 528,284  $ 869,274 
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,110  $ 2,766 
Cash paid for income taxes $ 55,001  $ 83,771 
Non-cash transactions:
Demonstration units transferred from inventory to other assets $ 3,872  $ 3,520 
Inventory transferred to machinery and equipment $ 2,215  $ 2,439 
Additions to property, plant and equipment included in accounts payable
 $ 1,692  $ 1,989 
Leased assets obtained in exchange for new operating lease liabilities $ 2,053  $ 6,237 
See notes to condensed consolidated financial statements.
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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended September 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, July 1, 2023 47,364,320  $ 6  (8,878,184) $ (1,051,040) $ 969,889  $ 2,698,972  $ (219,277) $ —  $ 2,398,550 
Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes 7,122  —  —  —  300  —  —  —  300 
Purchased common stock (449,688) —  (449,688) (46,497) —  —  —  —  (46,497)
Stock-based compensation —  —  —  —  8,142  —  —  —  8,142 
Net income —  —  —  —  —  54,994  —  —  54,994 
Foreign currency translation adjustments and other —  —  —  —  —  —  (31,538) —  (31,538)
Balance, September 30, 2023 46,921,754  $ 6  (9,327,872) $ (1,097,537) $ 978,331  $ 2,753,966  $ (250,815) $ —  $ 2,383,951 
Balance, July 1, 2022 50,206,255  $ 6  (5,760,999) $ (750,109) $ 930,950  $ 2,593,147  $ (134,778) $ 1,135  $ 2,640,351 
Exercise of stock options and vesting of RSUs and PSUs, net of shares withheld for taxes 6,809  —  —  —  265  —  —  —  265 
Purchased common stock (819,422) —  (819,422) (71,279) —  —  —  —  (71,279)
Stock-based compensation —  —  —  —  8,762  —  —  —  8,762 
Net income —  —  —  —  —  76,264  —  434  76,698 
Foreign currency translation adjustments and other —  —  —  —  —  —  (71,833) (6) (71,839)
Purchase of non-controlling interests —  —  —  —  (937) —  —  (1,563) (2,500)
Unrealized gain on derivatives, net of tax —  —  —  —  —  —  51  —  51 
Balance, September 30, 2022 49,393,642  $ 6  (6,580,421) $ (821,388) $ 939,040  $ 2,669,411  $ (206,560) $ —  $ 2,580,509 
Nine Months Ended September 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, 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 201,551  —  —  —  (2,925) —  —  —  (2,925)
Common stock issued under employee stock purchase plan 30,403  —  —  —  2,493  —  —  —  2,493 
Purchased common stock (1,448,457) —  (1,448,457) (159,528) —  —  —  —  (159,528)
Stock-based compensation —  —  —  —  27,392  —  —  —  27,392 
Net income —  —  —  —  —  177,450  —  —  177,450 
Foreign currency translation adjustments and other —  —  —  —  —  —  (46,139) —  (46,139)
Unrealized loss on derivatives, net of tax —  —  —  —  —  —  (152) —  (152)
Balance, September 30, 2023 46,921,754  $ 6  (9,327,872) $ (1,097,537) $ 978,331  $ 2,753,966  $ (250,815) $ —  $ 2,383,951 
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 156,640  —  —  —  19  —  —  —  19 
Common stock issued under employee stock purchase plan 29,177  —  —  —  2,334  —  —  —  2,334 
Purchased common stock (3,802,440) —  (3,802,440) (382,885) —  —  —  —  (382,885)
Stock-based compensation —  —  —  —  29,201  —  —  —  29,201 
Net income —  —  —  —  —  202,804  —  853  203,657 
Foreign currency translation adjustments and other —  —  —  —  —  —  (16,992) 71  (16,921)
Purchase of non-controlling interests —  —  —  —  (937) —  —  (1,563) (2,500)
Unrealized gain on derivatives, net of tax —  —  —  —  —  —  383  —  383 
Balance, September 30, 2022 49,393,642  $ 6  (6,580,421) $ (821,388) $ 939,040  $ 2,669,411  $ (206,560) $ —  $ 2,580,509 
See notes to condensed consolidated financial statements.
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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, 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 September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Balance, beginning of period $ 2,169  $ 1,872  $ 2,639  $ 2,108 
Provision for bad debts, net of (recoveries) (58) 372  (209) 211 
Uncollectible accounts written off
 (483) —  (724) (79)
Foreign currency translation (41) (125) (119) (121)
Balance, end of period $ 1,587  $ 2,119  $ 1,587  $ 2,119 
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.
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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 on derivatives, net of tax Total
Balance, July 1, 2023 $ (219,277) $ —  $ (219,277)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments and other, net of tax benefit of $94
 (31,538) —  (31,538)
Total other comprehensive loss (31,538) —  (31,538)
Balance, September 30, 2023 $ (250,815) $ —  $ (250,815)
Balance, July 1, 2022 $ (134,926) $ 148  $ (134,778)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments and other before reclassification, net of tax benefit of $70
 (72,041) —  (72,041)
Reclassification for foreign currency translation adjustments and other included in net income 208  —  208 
Unrealized gain on derivatives, net of tax expense of $14
 —  51  51 
Total other comprehensive (loss) income (71,833) 51  (71,782)
Balance, September 30, 2022 $ (206,759) $ 199  $ (206,560)
Foreign currency translation adjustments and other Unrealized (loss) gain on derivatives, net of tax Total
Balance, January 1, 2023 $ (204,676) $ 152  $ (204,524)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments and other, net of tax expense of $10
 (46,139) —  (46,139)
Unrealized loss on derivatives, net of tax benefit of $46
 —  (152) (152)
Total other comprehensive loss (46,139) (152) (46,291)
Balance, September 30, 2023 $ (250,815) $ —  $ (250,815)
Balance, January 1, 2022 $ (189,767) $ (184) $ (189,951)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments and other before reclassification, net of tax expense of $72
 (17,200) —  (17,200)
Reclassification for foreign currency translation adjustments and other included in net income 208  —  208 
Unrealized gain on derivatives, net of tax expense of $117
 —  383  383 
Total other comprehensive (loss) income (16,992) 383  (16,609)
Balance, September 30, 2022 $ (206,759) $ 199  $ (206,560)
Subsequent Events — The Company has considered the impact of subsequent events through the filing date of these financial statements. There were no events through the filing date of these financial statements required to be disclosed.

