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What changed in IPG PHOTONICS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of IPG PHOTONICS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+333 added−331 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-27)

Top changes in IPG PHOTONICS CORP's 2023 10-K

333 paragraphs added · 331 removed · 266 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

62 edited+7 added−22 removed76 unchanged
Biggest changeOur principal end markets and representative applications within those markets include: 4 Table of Contents Materials Processing Markets End Market Applications Principal Products General Manufacturing Flat sheet, tube and 3D cutting Continuous Wave ("CW") lasers (1-50 kW) and IPG systems Welding, brazing, hardening and cladding CW lasers (1-125 kW) and IPG systems Surface cleaning and texturing, paint and coating stripping and drying Nanosecond ("NS") pulsed lasers (100-3,000 W), single-mode CW lasers (1-5 kW), diode lasers (1-40 kW) and IPG systems 3D printing CW lasers (200-6,000 W) Marking, engraving and printing NS pulsed lasers (10-1,000 W) and Quasi-CW ("QCW") lasers (100-2,000 W) Automotive Cutting of high-strength steel and aluminum CW lasers (1-20 kW) Welding tailored blanks, frames and auto parts CW lasers (1-50 kW) Seam welding and brazing CW lasers( 1-20 kW) and IPG systems Electric vehicle battery and motor manufacturing CW and QCW lasers, NS pulsed lasers and IPG systems Consumer Goods Micro welding, cutting and marking QCW and NS pulsed lasers Marking of polymers and other non-metals Infrared ("IR"), green and ultraviolet ("UV") pulsed lasers Medical Devices Stent, pacemaker and other medical device manufacturing CW, NS , Picosecond ("PS") and Femtosecond ("FS") pulsed lasers and IPG systems Energy/Renewable Energy Hardening and welding of tubes and pipes CW lasers (4-50 kW) and IPG systems Cladding of turbine blades and drill bits CW lasers (1-20 kW) Solar cell processing Green NS pulsed lasers Aerospace, Rail and Shipbuilding Welding/cutting thick steel plates, titanium CW lasers (1-50 kW) and IPG systems Percussion drilling of aerospace parts QCW lasers (1-2 kW) Surface cleaning and texturing, paint and coating stripping and drying NS pulsed lasers (100-3,000 W), single-mode CW lasers (1-5 kW), diode lasers (1-40 kW) and IPG systems Micro Electronics Wafer inspection and annealing, disk mastering, flat panel display, LED lift-off Ultraviolet CW and NS pulsed lasers Processing of glass, ceramics, sapphire, silicon, diamond, Teflon, PCB, CFRP and other non-metals IR, green and UV NS pulsed lasers, PS and FS pulsed lasers, QCW lasers 5 Table of Contents Other Markets End Market Applications Principal Products Aerospace and Defense Directed energy Single-mode CW lasers, amplifiers and diode lasers IR countermeasures, thermal imaging Mid-IR NS pulsed lasers Medical Procedures Surgery, urology and soft tissue Mid-infrared, thulium, FS and laser systems Therapeutic procedures Diode lasers Aesthetic procedures - skin, wrinkle/hair/tattoo removal Erbium, thulium, green lasers Dental procedures Diode lasers Diagnostic procedures Mid-infrared and FS OEM Instrument Manufacturing Biomedical analytical instruments, metrology, disinfection/sterilization, environmental and security monitoring, quantum computing FS, PS, NS and CW lasers, Mid-infrared, IR, visible and UV lasers Scientific Academic research: sensing, imaging, microscopy, spectroscopy, quantum optics Mid-infrared, IR, visible and UV lasers; diode, FS, PS, NS and CW lasers, linearly polarized and single frequency lasers and amplifiers Products We design and manufacture a broad range of high-performance fiber lasers and amplifiers.
Biggest changeOur principal end markets and representative applications within those markets include: 4 Table of Contents Materials Processing Markets End Market Applications Principal Products General Manufacturing Welding, brazing, hardening and cladding Continuous Wave ("CW") lasers (1-125 kW) and IPG systems Flat sheet, tube and 3D cutting CW lasers (1-50 kW) and IPG systems Marking, engraving and printing NS pulsed lasers (10-1,000 W) and Quasi-CW ("QCW") lasers (100-2,000 W) Surface cleaning and texturing, paint and coating stripping Nanosecond ("NS") pulsed lasers (100-3,000 W), single-mode CW lasers (1-5 kW) and IPG systems Heating and drying Diode lasers (1-40 kW) 3D printing CW lasers (200-6,000 W) Automotive (including Electric Vehicles) Welding, cleaning, drying, and cutting, including foil cutting CW and QCW lasers, NS pulsed lasers and IPG systems Cutting of high-strength steel and aluminum CW lasers (1-20 kW) Welding tailored blanks, frames and auto parts CW lasers (1-50 kW) Seam welding and brazing CW lasers( 1-20 kW) and IPG systems Consumer Goods Micro welding, cutting and marking QCW and NS pulsed lasers Marking of polymers and other non-metals Infrared ("IR"), green and ultraviolet ("UV") pulsed lasers Medical Devices Stent, pacemaker and other medical device manufacturing CW, NS, Picosecond ("PS") and Femtosecond ("FS") pulsed lasers and IPG systems Energy/Renewable Energy Hardening and welding of tubes and pipes CW lasers (4-50 kW) and IPG systems Cladding of turbine blades and drill bits CW lasers (1-20 kW) Solar cell processing Green NS pulsed lasers Aerospace, Rail and Shipbuilding Welding/cutting thick steel plates, titanium CW lasers (1-50 kW) and IPG systems Percussion drilling of aerospace parts QCW lasers (1-2 kW) Surface cleaning and texturing, paint and coating stripping and drying NS pulsed lasers (100-3,000 W), single-mode CW lasers (1-5 kW), diode lasers (1-40 kW) and IPG systems Micro Electronics Wafer inspection and annealing, disk mastering, flat panel display, LED lift-off Ultraviolet CW and NS pulsed lasers Processing of glass, ceramics, sapphire, silicon, diamond, Teflon, PCB, CFRP and other non-metals IR, green and UV NS pulsed lasers, PS and FS pulsed lasers, QCW lasers Other Markets End Market Applications Principal Products Aerospace and Defense Directed energy Single-mode CW lasers, amplifiers and diode lasers IR countermeasures, thermal imaging Mid-IR NS pulsed lasers Medical Procedures Surgery, urology and soft tissue Mid-infrared, thulium, FS and laser systems Therapeutic procedures Diode lasers Aesthetic procedures - skin, wrinkle/hair/tattoo removal Erbium, thulium, green lasers Dental procedures Diode lasers Diagnostic procedures Mid-infrared and FS OEM Instrument Manufacturing Biomedical analytical instruments, metrology, disinfection/sterilization, environmental and security monitoring, quantum computing FS, PS, NS and CW lasers, Mid-infrared, IR, visible and UV lasers Scientific Academic research: sensing, imaging, microscopy, spectroscopy, quantum optics Mid-infrared, IR, visible and UV lasers; diode, FS, PS, NS and CW lasers, linearly polarized and single frequency lasers and amplifiers 5 Table of Contents Products We design and manufacture a broad range of high-performance fiber lasers and amplifiers.