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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
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; and fiber lasers, systems and fibers for medical applications.
The following tables represent a disaggregation of revenue from contracts with customers:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Sales by Application
Materials processing $ 265,226  $ 312,546  $ 892,379  $ 994,866 
Other applications 36,175  36,460  96,167  101,142 
Total $ 301,401  $ 349,006  $ 988,546  $ 1,096,008 
Sales by Product
 High Power Continuous Wave ("CW") Lasers $ 119,512  $ 152,767  $ 419,538  $ 483,455 
 Medium Power CW Lasers 20,937  20,639  57,146  63,230 
 Pulsed Lasers 41,420  55,216  150,569  192,000 
 Quasi-Continuous Wave ("QCW") Lasers 10,856  11,353  35,978  38,212 
 Laser and Non-Laser Systems 37,493  35,930  117,064  108,970 
 Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 71,183  73,101  208,251  210,141 
Total $ 301,401  $ 349,006  $ 988,546  $ 1,096,008 

Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Sales by Geography
North America $ 71,349  $ 82,119  $ 225,649  $ 247,495 
Europe:
Germany 23,423  20,622  72,218  70,831 
Other Europe 71,946  72,332  225,231  227,739 
Asia:
China 84,408  117,952  284,262  385,080 
Japan 15,829  11,220  54,196  38,847 
Other 29,741  39,130  111,457  111,500 
Rest of World 4,705  5,631  15,533  14,516 
Total $ 301,401  $ 349,006  $ 988,546  $ 1,096,008 
Timing of Revenue Recognition
Goods and services transferred at a point in time $ 289,477  $ 337,648  $ 952,173  $ 1,056,318 
Goods and services transferred over time 11,924  11,358  36,373  39,690 
Total $ 301,401  $ 349,006  $ 988,546  $ 1,096,008 
One of the Company's customers accounted for 16% and 14% of the Company's net accounts receivable as of September 30, 2023 and December 31, 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.
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
The standalone selling price for installation services is determined based on the estimated number of days of service technician time required for installation at standard service rates. The Company recognizes customer deposits and deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria are met. The Company bills customers for extended warranties upon entering into the agreement with the customer, resulting in deferred revenue that is recognized over the period of the extended warranty contract. The Company recognizes revenue over time on contracts for the sale of large scale materials processing systems. The timing of customer payments on these contracts generally differs from the timing of revenue recognized. If revenue recognized exceeds customer payments, a contract asset is recorded and if customer payments exceed revenue recognized, a contract liability is recorded. Contract assets are included within prepaid expense and other current assets on the condensed consolidated balance sheets. Contract liabilities are included within accrued expenses and other current liabilities on the condensed consolidated balance sheets. Certain deferred revenues related to extended warranties in excess of one year from the balance sheet date are included within other long-term liabilities and deferred income taxes on the condensed consolidated balance sheets.
The following table reflects the changes in the Company's contract assets and liabilities for the nine months ended September 30, 2023 and 2022:
September 30, January 1, September 30, January 1,
2023 2023 Change 2022 2022 Change
Contract assets
Contract assets $ 5,623  $ 8,620  $ (2,997) $ 8,995  $ 9,345  $ (350)
Contract liabilities
Contract liabilities - current 66,961  80,068  (13,107) 81,868  89,659  (7,791)
Contract liabilities - long-term 2,851  3,142  (291) 2,711  2,691  20 
During the three months ended September 30, 2023 and 2022 the Company recognized revenue of $7,730 and $31,213, respectively, that was included in contract liabilities at the beginning of each period. During the nine months ended September 30, 2023 and 2022 the Company recognized revenue of $51,173 and $65,743, 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 September 30, 2023:
Remaining Performance Obligations
2023 (a)
 2024 2025 2026 2027 Thereafter Total
Revenue expected to be recognized for extended warranty agreements $ 1,190  $ 2,376  $ 1,092  $ 819  $ 463  $ 88  $ 6,028 
Revenue to be earned over time from contracts to sell large scale materials processing systems
 10,661  9,321  —  —  —  —  19,982 
Total $ 11,851  $ 11,697  $ 1,092  $ 819  $ 463  $ 88  $ 26,010 
(a) For the three-month period beginning October 1, 2023.
3. 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.
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.
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
The fair value of money market fund deposits, term deposits, accounts receivable, accounts payable and drawings on revolving lines of credit is reasonably close to their carrying amounts due to the short maturity of most of these instruments or as a result of the competitive market interest rates, which have been negotiated. The fair value of the Company's commercial paper, corporate bonds, U.S. Treasury and agency obligations and term deposits are based on Level 2 inputs.
The following table presents fair value information related to the Company's assets and liabilities measured at amortized cost on the condensed consolidated balance sheets with the exception of the interest rate swap, which was measured at fair value:
 Fair Value Measurements at September 30, 2023
Total Level 1 Level 2 Level 3
Assets
Cash equivalents:
Money market fund deposits $ 146,503  $ 146,503  $ —  $ — 
Term deposits 67,047  —  67,047  — 
Commercial paper 17,450  —  17,450  — 
Corporate bonds 13,775  —  13,775  — 
U.S. Treasury and agency obligations 4,966  —  4,966  — 
Short-term investments:
Commercial paper 283,788  —  283,788  — 
U.S. Treasury and agency obligations 180,697  —  180,697  — 
Corporate bonds 137,238  —  137,238  — 
Term deposits 3,009  —  3,009  — 
Total assets $ 854,473  $ 146,503  $ 707,970  $ — 
 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 September 30, 2023 and 2022. There were no current expected credit loss allowances for the investments considered held-to-maturity at September 30, 2023 and 2022. The Company holds highly-rated held-to-maturity instruments that are within one year of maturity.
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
The following table presents the effective maturity dates of debt investments, which are held-to-maturity:
September 30, 2023 December 31, 2022
Book Value Fair Value Book Value Fair Value
Investment maturity
Less than 1 year $ 605,207  $ 604,732  $ 479,374  $ 478,737 
4. INVENTORIES
Inventories consist of the following:
September 30, December 31,
2023 2022
Components and raw materials $ 279,309  $ 322,506 
Work-in-process 62,414  18,911 
Finished goods 138,106  167,946 
Total $ 479,829  $ 509,363 
The Company recorded inventory provisions totaling $9,119 and $12,883 for the three months ended September 30, 2023 and 2022, respectively, and $32,434 and $38,363 for the nine months ended September 30, 2023 and 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 AND IMPAIRMENT OF LONG-LIVED ASSETS
In the fourth quarter of 2022, the Company implemented a restructuring program at its Russian subsidiary. In the third quarter of 2023, the Company substantially completed the restructuring program. As a result, the remaining restructuring accrual was substantially recovered. This resulted in net restructuring recoveries of $1,501 and $357 for the three and nine months ended September 30, 2023, respectively. There was no restructuring related activity for the three or nine months ended September 30, 2022.
The remaining 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:
Nine Months Ended September 30,
2023
Balance, beginning of period $ 4,869 
Charges 1,367 
Cash payments (3,630)
Recoveries (1,724)
Foreign exchange adjustment (864)
Balance, end of period $ 18 
The non-cash long-lived asset impairment charges of $1,237 for both the three and nine months ended September 30, 2023, and $919 for both the three and nine months ended September 30, 2022, related to the right-of-use ("ROU") asset for a leased building associated with the Company's Submarine Network Division business that was previously divested. Attempts to sublease the space have been unsuccessful. As of September 30, 2023, the ROU asset related to this lease has been reduced to zero.
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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:
Nine Months Ended September 30,
2023 2022
Balance, beginning of period $ 38,325  $ 38,609 
Goodwill arising from business combinations —  1,000 
Goodwill written off related to divestiture —  (796)
Foreign exchange adjustment (60) (850)
Balance, end of period $ 38,265  $ 37,963 
Intangible assets, subject to amortization, consisted of the following:
September 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
Customer relationships $ 48,124  $ (24,875) $ 23,249  11 years $ 48,155  $ (21,734) $ 26,421  11 years
Technology, trademark and trade name 29,790  (25,140) 4,650  7 years 30,360  (23,189) 7,171  7 years
Production know-how 9,091  (9,029) 62  7 years 9,109  (8,818) 291  7 years
Patents 8,034  (7,939) 95  8 years 8,034  (7,797) 237  8 years
Total $ 95,039  $ (66,983) $ 28,056  $ 95,658  $ (61,538) $ 34,120 
Amortization expense for the three months ended September 30, 2023 and 2022 was $2,020 and $2,447, respectively. Amortization expense for the nine months ended September 30, 2023 and 2022 was $6,062 and $8,377, 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
$ 1,833  $ 5,553  $ 4,977  $ 4,216  $ 4,004  $ 7,473  $ 28,056 
(a) For the three-month period beginning October 1, 2023.
7. OTHER LIABILITIES
Accrued expenses and other current liabilities consist of the following:
September 30, December 31,
2023 2022
Contract liabilities $ 66,961  $ 80,068 
Accrued compensation 64,060  78,251 
Current portion of accrued warranty 27,280  28,504 
Short-term lease liabilities 4,401  5,234 
Other 11,815  10,707 
Total $ 174,517  $ 202,764 
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
Other long-term liabilities and deferred income taxes consist of the following:
September 30, December 31,
2023 2022
Accrued warranty $ 20,814  $ 24,358 
Transition tax related to 2017 U.S. tax reform act 11,010  19,874 
Long-term lease liabilities 13,199  16,787 
Unrealized tax benefits 17,778  15,841 
Deferred income taxes 1,256  1,469 
Other 5,147  4,945 
Total $ 69,204  $ 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:
Nine Months Ended September 30,
2023 2022
Balance, beginning of period $ 52,862  $ 49,864 
Provision for warranty accrual 9,874  18,280 
Warranty claims (13,792) (13,968)
Foreign currency translation (850) (4,198)
Balance, end of period $ 48,094  $ 49,978 
Accrued warranty reported in the accompanying condensed consolidated financial statements as of September 30, 2023 and December 31, 2022 consist of $27,280 and $28,504 in accrued expenses and other current liabilities, respectively, and $20,814 and $24,358 in other long-term liabilities and deferred income taxes, respectively.
9. FINANCING ARRANGEMENTS
Revolving Line of Credit Facilities:
The Company maintains a $75,000 U.S. revolving line of credit, which is available to certain foreign subsidiaries and allows for borrowings in the local currencies of those subsidiaries. The Company also maintains a €1,500 ($1,586) Italian overdraft facility. The German €50,000 line-of-credit expired on July 31, 2023.
At September 30, 2023 and December 31, 2022, there were no amounts drawn on the U.S. line-of-credit, and there were $2,474 and $2,396, respectively, of guarantees issued against the facility, which reduce the amount of the facility available to draw. At September 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 facility were $74,112 at September 30, 2023.
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's previous outstanding derivative financial instrument was an interest rate swap that was classified as a cash flow hedge of its variable rate debt. The interest rate swap matured with the long-term note in May 2023.
The derivative gains and losses in the condensed consolidated financial statements related to the Company's previous interest rate swap contract were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Effective portion recognized in other comprehensive income, pretax:
Interest rate swap $ —  $ 65  $ (198) $ 500 
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 September 30, 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.