Fiber lasers are a type of laser that combine the advantages of semiconductor diodes, such as long life and high efficiency, with the high amplification and precise beam qualities of specialty optical fibers to deliver superior performance, reliability and usability. Our portfolio of laser solutions are used in materials processing, medical and advanced applications.
Fiber lasers are a type of laser that combine the advantages of semiconductor diodes, such as long life and high efficiency, with the high amplification and precise beam qualities of specialty optical fibers to deliver superior performance, reliability and usability. Our portfolio of laser solutions is used in materials processing, medical and advanced applications.
Our broad range of standard and custom fiber lasers operating at various wavelengths and pulse durations allow us to meet varied customer requirements. Further, our vertically integrated manufacturing and broad technology expertise allow us to design, prototype and commence high-volume production of our products rapidly. Diverse Customer Base, End Markets and Applications.
Our broad range of standard and custom fiber lasers operating at various wavelengths and pulse durations allow us to meet varied customer requirements. Further, our vertically integrated manufacturing and broad technology expertise allow us to design, prototype and commence high-volume commercial production of our products rapidly. Diverse Customer Base, End Markets and Applications.
We also make packaged diodes, direct diode lasers, laser and non-laser systems and communications components and systems. Many of our products are designed to be used as general-purpose energy or light sources, making them useful in diverse applications and markets.
We also make direct diode lasers, packaged semiconductor diodes, laser and non-laser systems and communications components and systems. Many of our products are designed to be used as general-purpose energy or light sources, making them useful in diverse applications and markets.
The high beam quality of our fiber lasers coupled with high CW power offer deep penetration welding as well as shallow conduction mode welding. Adjustable mode beam (AMB) lasers allow beam tunability for precise high-quality welding required in electric vehicle battery manufacturing.
The high beam quality of our fiber lasers coupled with high CW power offer deep penetration welding as well as shallow conduction mode welding. Adjustable mode beam (AMB) lasers allow beam tunability for spatterless, precise high-quality welding required in electric vehicle battery manufacturing.
We produce hybrid fiber-solid state lasers at green and ultraviolet wavelengths for a range of micro processing applications and in the mid-IR spectrum for sensing, imaging and spectroscopy applications. We also sell fiber pigtailed packaged diodes and fiber coupled direct diode laser systems that use semiconductor diodes rather than optical fibers as their gain medium.
We produce hybrid fiber-solid state lasers at green and ultraviolet wavelengths for a range of micro processing applications and in the mid-IR spectrum for sensing, imaging and spectroscopy applications. We also sell fiber pigtailed packaged diodes as components for pumping applications, and fiber coupled direct diode laser systems that use semiconductor diodes rather than optical fibers as their gain medium.
Scherbakov attended the Russian Academy of Science in Moscow, where he received a Ph.D. in Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in Laser Physics from its General Physics Institute. 12 Table of Contents Angelo P. Lopresti has served as our General Counsel, Secretary and Vice President since February 2001.
Scherbakov attended the Russian Academy of Science in Moscow, where he received a Ph.D. in Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in Laser Physics from its General Physics Institute. 11 Table of Contents Angelo P. Lopresti has served as our General Counsel, Secretary and Vice President since February 2001.
Historically, machine tools such as grinding machines, mechanical saws, milling machines, lathes, presses, water jet cutters, plasma cutters and welding machines have been used to cut, combine, form or otherwise process metal in the production of finished goods such as automobiles, consumer appliances, electronics and heavy machinery.
Historically, machine tools such as grinding machines, mechanical saws, milling machines, lathes, presses, water jet cutters, plasma cutters and welding machines have been used to cut, join, form or otherwise process metal in the production of finished goods such as automobiles, consumer appliances, electronics and heavy machinery.
Frame agreements are non-binding indications of customer pricing and volume levels but are not firm customer purchase obligations. Orders used to compute backlog are generally cancellable without substantial penalties or any penalties. We anticipate shipping a substantial majority of the present backlog during fiscal year 2023.
Frame agreements are non-binding indications of customer pricing and volume levels but are not firm customer purchase obligations. Orders used to compute backlog are generally cancellable without substantial penalties or any penalties. We anticipate shipping a substantial majority of the present backlog during fiscal year 2024.
Our vertically integrated manufacturing operations include the manufacturing or assembly of optical preforms, specialty fiber, semiconductor wafers, laser diodes and packaged laser diodes, specialty optical components, fiber blocks, fiber laser modules, power supplies, circuit boards, electronics and control systems and software, crystals, chillers, housings and cabinets and final assembly of finished product.
Our vertically integrated manufacturing operations include the manufacturing or assembly of optical preforms, specialty fiber, semiconductor wafers, semiconductor diode chips and packaged semiconductor diodes, specialty optical components, fiber blocks, fiber laser modules, power supplies, circuit boards, electronics and control systems and software, crystals, chillers, housings and cabinets and final assembly of finished product.
Globally, the demand for employees with such levels of education is high and competitive. To succeed in these conditions, IPG implements key recruitment and retention strategies, objectives and effectiveness measures as part of the overall management of our business. These core strategies are advanced through the following programs, policies and initiatives: Competitive Pay and Benefits .