12. INCOME TAXES
The effective tax rates were 18.9% and 21.0% for the three months ended September 30, 2023 and 2022, respectively, and 23.8% and 22.7% for the nine months ended September 30, 2023 and 2022 respectively. There was a net discrete tax detriment of $169 for the three months ended September 30, 2023 and a net discrete tax benefit of $3,644 for the three months ended September 30, 2022. In the third quarter of 2023, the impact of relatively lower profits in high tax jurisdictions helped to reduce the third quarter tax rate by more than the impact of the reduced discrete benefits. There was a net discrete tax detriment of $390 and a net discrete tax benefit of $6,806 for the nine months ended September 30, 2023 and 2022, respectively. The discrete detriment for the three and nine months ended September 2023 did not have a significant effect on the Company's tax rate. 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 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 nine months ended September 30, 2023 and 2022:
Nine Months Ended September 30,
2023 2022
Balance, beginning of period $ 15,841  $ 19,209 
Change in prior period positions (1,274) (603)
Additions for tax positions in current period 3,738  — 
Foreign currency translation (527) 865 
Balance, end of period $ 17,778  $ 19,471 
The liability for uncertain tax benefits is included in other long-term liabilities and deferred income taxes at September 30, 2023 and December 31, 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 September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Net income attributable to IPG Photonics Corporation common stockholders $ 54,994  $ 76,264  $ 177,450  $ 202,804 
Basic weighted average common shares 47,236,901  51,628,701  47,363,974  51,449,367 
Dilutive effect of common stock equivalents 151,218  108,289  171,661  176,565 
Diluted weighted average common shares 47,388,119  51,736,990  47,535,635  51,625,932 
Basic net income attributable to IPG Photonics Corporation per common share $ 1.16  $ 1.48  $ 3.75  $ 3.94 
Diluted net income attributable to IPG Photonics Corporation per common share $ 1.16  $ 1.47  $ 3.73  $ 3.93 
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 nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Non-qualified stock options 529,228  672,539  537,065  604,394 
Restricted stock units 55,201  373,646  376,382  340,924 
Performance stock units —  91,920  53,470  78,999 
Total weighed average anti-dilutive shares outstanding 584,429  1,138,105  966,917  1,024,317 
On 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 programs authorized in August 2022.
For the three months ended September 30, 2023, the Company repurchased 449,688 under the May 2023 authorization with a weighted average price of $102.37 per share in the open market. For the nine months ended September 30, 2023, the Company repurchased 1,448,457 shares of common stock under the May 2023 authorization and August 2022 authorization with a weighted average price of $109.21 per share in the open market. The impact on the reduction of weighted average shares for the three and nine months ended September 30, 2023 was 131,533 shares and 932,015 shares, respectively.
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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 and diode lasers that are used for diverse applications, primarily in materials processing. We also manufacture and sell complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers. In addition, we offer laser-based and non-laser based systems for certain markets and applications. Our portfolio of laser solutions is used in materials processing, medical and advanced applications. We sell our products globally to original equipment manufacturers ("OEMs"), system integrators and end users. We market our products internationally, primarily through our direct sales force. Our major manufacturing facilities are located in the United States and Germany. In response to the risks from the Russia-Ukraine conflict, we 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 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.
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 due to our manufacturing operations in Belarus. Since the start of the conflict, we have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries, increasing inventories worldwide and qualifying third-party suppliers. In 2022, we began hiring and training additional employees, expanding capacity for increased production, and running additional shifts in the U.S. and Germany and adding additional manufacturing capacity in Italy and Poland.
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 mitigate the risk of our ability to supply customers with finished product, these plans require additional investments in facilities outside of Russia and Belarus in the near term as well as additional ongoing operating costs, primarily associated with the higher cost of labor outside of Russia and Belarus. While we have sufficient financial resources to make these investments and expenditures, our gross margins and financial results have been and will be adversely impacted by increased operating costs associated with these transitions. Over time, we intend to mitigate some of these increases by producing components in countries with lower labor costs than the United States and Germany, with ongoing product expense reduction initiatives, higher productivity from automation, improved yields and product specifications. We are also continuing to review our operations in Russia and Belarus. For additional information regarding the risks and potential impacts of the Russia-Ukraine conflict, see “Risk Factors – The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations” in Item 1A of Part II of Form 10-K for the year ended December 31, 2022.
We evaluated the recoverability of certain assets located in Russia during the fourth quarter of 2022 and incurred impairment charges that reduced the value of fixed assets, inventory and other current assets. We also incurred restructuring charges in 2022 and 2023. As of September 30, 2023, we have substantially completed the restructuring program in Russia and recovered the majority of the remaining restructuring charges accrual.
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Refer to Note 5 "Restructuring and Impairment of Long-lived Assets" in the notes to the condensed consolidated financial statements for further information.
Sales to third-parties in Russia were approximately 3% of our revenue for both the first three quarters 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 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 $13.3 million for the nine months ended September 30, 2023 and $61.5 million for the full year ended December 31, 2022.
At September 30, 2023, we had working capital excluding cash and cash equivalents of $21.2 million in Russia of which $18.1 million is inventory. We had $63.7 million of cash and cash equivalents in Russia. The net asset value of our Russian subsidiary was $87.9 million. In addition to the impairment charges referenced above, the net value of assets in Russia has been reduced by $146.2 million due to the cumulative translation effect of the Russian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. Depending upon the outcome of our review of our Russian operations, we may incur additional asset impairment charges and the cumulative translation effect of foreign exchange fluctuations that is currently included in accumulated other 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 $31.3 million at September 30, 2023, and we had working capital excluding cash of $4.9 million in Belarus of which $4.5 million is inventory. In addition, we had $5.1 million of cash in Belarus.
COVID-19. Global demand trends have been impacted by the ongoing COVID-19 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.
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. While supply chain and logistics constraints have moderated, they have not yet fully returned to 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.
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 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 90% of our revenues for both the first three quarters of 2023 and the full 2022 fiscal year, 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.
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In addition, an increase in interest rates would increase the cost of equipment financed with leases or debt.
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, the possible effect 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.
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, 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 can be lower than gross margin for our laser, depending on the configuration, volume and competitive forces, among other factors;
•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; 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.
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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.