Globally, the demand for employees with such levels of education is high and competitive. 10 Table of Contents To succeed in these conditions, IPG implements key recruitment and retention strategies, objectives and effectiveness measures as part of the overall management of our business. These core strategies are advanced through the following programs, policies and initiatives: Competitive Pay and Benefits .
We further discuss the impact of such Trade Controls under " Risk Factors " in Item 1A " — We must comply with and could be impacted by various export controls and trade and economic sanctions laws and regulations that could negatively affect our business and may change due to diplomatic and political considerations outside of our control".
We further discuss the impact of such Trade Controls under " Risk Factors " in Item 1A " — We must comply with and could be impacted by various export controls and trade and economic 12 Table of Contents sanctions laws and regulations that could negatively affect our business and may change due to diplomatic and political considerations outside of our control".
We are expanding our line of cutting and welding optical processing heads for use with our fiber lasers and sell devices for in-line coherent monitoring for welding. 6 Table of Contents Systems In addition to selling laser sources, we also offer integrated laser systems for particular geographic markets or custom-developed for a customer's manufacturing requirements.
We are expanding our line of cutting and welding optical processing heads for use with our fiber lasers and sell devices for in-line coherent monitoring for welding. Systems In addition to selling laser sources, we also offer integrated laser systems for particular geographic markets or custom-developed for a customer's manufacturing requirements.
The strategy of developing our proprietary components has allowed us to leverage our optical experience and large volume requirements to lower the cost of our products. 9 Table of Contents Our research and development supports expanding and improving our product line by increasing power levels, improving beam quality and electrical efficiency, decreasing the size of our products and lowering the cost per watt.
The strategy of developing our proprietary components has allowed us to leverage our optical experience and large volume requirements to lower the cost of our products. Our research and development supports expanding and improving our product line by increasing power levels, improving beam quality and electrical efficiency, decreasing the size of our products and lowering the cost per watt.
Our diverse customer base, end markets and applications provide us with many growth opportunities. In 2022, we shipped products to thousands of customers worldwide.
Our diverse customer base, end markets and applications provide us with many growth opportunities. In 2023, we shipped products to thousands of customers worldwide.
We believe that fiber lasers provide a combination of benefits that include: superior performance; enhanced end user productivity; lower cost of ownership; greater ease of use; a more compact footprint; and greater choice of wavelengths and more precise beam control.
We believe that fiber lasers provide a combination of benefits that include: superior performance; enhanced end user productivity; lower cost of ownership and environmentally friendly operation; greater ease of use; a more compact footprint; and greater choice of wavelengths and more precise beam control.
In addition to our cladding-pumped specialty fiber platform, we have core competencies in high power multi-mode and single-mode semiconductor laser diodes, diode packaging, specialty active and passive optical fibers, high-performance optical components, crystal growth and processing, fiber gain blocks and fiber modules, thin film optical coatings, as well as splicing and combining techniques and high-stress test methods.
In addition to our cladding-pumped specialty fiber platform, we have core competencies in high power multi-mode and single-mode semiconductor diodes, diode packaging, specialty active and passive optical fibers, high-performance optical components, crystal growth and processing, fiber gain blocks and fiber modules, thin film optical coatings, as well as splicing and combining techniques and high-stress test 8 Table of Contents methods.
Employee recruitment, retention and development . IPG works diligently to attract the best talent from a broad array of sources to meet the current and future demands of our business. We have established relationships with trade schools, world-class universities, professional associations and industry groups to proactively attract talented and capable new hires.
Employee recruitment, retention and development . IPG is committed to attracting the best talent from a broad array of sources to meet the current and future demands of our business. We have established relationships with trade schools, world-class universities, professional associations and industry groups to proactively attract talented and capable new hires.
Pulsed lasers accounted for 18%, 17%, and 13% of revenue in 2022, 2021 and 2020, respectively. Accessories We manufacture and sell accessories that include high power optical fiber delivery cables, fiber couplers, beam switches, chillers and scanners for our fiber lasers.
Pulsed lasers accounted for 14%, 18%, and 17% of revenue in 2023, 2022 and 2021, respectively. Accessories We manufacture and sell accessories that include high power optical fiber delivery cables, fiber couplers, beam switches, chillers and scanners for our fiber lasers.
Our team of experienced scientists and engineers works closely with many of our customers to develop and introduce custom products and laser processing that address specific applications and performance requirements. We incurred research and development costs of approximately $116.1 million, $139.6 million and $126.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Our team of experienced scientists and engineers works closely with many of our customers to develop and introduce custom products and laser processing that address specific applications and performance requirements. We incurred research and development costs of approximately $98.7 million, $116.1 million and $139.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
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 amplifiers. We manufacture complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers.
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 amplifiers. We manufacture complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers.
As of December 31, 2022, we have over 700 patents issued and over 350 pending patent applications worldwide. Intellectual property rights, including those that we own, those that we license and those of others, involve significant risks. See Item 1A, " Risk Factors — In the past, we were subject to litigation alleging that we infringed third-party intellectual property rights.
As of December 31, 2023, we have over 750 patents issued and over 400 pending patent applications worldwide. Intellectual property rights, including those that we own, those that we license and those of others, involve significant risks. See Item 1A, " Risk Factors — In the past, we were subject to litigation alleging that we infringed third-party intellectual property rights.
We also make single-mode and low-mode output ytterbium fiber lasers with power levels of up to 20,000 watts and single-mode, erbium and thulium fiber lasers with power levels of up to 1,000 watts. For 2022 fiscal year, high power continuous wave ("CW") lasers accounted for 43% of revenue and were 47% and 54% of revenue, in 2021 and 2020, respectively.
We also make single-mode and low-mode output ytterbium fiber lasers with power levels of up to 20,000 watts and single-mode, erbium and thulium fiber lasers with power levels of up to 4,000 watts. For 2023 fiscal year, high power continuous wave ("CW") lasers accounted for 41% of revenue and were 43% and 47% of revenue, in 2022 and 2021, respectively.
Using our knowledge of optical fibers, we recently extended our product line by manufacturing fibers for medical uses in connection with our proprietary medical laser systems. Semiconductor Diode Laser Processing and Packaging Technologies We use multiple multi-mode, or broad area, single-emitter diodes rather than diode bars or stacks as a pump source.
Using our knowledge of optical fibers, we recently extended our product line by manufacturing fibers used as a consumable component with our proprietary medical laser systems. Semiconductor Diode Laser Processing and Packaging Technologies We use multiple multi-mode, or broad area, single-emitter diodes rather than diode bars or stacks as a pump source.
Our pulsed line includes nanosecond, picosecond and femtosecond lasers. We offer lasers with different gain mediums and wavelengths. The gain mediums are ytterbium, erbium and thulium, as well as Raman and hybrid fiber-solid state lasers using our crystal technology.
These lasers may be CW, QCW or pulsed. Our pulsed line includes nanosecond, picosecond and femtosecond lasers. We offer lasers with different gain mediums and wavelengths. The gain mediums are ytterbium, erbium and thulium, as well as Raman and hybrid fiber-solid state lasers using our crystal technology.
For the 2022, 2021 and 2020 fiscal years, laser and non-laser systems accounted for 11%, 9%, and 8%, respectively, of revenues. Our Markets We broadly classify our principal end markets as material processing, advanced applications, communications a nd medical procedures.
For the 2023, 2022 and 2021 fiscal years, laser and non-laser systems accounted for 13%, 11%, and 9%, respectively, of revenues. Our Markets We broadly classify our principal end markets as material processing, medical procedures, advanced applications and communications .
Our ultrafast, CW and QCW ytterbium, erbium, thulium fiber and hybrid lasers with average power from 1 to 200 watts, and diode laser systems can be used in various medical and biomedical applications.
Our ultrafast, CW and QCW ytterbium, erbium, thulium fiber and hybrid lasers with avera ge power from 1 to 200 watts, and dio de laser systems can be used in various medical and biomedical applications.
At December 31, 2022, our backlog included $500.9 million of orders with firm shipment dates and $310.1 million of frame agreements that we expect to ship within one year, compared to $487.3 million of orders with firm shipment dates and $241.7 million of frame agreements at December 31, 2021.
At December 31, 2023, our backlog included $401.1 million of orders with firm shipment dates and $290.3 million of frame agreements that we expect to ship within one year, compared to $500.9 million of orders with firm shipment dates and $310.1 million of frame agreements at December 31, 2022.
Backlog At December 31, 2022, our backlog of orders (generally scheduled for shipment within one year) was approximately $811.0 million compared to $729.0 million at December 31, 2021.
Backlog At December 31, 2023, our backlog of orders (generally scheduled for shipment within one year) was approximately $691.4 million compared to $811.0 million at December 31, 2022.
In 2020, we introduced our new LightWELD product line, a handheld laser welding system to provide fabricators a laser-based solution for welding. We offer 2D compact flat sheet cutter systems and multi-axis systems for fine welding, cutting and drilling. We produce high precision laser systems for the medical device industry.
We offer a LightWELD product line, which is a handheld laser welding system to provide fabricators a laser-based solution for welding. We also offer 2D compact flat sheet cutter systems and multi-axis systems for fine welding, cutting and drilling. We produce high precision laser systems for the medical device industry.
Executive Officers of the Registrant The following table sets forth certain information regarding our executive officers as of February 27, 2023: Name Age Position with the Company Eugene A. Scherbakov, Ph.D. 75 Chief Executive Officer Angelo P. Lopresti 59 General Counsel, Secretary and Senior Vice President Timothy P.V. Mammen 53 Chief Financial Officer and Senior Vice President Trevor D.
Executive Officers of the Registrant The following table sets forth certain information regarding our executive officers as of February 21, 2024: Name Age Position with the Company Eugene A. Scherbakov, Ph.D. 76 Chief Executive Officer Angelo P. Lopresti 60 General Counsel, Secretary and Senior Vice President Timothy P.V. Mammen 54 Chief Financial Officer and Senior Vice President Trevor D.
We sell our products globally to original equipment manufacturers ("OEMs"), system integrators and end users. We market our products internationally, primarily through our direct sales force. Our major manufacturing facilities are located in the United States, Germany, Russia and Belarus.
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. We have sales service offices and applications laboratories worldwide.
Ness 50 Senior Vice President, Sales and Strategic Business Development Alexander Ovtchinnikov, Ph.D. 62 Senior Vice President, Chief Technology Officer Igor Samartsev, Ph.D. 59 Senior Vice President, Chief Scientist Felix Stukalin 61 Senior Vice President, Chief Operating Officer Eugene A. Scherbakov, Ph.D. has served as our Chief Executive Officer since May 2021.
Ness 51 Senior Vice President, Sales and Strategic Business Development Alexander Ovtchinnikov, Ph.D. 63 Senior Vice President, Chief Technology Officer Igor Samartsev, Ph.D. 61 Senior Vice President, Chief Scientist Eugene A. Scherbakov, Ph.D. has served as our Chief Executive Officer since May 2021.
With the sale of sale of our telecom transmission product lines to Lumentum Holdings Inc. in August 2022, we no longer intend to target communications as a principal market.
With the sale of sale of our telecom transmission product lines in August 2022, we no longer intend to target 6 Table of Contents communications as a principal market.
The following table shows the allocation of our net sales (in thousands) among our principal markets: Year Ended December 31, 2022 2021 2020 % of Total % of Total % of Total Materials processing $ 1,291,262 90.3 % $ 1,325,404 90.7 % $ 1,082,478 90.2 % Medical procedures 70,402 4.9 % 42,936 2.9 % 31,243 2.6 % Advanced applications 54,308 3.8 % 69,257 4.8 % 63,859 5.3 % Communications 13,575 1.0 % 23,263 1.6 % 23,144 1.9 % Total $ 1,429,547 100.0 % $ 1,460,860 100.0 % $ 1,200,724 100.0 % These estimates are based upon customer information and when customer information has not been provided, upon our best information and belief.
The following table shows the allocation of our net sales (in thousands) among our principal markets: Year Ended December 31, 2023 2022 2021 % of Total % of Total % of Total Materials processing $ 1,152,804 89.5 % $ 1,291,262 90.3 % $ 1,325,404 90.7 % Medical procedures 71,571 5.6 % 70,402 4.9 % 42,936 2.9 % Advanced applications 55,576 4.3 % 54,308 3.8 % 69,257 4.8 % Communications 7,488 0.6 % 13,575 1.0 % 23,263 1.6 % Total $ 1,287,439 100.0 % $ 1,429,547 100.0 % $ 1,460,860 100.0 % These estimates are based upon customer information and when customer information has not been provided, upon our best information and belief.