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 $9.1 million and $12.9 million for the three months ended September 30, 2023 and 2022, respectively, and $32.4 million and $38.4 million for the nine months ended September 30, 2023 and 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 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 have long-lived assets in Belarus with a carrying value of $31.3 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 and the foreign currencies in which our subsidiaries operate directly affects our sales, costs and earnings. Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, and the Chinese yuan have had and could have an additional significant impact on our sales, costs and earnings. For the quarter ended September 30, 2023, the foreign exchange gain was primarily created by the depreciation of the euro and the Russian ruble partially offset by a foreign exchange loss created by the depreciation of the Chinese yuan as compared to the U.S. dollar. 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.
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Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products.
Income taxes. We are evaluating the impact of countries adopting tax legislation in accordance with the proposals presented by the OECD (Pillars 1 and 2). Based on the current drafts of the proposals, the tax impact in most countries will not be significant in 2024 due to an effective tax rate in those countries in excess of 15% or as a result of the transition rules that are proposed.
Major customers. While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from period to period. Net sales derived from our five largest customers as a percentage of our net sales was 14% for the nine months ended September 30, 2023 and 15%, and 19% for the full years 2022 and 2021, respectively. One of our customers accounted for 16% and 14% of our net accounts receivable at September 30, 2023 and December 31, 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 September 30, 2023 Compared to the Three Months Ended September 30, 2022
Net sales. Net sales decreased by $47.6 million, or 13.6%, to $301.4 million for the three months ended September 30, 2023 from $349.0 million for the three months ended September 30, 2022.
The table below sets forth sales by application: 
Three Months Ended September 30,
2023 2022 Change
(In thousands, except for percentages)
Sales by Application % of Total % of Total
Materials processing $ 265,226  88.0  % $ 312,546  89.6  % $ (47,320) (15.1) %
Other applications 36,175  12.0  % 36,460  10.4  % (285) (0.8) %
Total $ 301,401  100.0  % $ 349,006  100.0  % $ (47,605) (13.6) %
The table below sets forth sales by type of product and other revenue:
Three Months Ended September 30,
2023 2022 Change
(In thousands, except for percentages)
Sales by Product % of Total % of Total
 High Power Continuous Wave ("CW") Lasers $ 119,512  39.7  % $ 152,767  43.8  % $ (33,255) (21.8) %
 Medium Power CW Lasers 20,937  6.9  % 20,639  5.9  % 298  1.4  %
 Pulsed Lasers 41,420  13.8  % 55,216  15.8  % (13,796) (25.0) %
 Quasi-Continuous Wave ("QCW") Lasers 10,856  3.6  % 11,353  3.3  % (497) (4.4) %
 Laser and Non-Laser Systems 37,493  12.4  % 35,930  10.3  % 1,563  4.4  %
 Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 71,183  23.6  % 73,101  20.9  % (1,918) (2.6) %
Total $ 301,401  100.0  % $ 349,006  100.0  % $ (47,605) (13.6) %
Materials processing
Sales for materials processing applications decreased primarily due to lower sales of high power CW lasers and pulsed lasers, partially offset by higher sales of medium power CW lasers.
•High power CW laser sales decreased due to lower sales for cutting and welding applications. Within cutting applications, the decrease in sales was attributable to softer demand in China and Europe as well as increased competition in China.
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•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 solar cell manufacturing and marking and engraving applications.
•QCW laser sales decreased due to lower demand in fine processing for consumer electronics applications.
•Laser and non-laser systems sales benefited from higher demand for LightWELD.
Other Applications
Sales from other applications decreased due to decreased demand for lasers used in 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 $30.1 million, or 15.2%, to $168.5 million for the three months ended September 30, 2023 from $198.6 million for the three months ended September 30, 2022. Our gross margin increased to 44.1% for the three months ended September 30, 2023 from 43.1% for the three months ended September 30, 2022. The increase in gross margin was driven by continued focus on manufacturing costs and efficiency, a decrease in shipping costs and tariffs, and a decrease in provisions for excess and obsolete inventory as a percentage of sales. The strong U.S. dollar has negatively affected gross margin because a disproportionate amount of our manufacturing costs are denominated in U.S. dollars as compared to our sales which are predominantly denominated in foreign currencies.
Sales and marketing expense. Sales and marketing expense increased by $2.8 million, or 14.4%, to $22.2 million for the three months ended September 30, 2023 compared with $19.4 million for the three months ended September 30, 2022. The increase is due to higher personnel and related costs and premises costs. As a percentage of sales, sales and marketing expense increased to 7.4% from 5.6% for the three months ended September 30, 2023 and 2022, respectively.
Research and development expense. Research and development expense decreased by $0.7 million, or 2.8%, to $24.7 million for the three months ended September 30, 2023, compared to $25.4 million for the three months ended September 30, 2022. Decreases in 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 expense decreased primarily as a result of the impairment of Russian long-lived assets in the fourth quarter of 2022. The decrease in expense is partially offset by an increase in personnel and related costs. As a percentage of sales, research and development expense increased to 8.2% for the three months ended September 30, 2023 from 7.3% for the three months ended September 30, 2022.
General and administrative expense. General and administrative expense decreased by $2.8 million, or 8.3%, to $31.0 million for the three months ended September 30, 2023 from $33.8 million for the three months ended September 30, 2022. This change was primarily a result of lower depreciation expenses, which were driven by the impairment of Russian long-lived assets and the sale of our corporate aircraft in the fourth quarter of 2022, and lower personnel and related costs. The expense reductions were partially offset by a net loss of $1.3 million related to the sales of our buildings in Alabama and California in the third quarter of 2023. As a percentage of sales, general and administrative expense increased to 10.3% from 9.7% for the three months ended September 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 0.99, Russian ruble 59, Japanese yen 138 and Chinese yuan 6.85, respectively, we estimate that net sales for the three months ended September 30, 2023 would have been $5.7 million higher, gross profit would have been $4.4 million higher and total operating expenses would have been $1.2 million higher.
Impairment of long-lived assets. We recorded a non-cash long-lived asset impairment charge of $1.2 million for the three months ended September 30, 2023 as compared to $0.9 million for the three months ended September 30, 2023, related to the right-of-use ("ROU") asset for a leased building associated with our Submarine Network Division business that was previously divested. Attempts to sublease the space have been unsuccessful. As of September 30, 2023, the ROU asset related to this lease has been reduced to zero.