We operate our own semiconductor foundry for the production of multi-mode single-emitter diodes. We also process, package and extensively test all of our diodes.
We operate our own semiconductor foundry for the production of multi-mode single-emitter diodes used as pump sources in our lasers. We also process, package and extensively test all of our diodes.
The structure of our compensation programs balances incentive earnings for both short-term and long-term performance. Specifically: • We provide employee wages that are competitive and consistent with employee’s positions, skill levels, experience, knowledge and geographic location. • All employees participate in our annual cash bonus program, allowing them to share in the profitability and business performance of IPG.
Specifically: • We provide employee wages that are competitive and consistent with employee’s positions, skill levels, experience, knowledge and geographic location. • All employees participate in our annual cash bonus program, allowing them to share in the profitability and business performance of IPG.
As a pioneer and technology leader in fiber lasers, we are able to leverage our scale to reduce costs for our customers and drive the proliferation of fiber lasers in existing and new applications. Vertically Integrated Development and Manufacturing.
Our Competitive Strengths Our key strengths and competitive advantages include the following: Leading Producer of Fiber Laser Technology. As a pioneer and technology leader in fiber lasers, we are able to leverage our scale to reduce costs for our customers and drive the proliferation of fiber lasers in existing and new applications. Vertically Integrated Development and Manufacturing.
Of our total full-time employees at our principal facilities, approximately 2,190 were in the United States, 1,370 were in Germany, 1,550 were in Russia, 410 were in Belarus and 230 were in China. We have never experienced a work stoppage, and none of our employees at our principal manufacturing facilities are subject to a collective bargaining agreement.
Of our total full-time employees, approximately 2,310 were in the United States and 1,490 were in Germany. We have never experienced a work stoppage, and none of our employees at our principal manufacturing facilities are subject to a collective bargaining agreement.
We also manufacture certain complementary products that are used with our lasers, such as optical delivery cables, fiber couplers, beam switches, optical processing heads and chillers. Lasers Our laser products include medium (1 to 999 watts) and high (1,000 watts and above) output power lasers from 0.3 to 4.5 microns in wavelength. These lasers may be CW, QCW or pulsed.
We also manufacture certain complementary products that are used with our lasers, such as optical delivery cables, fiber couplers, beam switches, optical processing heads, process measuring and monitoring technologies and chillers. Lasers Our laser products include medium (1 to 999 watts) and high (1,000 watts and above) output power lasers from 0.3 to 5.2 microns in wavelength.
As of December 31, 2022, we had approximately 6,230 full-time employees, including 500 in research and development, 4,950 in manufacturing and service operations, 340 in sales and marketing, and 440 in general and administrative functions. As a global company, our employees are distributed throughout our more than thirty locations in twenty-four countries.
As of December 31, 2023, we had approximately 6,180 full-time employees, including 590 in research and development, 4,720 in manufacturing and service operations, 380 in sales and marketing, and 490 in general and administrative functions. As a global company, our employees are distributed throughout our more than thirty locations in twenty-four countries.
We monitor employee turnover rates as our success depends upon retaining and investing in our highly trained manufacturing and technical staff. IPG strives to decrease voluntary turnover rates and thereby increase employee tenure by ensuring a combination of competitive compensation, individual developmental opportunities and personal career enrichment and growth. Our retention at the technical, professional and executive levels is high.
IPG strives to decrease voluntary turnover rates and thereby increase employee tenure by ensuring a combination of competitive compensation, individual developmental opportunities and personal career enrichment and growth. Our retention at the technical, professional and executive levels is high.
IPG’s compensation programs are designed to align the compensation of our employees, who operate in a highly competitive and technologically challenging environment, with IPG’s business performance and to 11 Table of Contents provide the proper incentives to attract, retain and motivate employees to achieve superior performance.
IPG’s compensation programs are designed to align the compensation of our employees, who operate in a highly competitive and technologically challenging environment, with IPG’s business performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior performance. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.
We also offer a welding seam stepper and picker, which is an automated fiber laser welding tool providing customers increased processing speeds, better quality and the elimination of certain clamping tools.
We also offer a welding seam stepper and picker, which is an automated fiber laser welding tool providing customers increased processing speeds, better quality and the elimination of certain clamping tools. Our subsidiary Genesis Systems Group, LLC provides laser and non-laser robotic welding and automation solutions.
Many of our fiber laser competitors are increasing the output powers of their fiber lasers to compete with our products. We also compete with end users that produce their own laser technology as well as with manufacturers of non-laser methods and tools, such as traditional non-laser welding, cutting dies, mechanical cutters and plasma cutters in the materials processing market.
We also compete with our customers that produce their own laser technology as well as with manufacturers of non-laser methods and tools, such as traditional non-laser welding, cutting dies, mechanical cutters and plasma cutters in the materials processing market.
Advanced Applications Our fiber lasers and amplifiers are utilized by commercial firms and by academic and government institutions worldwide for advanced and scientific applications. These markets may sell specialty products developed by us or our commercial products. Representative applications include directed energy, spectroscopy, optical trapping, remote sensing, LIDAR and materials characterization.
Advanced Applications Our fiber lasers and amplifiers are utilized by commercial firms and by academic and government institutions worldwide for advanced and scientific applications. These markets may sell specialty products developed by us or our commercial products.
Commerce Department’s Export Administration Regulations, the U.S. Treasury Department’s Office of Foreign Assets Control’s trade and economic sanctions programs, the U.S. Department of State’s Nonproliferation Sanctions and International Traffic in Arms Regulations, as well as those of the European Community and Germany, which we collectively refer to as Trade Controls.
Department of State’s Nonproliferation Sanctions and International Traffic in Arms Regulations, as well as those of the European Community and Germany, which we collectively refer to as Trade Controls.
CDRH regulations generally require a self-certification procedure pursuant to which a manufacturer must submit a filing to the CDRH with respect to each product incorporating a laser device, make periodic reports of sales and purchases and comply with product labeling standards, product safety and design features and informational requirements. 13 Table of Contents Our business activities are subject to various export controls and trade and economic sanctions laws and regulations, including, without limitation, the U.S.
CDRH regulations generally require a self-certification procedure pursuant to which a manufacturer must submit a filing to the CDRH with respect to each product incorporating a laser device, make periodic reports of sales and purchases and comply with product labeling standards, product safety and design features and informational requirements.
We have sales and service offices and application development centers in the Americas, Europe and Asia. To a lesser extent, we market through agreements with independent sales representatives and distributors, although we do use such channels more widely for our LightWELD product. 10 Table of Contents We typically provide one to five-year parts and service warranties on lasers.
We have sales and service offices and 9 Table of Contents application development centers in the Americas, Europe and Asia. To a lesser extent, we market through agreements with independent sales representatives and distributors, but we do use such channels more widely for our LightWELD product. In 2023, we entered into a strategic partnership with Miller Electric Mfg.
Materials Processing The most significant materials processing applications for fiber lasers are cutting, welding and brazing, marking and engraving, cleaning and stripping, solar cell manufacturing, additive manufacturing such as laser sintering, 3D printing and ablation. Other applications include precision processing, drilling and annealing. Cutting, Welding and Brazing Applications. Laser-based cutting technology has several advantages compared to alternative technologies.
Materials Processing The most significant materials processing applications for fiber lasers are welding and brazing and cutting. Other applications include marking and engraving, cleaning, additive manufacturing such as laser sintering and 3D printing, precision processing, drilling, heat treating, annealing and heating and drying. Welding and Brazing Applications.
There remain applications and processes where other laser and non-laser technologies may provide superior performance with respect to particular features or applications notwithstanding the benefits offered by fiber lasers. Our Competitive Strengths Our key strengths and competitive advantages include the following: World's Leading Producer of Fiber Laser Technology.
Our strategy is to target new applications where fiber lasers provide benefits compared to use of other laser technologies and non-laser solutions. There remain applications and processes where other laser and non-laser technologies may provide superior performance with respect to particular features or applications notwithstanding the benefits offered by fiber lasers.
Most of the Company's sales offices provide support to customers in their respective geographic areas. Customers We sell our products globally to OEMs, system integrators and end users in a wide range of diverse markets who have the in-house engineering capability to integrate our products into their own systems.
Customers We sell our products globally to OEMs, system integrators and end users in a wide range of diverse markets who have the in-house engineering capability to integrate our products into their own systems. We also sell complete laser and non-laser solutions to end users for their production needs. We have thousands of customers worldwide.
KG and Wuhan Raycus Fiber Laser Technologies Co. Ltd., as well as other smaller competitors. Some of our customers have developed products for their own use which are competitive to our products. Such vertical integration by our customers could reduce the market opportunity for our products.
Some of our customers have developed products for their own use which are competitive to our products. Such vertical integration by our customers could reduce the market opportunity for our products. Many of our fiber laser competitors are increasing the output powers of their fiber lasers to compete with our products.
Fiber Lasers Fiber lasers use semiconductor diodes as the energy source to pump a gain medium consisting of specialty optical fibers, which are infused with rare earth ions. These fibers are called active fibers and are comparable in diameter to a human hair. The laser emission is created within optical fibers and delivered through a flexible optical fiber cable.
These fibers are called active fibers and are comparable in diameter to a human hair. The laser emission is created within optical fibers and delivered through a flexible optical fiber cable.
Processing of plastics and semi-conductors require short pulse and high energy lasers, in the green, UV and mid-IR wavelengths. Medical Procedures We sell our commercial fiber and diode laser modules, subassemblies and complete systems to medical device manufacturers that incorporate our products into their devices.
Medical Procedures We sell our commercial fiber and diode laser modules, subassemblies and complete systems to medical device manufacturers that incorporate our products into their devices.
In addition to these regulations and directives, we may face costs and liabilities in connection with product take-back legislation. For further discussion of risks relating to the regulations to which we are subject, see Item 1A. Risk Factors.
For further discussion of risks relating to the regulations to which we are subject, see Item 1A. Risk Factors.
We no longer intend to target communications as a principal market. 8 Table of Contents Technology Our products are based on our proprietary technology platform that we have developed and refined since our formation. The following technologies are key elements in our products.
Representative applications include directed energy, spectroscopy, optical trapping, remote sensing, LIDAR and materials characterization. 7 Table of Contents Technology Our products are based on our proprietary technology platform that we have developed and refined since our formation. The following technologies are key elements in our products.
Competition Our markets are highly competitive and characterized by rapidly changing technology, continuously evolving customer requirements and reduced average selling prices over time. In the materials processing market, we compete with makers of fiber lasers and other lasers, such as Coherent, Inc., Laserline GmbH, Lumentum Holdings Inc., Maxphotonics Co., Ltd., MKS Instruments, Inc., nLight, Inc., Trumpf GmbH + Co.
In the materials processing market, we compete with makers of fiber lasers and other lasers, such as Coherent, Inc., Laserline GmbH, Lumentum Holdings Inc., Maxphotonics Co., Ltd., MKS Instruments, Inc., nLight, Inc., Trumpf GmbH + Co. KG and Wuhan Raycus Fiber Laser Technologies Co. Ltd., as well as other smaller competitors.
Our LightWELD product line offers a handheld laser welding system that is easier to learn and operate than traditional solutions and offers high process consistency. 7 Table of Contents Our products are used also for laser brazing of visible joints in automobiles such as tailgates, roof joints and columns.
We also offer a real-time weld monitoring system to determine weld quality in an integrated solution. Our LightWELD product line offers a handheld laser welding system that is easier to learn and operate than traditional solutions and offers high process consistency.
Laser-based systems are increasingly gaining share within the materials processing market because of the greater precision, processing speeds and flexibility enabled by this technology. Beyond materials processing, lasers are well-suited for imaging and inspection applications and the ability to confine laser light to narrow wavelengths makes them particularly effective in medical, non-destructive inspection and sensing applications.
Beyond materials processing, lasers are well-suited for imaging and inspection applications and the ability to confine laser light to narrow wavelengths makes them particularly effective in medical, non-destructive inspection and sensing applications. Fiber Lasers Fiber lasers use semiconductor diodes as the energy source to pump a gain medium consisting of specialty optical fibers, which are infused with rare earth ions.
Brazing is a method of joining sheet metal by using a melted filler material similar to soldering but requiring higher temperatures. Marking and Engraving.