Restructuring charges (recoveries), net. In the third quarter of 2023, we substantially completed the restructuring program at our Russian subsidiary. As a result, we released $1.5 million that had been accrued in relation to restructuring expenses.
Gain on foreign exchange. We incurred a foreign exchange transaction gain of $0.4 million for the three months ended September 30, 2023 as compared to a $0.5 million gain for the three months ended September 30, 2022. Our European and Russian subsidiaries have certain net assets denominated in U.S.
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dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. dollars. The foreign exchange gain for the three months ended September 30, 2023 was primarily attributable to gain from the depreciation of euro and the Russian ruble, partially offset by loss from the depreciation of the Chinese yuan as compared to the U.S. dollar.
Interest income, net. Interest income, net was $11.6 million for the three months ended September 30, 2023 as compared to $3.6 million of income for three months ended September 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 $12.8 million for the three months ended September 30, 2023 compared to $20.4 million for the three months ended September 30, 2022, representing an effective tax rate of 18.9% and 21.0% for the three months ended September 30, 2023 and 2022, respectively. There were net discrete tax detriments of $0.2 million for the three months ended September 30, 2023 and net discrete benefits of $3.6 million for the three months ended September 30, 2022. In the third quarter of 2023, the impact of relatively lower profits in high tax jurisdictions helped to reduce the third quarter tax rate by more than the impact of the reduced discrete benefits. 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.
Net income attributable to IPG Photonics Corporation. Net income attributable to IPG Photonics Corporation decreased by $21.3 million to $55.0 million for the three months ended September 30, 2023 compared to $76.3 million for the three months ended September 30, 2022. Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 3.7 percentage points to 18.2% for the three months ended September 30, 2023 from 21.9% for the three months ended September 30, 2022 due to the factors described above.
Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Net sales. Net sales decreased by $107.5 million, or 9.8% to $988.5 million for the nine months ended September 30, 2023 from $1,096.0 million for the nine months ended September 30, 2022.
The table below sets forth sales by application: 
Nine Months Ended September 30,
2023 2022 Change
(In thousands, except for percentages)
Sales by Application % of Total % of Total
Materials processing $ 892,379  90.3  % $ 994,866  90.8  % $ (102,487) (10.3) %
Other applications 96,167  9.7  % 101,142  9.2  % (4,975) (4.9) %
Total $ 988,546  100.0  % $ 1,096,008  100.0  % $ (107,462) (9.8) %

The table below sets forth sales by type of product and other revenue:
Nine Months Ended September 30,
2023 2022 Change
(In thousands, except for percentages)
Sales by Product % of Total % of Total
High Power CW Lasers $ 419,538  42.4  % $ 483,455  44.1  % $ (63,917) (13.2) %
Medium Power CW Lasers 57,146  5.8  % 63,230  5.8  % (6,084) (9.6) %
Pulsed Lasers 150,569  15.2  % 192,000  17.5  % (41,431) (21.6) %
QCW Lasers 35,978  3.6  % 38,212  3.5  % (2,234) (5.8) %
Laser and Non-Laser Systems 117,064  11.9  % 108,970  9.9  % 8,094  7.4  %
Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 208,251  21.1  % 210,141  19.2  % (1,890) (0.9) %
Total $ 988,546  100.0  % $ 1,096,008  100.0  % $ (107,462) (9.8) %
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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 and other laser products and service.
•High power CW laser sales decreased due to lower sales for cutting applications due to softer demand in China and Europe and increased competition in China.
•The decrease in medium power CW sales related to a decrease in demand for micromaterial processing and cutting, partially offset by additive manufacturing.
•Pulsed laser sales, including high power pulsed lasers, decreased due to a decrease in sales for marking and engraving, and foil cutting applications, and lower demand for green pulsed lasers used for solar cell manufacturing applications, partially offset by growth in sales for cleaning and ablation applications.
•QCW laser sales decreased due to lower demand in fine processing for consumer electronics applications.
•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.
Other Applications
Sales from other applications decreased due to 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 increased demand for lasers used in advanced applications.
Cost of sales and gross margin. Cost of sales decreased by $40.4 million, or 6.7%, to $561.0 million for the nine months ended September 30, 2023 from $601.4 million for the nine months ended September 30, 2022. Our gross margin decreased to 43.2% for the nine months ended September 30, 2023 from 45.1% for the nine months ended September 30, 2022. Gross margin decreased mainly due to an increase in cost of product sold from inventory, partially offset by decreases in shipping costs and tariffs and inventory provisions for excess and obsolete inventory 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 which are predominantly denominated in foreign currencies.
Sales and marketing expense. Sales and marketing expense increased by $4.7 million, or 8.0%, to $63.5 million for the nine months ended September 30, 2023 compared with $58.8 million for the nine months ended September 30, 2022. The increase is due to higher personnel and related costs and travel and entertainment costs, offset by lower depreciation and amortization expenses. As a percentage of sales, sales and marketing expense increased to 6.4% from 5.4% for the nine months ended September 30, 2023 and 2022, respectively.
Research and development expense. Research and development expense decreased by $18.5 million, or 20.7%, to $71.0 million for the nine months ended September 30, 2023, compared to $89.5 million for the nine months ended September 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 decreased primarily as a result of the impairment of Russian long-lived assets in 2022. Lastly, we incurred lower information systems and contractor expenses compared to the nine months ended September 30, 2022. As a percentage of sales, research and development expense decreased to 7.2% for the nine months ended September 30, 2023 from 8.2% for the nine months ended September 30, 2022.
General and administrative expense. General and administrative expense decreased by $7.2 million, or 7.4%, to $90.7 million for the nine months ended September 30, 2023 from $97.9 million for the nine months ended September 30, 2022, primarily as a result of decreases in consultant costs, repairs and maintenance costs, and depreciation expenses. The expense reductions were partially offset by a net loss of $1.3 million related to the sales of our buildings in Alabama and California in the third quarter of 2023. As a percentage of sales, general and administrative expense increased to 9.2% for the nine months ended September 30, 2023 from 8.9% for the nine months ended September 30, 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 had been the same as one year ago, which were on average euro 0.94, Russian ruble 70, Japanese yen 128 and Chinese yuan 6.60, respectively, we would have expected net sales for the nine months ended September 30, 2023 to be $29.8 million higher, gross profit to be $17.6 million higher and total operating expenses would have been $3.3 million higher.