Our products are used also for laser brazing of visible joints in automobiles such as tailgates, roof joints and columns. Brazing is a method of joining sheet metal by using a melted filler material similar to soldering but requiring higher temperatures. Cutting Applications. Laser-based cutting technology has several advantages compared to alternative technologies.
We also sell complete laser and non-laser solutions to end users for their production needs. We have thousands of customers worldwide. We rely on a few customers for a significant portion of our sales. In the aggregate, our top five customers accounted for 15%, 19% and 24% of our consolidated net sales in 2022, 2021 and 2020, respectively.
We rely on a few customers for a significant portion of our sales. In the aggregate, our top five customers accounted for 13%, 15% and 19% of our consolidated net sales in 2023, 2022 and 2021, respectively. Competition Our markets are highly competitive and characterized by rapidly changing technology, continuously evolving customer requirements and reduced average selling prices over time.
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Refer to "Factors and Trends That Affect Our Operations and Financial Results" within Part II Item 7 for trends impacting our reliance on our Russian and Belarus operations. We have sales service offices and applications laboratories worldwide. We are vertically integrated.
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Also, laser are utilized in applications which require consistent and stable operation with lower power densities, such as heating, cleaning and drying. Laser-based systems are increasingly gaining share within the materials processing market because of the greater precision, processing speeds and flexibility enabled by this technology.
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In 2018, we acquired Genesis Systems Group LLC (United States), a leader in the integration of laser and non-laser robotic welding and automation solutions, and Robot Concept GmbH (Germany), an integrator of laser-based systems.
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LLC, a leading worldwide manufacturer of arc welding products, to further promote laser solutions for handheld welding applications. We typically provide one to five-year parts and service warranties on lasers. Most of the Company's sales offices provide support to customers in their respective geographic areas.
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We also offer a real-time weld monitoring system to determine weld quality in an integrated solution.
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IPG sponsors formal apprentice and internship programs to build leadership capabilities for the future. IPG has made strides to increase diversity across the global organization while ensuring strategic focus on increasing diversity representation in leadership positions.
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With the increasing need for source traceability, component identification and product tracking as a means of reducing product liability and preventing falsification, as well as the demand for modern robotic production systems, manufacturers increasingly demand laser marking systems capable of applying serialized alphanumeric, graphic or bar code identifications directly onto their manufactured components.
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IPG has a strong employee value proposition with a culture of innovation, driven by entrepreneurial spirit and embraced within an environment of individual respect, dignity and caring. We monitor employee turnover rates as our success depends upon retaining and investing in our highly trained manufacturing and technical staff.
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Laser engraving is similar to marking but forms deeper grooves in the material. In contrast to conventional acid etching and ink-based technologies, lasers can mark a wide variety of metal and non-metal materials, such as ceramic, glass and plastic surfaces, at high speeds and without contact by changing the surface structure of the material or by engraving.
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Our business activities are subject to various export controls and trade and economic sanctions laws and regulations, including, without limitation, the U.S. Commerce Department’s Export Administration Regulations, the U.S. Treasury Department’s Office of Foreign Assets Control’s trade and economic sanctions programs, the U.S.
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Laser marking systems can be easily integrated into a customer's production process and do not subject the item being marked to mechanical stress. In addition, we make high powered lasers for ablation and cleaning applications. 3D Printing. Historically, metalworking has been performed with processes that remove material to produce component parts.
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In addition to these regulations and directives, we may face costs and liabilities in connection with product take-back legislation. Climate and Sustainability Reporting and Regulation Various jurisdictions around the world in which we operate, including the U.S. and certain states, the European Union, and the United Kingdom have adopted or proposed laws related to climate and sustainability reporting.
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The development of 3D printing technology enables the production of three-dimensional objects from digital design data through an additive manufacturing process, which builds up components in layers using materials that are available in fine powder form. 3D printers take advantage of improvements in computing power and motion and process control to deposit a range of materials, including metals, plastics and composite materials, accurately at high speed.
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For example, the European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD), which will introduce additional due diligence and disclosure requirements addressing sustainability that we expect will apply to us in the coming years. These and future laws, regulations or policies could significantly increase our operational and compliance burdens and costs.
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Within metal-based 3D printing processes that include laser metal deposition (LMD) and selective laser melting (SLM), a laser beam is used to fuse metallic powder at points defined by computer-generated design data. 3D printing permits highly complex structures, with a high degree of customization capability and significantly less waste than subtractive manufacturing processes. Micro-materials processing.
Removed
In the semiconductor industry, lasers typically are used as the light source in microlithography and for annealing, dicing, drilling, lift-off and marking of wafers. In the electronics industry, lasers typically are used to cut, join, mark, scribe or otherwise process a variety of materials that include ceramics, metals, plastics, silicon, and sapphire among others.
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Consumer electronic devices such as mobile phones, computers and handheld computers contain many parts that are laser-cut, marked or welded. In the photovoltaic or solar panel industry, pulsed lasers are used to remove materials and to scribe, or cut, solar cells.
Removed
The high beam quality, increased peak output powers, flexible fiber delivery and competitive price of fiber lasers have accelerated the adoption of fiber lasers in these low power applications. Precision Processing.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we or our third-party vendors fail to comply with FDA regulations or similar legal requirements in foreign jurisdictions relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
Biggest changeAlthough we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our operating results and financial condition. 21 Table of Contents If we or our third-party vendors fail to comply with FDA regulations or similar legal requirements in foreign jurisdictions relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
Our operations and sales in these markets are subject to risks inherent in international business activities, including the following and others mentioned in the Risk Factors: • fluctuations in the values of foreign currencies; • changes, including recession, and other general economic uncertainties affecting the macroeconomic and local economic communities in which we and our customers operate or serve; • longer accounts receivable collection periods and less developed credit assessment and collection procedures; • compliance with domestic and foreign laws and regulations, unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes, tariffs, quotas, export controls, export licenses, trade sanctions and other trade barriers, and any corresponding retaliatory actions by affected countries, including China and Russia; • certification requirements; • less effective protection of intellectual property rights in some countries; • potentially adverse tax consequences; • different capital expenditure and budget cycles for our customers, which affect the timing of their spending; • political, legal and economic instability, foreign conflicts, labor unrest and the impact of regional and global infectious illnesses in the countries in which we and our customers, suppliers, manufacturers and subcontractors are located; • preference for locally produced products; 26 Table of Contents • difficulties and costs of staffing and managing international operations across different geographic areas and cultures; • seasonal reductions in business activities; • fluctuations in freight rates and transportation disruptions; • investment restrictions or requirements; • repatriation restrictions or requirements; • export and import restrictions; and • limitations on the ability of our employees to travel without restriction to certain countries in which we operate.