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Impairment of long-lived assets. We recorded a non-cash long-lived asset impairment charge of $1.2 million for the nine months ended September 30, 2023 as compared to $0.9 million for the nine months ended September 30, 2022, related to the ROU asset for a leased building associated with our Submarine Network Division business that was previously divested. Attempts to sublease the space have been unsuccessful. As of September 30, 2023, the ROU asset related to this lease has been reduced to zero.
Restructuring charges (recoveries), net. In the third quarter of 2023, we substantially completed the restructuring program at our Russian subsidiary. As a result, we released $1.5 million that had been accrued in relation to restructuring expenses.
Gain on foreign exchange. We benefited from a foreign exchange transaction gain of $1.8 million for the nine months ended September 30, 2023 as compared to a loss of $11.3 million for the nine months ended September 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 gain for the nine months ended September 30, 2023 was primarily attributable to gain from the depreciation of the Russian ruble, partially offset by loss from the depreciation of Chinese yuan and euro as compared to the U.S. dollar.
Interest income, net. Interest income, net, was $28.4 million for the nine months ended September 30, 2023 as compared to $4.7 million of income for the nine months ended September 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 $55.3 million for the nine months ended September 30, 2023 compared to $59.7 million for the nine months ended September 30, 2022, representing an effective tax rate of 23.8% and 22.7% for the nine months ended September 30, 2023 and 2022, respectively. There was a net discrete tax detriment of $0.4 million and a net discrete tax benefit of $6.8 million for the nine months ended September 30, 2023 and 2022, respectively. The discrete detriment for the nine months ended September 2023 did not have a significant effect on our tax rate. 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 decreased by $25.3 million to $177.5 million for the nine months ended September 30, 2023 compared to $202.8 million for the nine months ended September 30, 2022. Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 0.5 percentage point to 18.0% for the nine months ended September 30, 2023 from 18.5% for the nine months ended September 30, 2022 due to the factors described above.
Liquidity and Capital Resources
We believe that our existing cash and cash equivalents, short-term investments, our cash flows from operations and our existing line of credit provide us with the financial flexibility to meet our liquidity and capital needs. We expect to continue making investments in capital expenditures, to assess acquisition opportunities and to repurchase shares of our stock in accordance with our repurchase program. The extent and timing of such expenditures may vary from period to period. Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. In the near term, we will incur capital expenditures related to the expansion of capacity outside of Russia because of the reduction in manufacturing activity and capacity at our Russian factory that we can access due to sanctions. As of September 30, 2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
Included in cash and cash equivalents are $63.7 million of cash and cash equivalents located in Russia, and $5.1 million of cash and cash equivalents located in Belarus, as of September 30, 2023. Cash and cash equivalents in Russia are subject to capital controls that prevent repatriation by dividend or distribution of capital. There are currently no restrictions on our ability to use cash and cash equivalents in Russia for operating purposes including converting cash to foreign currency for the payment of goods received from vendors outside of Russia. The Russian operations are self-funding. Approximately 5% of our consolidated working capital including cash, cash equivalents and short-term investments is located in Russia. We are making no new investments in Russia.
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The following table presents our principal sources of liquidity:
September 30, December 31,
2023 2022
(In thousands)
Cash and cash equivalents $ 528,284  $ 698,209 
Short-term investments 605,207  479,374 
Unused credit lines and overdraft facilities 74,112  125,965 
Working capital (excluding cash, cash equivalents and short-term investments) 567,260  534,045 
Short-term investments at September 30, 2023 consist of liquid investments including commercial paper, 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 3, "Fair Value Measurements" in the notes to the condensed consolidated financial statements for further information about our short-term investments.
The following table details our line-of-credit facilities as of September 30, 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 Facility (2)
 Euro 1.5 million
($1.6 million)		 5.40% December 2023 Common pool of assets of Italian subsidiary
(1) This facility is available to certain foreign subsidiaries in their respective local currencies. At September 30, 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) At September 30, 2023, there were no drawings.
At September 30, 2023, our committed credit line is with Bank of America N.A. in the amount of $75.0 million and it is not syndicated. We are required to meet certain financial covenants associated with this credit line. These covenants, tested quarterly, include an interest coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio. The interest coverage covenant requires that we maintain a trailing twelve-month ratio of EBITDA to interest on all obligations that is at least 3.0:1.0. The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis be less than three times our trailing twelve months EBITDA. Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S.A. in excess of $50 million up to a maximum of $500 million. We were in compliance with all such financial covenants as of and for the three months ended September 30, 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.
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The following table presents cash flow activities:
Nine Months Ended September 30,
2023 2022
(In thousands)
Cash provided by operating activities $ 189,924  $ 171,026 
Cash (used in) provided by investing activities (162,996) 407,465 
Cash used in financing activities (175,991) (400,861)
Operating activities. Net cash provided by operating activities increased by $18.9 million to $189.9 million for the nine months ended September 30, 2023 from $171.0 million for the nine months ended September 30, 2022, primarily due to a decrease in cash used in working capital. Our largest working capital items typically are inventory and accounts receivable. Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other liabilities are not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure. Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items. The increase in cash flow from operating activities in 2023 primarily resulted from:
•a decrease in cash used by inventory, as we moderate investment in safety stock related to supply chain disruptions for third party electronic parts and components internally manufactured by our factory in Russia;
•an increase in cash provided by income and other taxes payable driven by the timing of estimated tax payments made and refunds received from filing tax returns; and
•a decrease in cash used by accrued expenses due to lower bonus payments, partially offset by an increase in cash used by contract liabilities, billings in excess of costs and estimated earning and accounting and legal accruals.
The increases in cash provided by operating activities were partially offset by:
•an increase in cash used by accounts receivable due to timing of collection;
•a decrease in cash provided by net income after adjusting for non-cash operating activities;
•an increase in cash used by prepaid expenses and other assets due to timing of bank acceptance drafts, insurance prepayments and billings on custom systems; and
•an increase in cash used by accounts payable due to timing of payments.
Investing activities. Net cash used in investing activities was $163.0 million for the nine months ended September 30, 2023 as compared to cash provided by investing activities of $407.5 million in 2022. The cash used in investing activities in 2023 related to $108.6 million of net purchases of short-term investments and $85.3 million of cash used for capital expenditures; partially offset by $30.4 million of cash provided by sales of property, plant and equipment. The cash provided by investing activities in 2022 related to $441.3 million of net proceeds from short-term investments, and $52.1 million of proceeds received from the divestiture of the telecommunications transmission product lines, net of cash sold; partially offset by $84.6 million of cash used for capital expenditures.
In 2023, we expect to invest approximately $100 million to $110 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 $176.0 million for the nine months ended September 30, 2023 as compared to net cash used of $400.9 million in 2022. The cash used in financing activities in 2023 primarily related to the purchase of treasury stock of $159.5 million and principal payments on our long-term borrowings of $16.0 million. The cash used in financing activities in 2022 primarily related to the purchase of treasury stock of $382.9 million, and $17.8 million of principal payments on our long-term borrowings.
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.
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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, 2022 (the "Annual Report") and in Item 1A, "Risk Factors" of Part II of Quarterly Report for the quarter ended March 31, 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.
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 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 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 borrowings on our bank credit facilities. Although our U.S. revolving line of credit 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, principally the euro, the Russian ruble, and the Chinese yuan. Changes in the exchange rate of the U.S. 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 gain on foreign exchange transactions totaled $0.4 million for the three months ended September 30, 2023 compared to a gain of $0.5 million for the three months ended September 30, 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 unable to create a perfect offset of the foreign currency denominated assets and liabilities. At September 30, 2023, our material foreign currency exposure is net U.S. dollar denominated assets at subsidiaries where the euro or the Russian ruble is the functional currency and U.S. dollar denominated liabilities where the Chinese yuan is the functional currency. The U.S. dollar denominated assets are comprised of cash, third party receivables and inter-company receivables. The U.S. dollar denominated liabilities are comprised of inter-company payables. A 5% change in the relative exchange rate of the U.S. dollar to the euro as of September 30, 2023 applied to the net U.S. dollar asset balances, would result in a foreign exchange gain of $1.4 million if the U.S. dollar appreciated and a $1.5 million foreign exchange loss if the U.S. dollar depreciated. A 5% change in the relative exchange rate of the U.S. dollar to the Russian ruble as of September 30, 2023 applied to the net U.S. dollar asset balances, would result in a foreign exchange gain of $0.2 million if the U.S.
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dollar appreciated and a $0.2 million foreign exchange loss if the U.S. dollar depreciated. A 5% change in the relative exchange rate of the U.S. dollar to the Chinese yuan as of September 30, 2023 applied to the net U.S. dollar liabilities balances, would result in a foreign exchange loss of $1.1 million if the U.S. dollar appreciated and a $1.1 million foreign exchange gain if the U.S. dollar depreciated. Volatility between the U.S. 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 as changes in the value of their functional currency relative to the U.S. 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 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 September 30, 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
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 quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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, 2022, and in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 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 Quarterly 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 September 30, 2023.
Issuer Purchases of Equity Securities
The following table reflects issuer purchases of equity securities for the three months ended September 30, 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
July 1, 2023 — July 31, 2023 —  $ —  —  $ 200,000 
August 1, 2023 — August 31, 2023 210,173  (1), (2) 104.07  209,754  178,173 
September 1, 2023 — September 30, 2023 240,377  (1), (2) 100.90  239,934  153,966 
Total 450,550  $ 102.38  449,688  $ 153,966 
 
(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 September 30, 2023, a total of 862 shares were withheld at an average price of $107.26.

(2) On May 2, 2023, we announced that our Board of Directors authorized the purchase of up to $200 million of IPG common stock (the "May 2023 authorization"), exclusive of any fees, commissions or other expenses. Share repurchases under this purchase authorization were made periodically in open-market transactions using our 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 449,688 shares in the third quarter of 2023 under the May 2023 authorization.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
Exhibit No.
 Description
10.1
31.1
31.2
32
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: October 31, 2023 By: /s/ Eugene A. Scherbakov
Eugene A. Scherbakov
Chief Executive Officer
(Principal Executive Officer)
 Date: October 31, 2023 By: /s/ Timothy P.V. Mammen
Timothy P.V. Mammen
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

31
EX-31.1 2 ex311q32023.htm EX-31.1 Document

Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a – 14(a) or Rule 15d – 14(a) of the Securities Exchange Act of 1934
I, Eugene A. Scherbakov, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of IPG Photonics Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be signed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 31, 2023
By:
 /s/ Eugene A. Scherbakov
Eugene A. Scherbakov
Chief Executive Officer (Principal Executive Officer)


EX-31.2 3 ex312q32023.htm EX-31.2 Document

Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Rule 13a – 14(a) or Rule 15d – 14(a) of the Securities Exchange Act of 1934
I, Timothy P.V. Mammen, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of IPG Photonics Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: October 31, 2023
By:
/s/ Timothy P.V. Mammen
Timothy P.V. Mammen
Senior Vice President and Chief Financial Officer (Principal Financial Officer)


EX-32 4 ex32q32023.htm EX-32 Document

Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 (the "Report") by IPG Photonics Corporation (the "Company"), Eugene A. Scherbakov, as the Chief Executive Officer of the Company, and Timothy P.V. Mammen, as the Chief Financial Officer of the Company, each hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
1 the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2 the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 31, 2023
 
/s/ Eugene A. Scherbakov
Eugene A. Scherbakov
Chief Executive Officer
/s/ Timothy P.V. Mammen
Timothy P.V. Mammen
Senior Vice President and Chief Financial Officer
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to IPG Photonics Corporation and will be retained by IPG Photonics Corporation and furnished to the Securities and Exchange Commission or its staff upon request.