Our operations and sales in these markets are subject to risks inherent in international business activities, including the following and others mentioned in the Risk Factors: • fluctuations in the values of foreign currencies; • changes, including recession, and other general economic uncertainties affecting the macroeconomic and local economic communities in which we and our customers operate or serve; • longer accounts receivable collection periods and less developed credit assessment and collection procedures; • compliance with domestic and foreign laws and regulations, unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes, tariffs, quotas, export controls, export licenses, trade sanctions and other trade barriers, and any corresponding retaliatory actions by affected countries, including China and Russia; • certification requirements; • less effective protection of intellectual property rights in some countries; • potentially adverse tax consequences; • different capital expenditure and budget cycles for our customers, which affect the timing of their spending; • political, legal and economic instability, foreign conflicts, labor unrest and the impact of regional and global infectious illnesses in the countries in which we and our customers, suppliers, manufacturers and subcontractors are located; • preference for locally produced products; • difficulties and costs of staffing and managing international operations across different geographic areas and cultures; • seasonal reductions in business activities; • fluctuations in freight rates and transportation disruptions; • investment restrictions or requirements; • repatriation restrictions or requirements; • export and import restrictions; and • limitations on the ability of our employees to travel without restriction to certain countries in which we operate.
We are a multinational corporation, with manufacturing located both in the United States and internationally and with approximately 77% of our net sales arising from foreign customers. As such, we may be more susceptible to negative impacts from these tariffs or change in trade policies than other less internationally focused enterprises.
We are a multinational corporation, with manufacturing located both in the United States and internationally and with approximately 76% of our net sales arising from foreign customers. As such, we may be more susceptible to negative impacts from these tariffs or change in trade policies than other less internationally focused enterprises.
In order to maintain or increase market demand for our products, we will need to devote substantial resources to: • demonstrate the effectiveness of fiber lasers in new applications for materials processing, medical, communications and advanced applications; 17 Table of Contents • successfully develop new product lines, such as the handheld welder, UV, visible and ultrafast fiber lasers with competitive features that extend our product line; • increase our direct and indirect sales efforts; • effectively meet growing competition and pricing pressures; and • continue to reduce our manufacturing costs and enhance our competitive position.
In order to maintain or increase market demand for our products, we will need to devote substantial resources to: • demonstrate the effectiveness of fiber lasers in new applications for materials processing, medical, communications and advanced applications; • successfully develop new product lines, such as the handheld welder, UV, visible and ultrafast fiber lasers with competitive features that extend our product line; • increase our direct and indirect sales efforts; • effectively meet growing competition and pricing pressures; and • continue to reduce our manufacturing costs and enhance our competitive position.
If we do not achieve planned yields, our product costs could increase resulting in lower gross margins, and key component availability would decrease. We are highly dependent on the significant experience and specialized expertise of our CEO and other senior management and scientific staff.
If we do not achieve planned yields, our product costs could increase resulting in lower gross margins, and key component availability would decrease. We are highly dependent on the significant experience and specialized expertise of our senior management and scientific staff.
Gapontsev, together with his affiliates and associates, ceases to beneficially own an aggregate of 25% or more of our outstanding voting securities, may discourage, delay or prevent a merger, acquisition or change of control, even if it would be beneficial to our stockholders.
Valentin P. Gapontsev, together with his affiliates and associates, ceases to beneficially own an aggregate of 25% or more of our outstanding voting securities, may discourage, delay or prevent a merger, acquisition or change of control, even if it would be beneficial to our stockholders.
We are exposed to credit risk and fluctuations in the market values of our cash, cash equivalents and marketable securities. Given the global nature of our business, we have both domestic and international investments. At December 31, 2022, 76% of our cash, cash equivalents and marketable securities were in the United States and 24% were outside the United States.
We are exposed to credit risk and fluctuations in the market values of our cash, cash equivalents and marketable securities. Given the global nature of our business, we have both domestic and international investments. At December 31, 2023, 76% of our cash, cash equivalents and marketable securities were in the United States and 24% were outside the United States.
Sanctions imposed by any of these countries has and could disrupt our supply of critical components among our manufacturing facilities in the U.S., Germany, Russia or Belarus, and cause us to shift all or portions of work occurring in Russia or Belarus to other countries.
Sanctions imposed by any of these countries has and could disrupt our supply of critical components among our manufacturing facilities in the U.S., Germany, Italy, Poland, Russia or Belarus, and cause us to shift all or portions of work occurring in Russia or Belarus to other countries.
Our failure to comply with these laws and regulations could result in costly government investigations, government sanctions, including substantial monetary penalties, civil or criminal penalties, denial of export privileges, debarment from government contracts, and a loss of revenues and reputational harm. 15 Table of Contents Our manufacturing facilities in the U.S., Germany and Russia provide finished products to China, our largest market.
Our failure to comply with these laws and regulations could result in costly government investigations, government sanctions, including substantial monetary penalties, civil or criminal penalties, denial of export privileges, debarment from government contracts, and a loss of revenues and reputational harm. Our manufacturing facilities in the U.S., Germany and Russia provide finished products to China, our largest market.
In 2022, approximately $74.1 million was related to inventory provision and related charges at our Russian operations.
In 2022, approximately $74 million was related to inventory provision and related charges at our Russian operations.
These regulations are extensive and complex, and they differ from one sanctions regime to another. Failure to comply with these regulations could subject us to legal and reputational consequences, including civil and criminal penalties. In addition, Trade Controls and their implementation are fluid and may change due to diplomatic and political considerations outside of our control.
These regulations are extensive and complex, and they differ from one sanctions regime to another. Failure to comply with these regulations could subject us to legal and reputational consequences, including civil and criminal penalties. 18 Table of Contents In addition, Trade Controls and their implementation are fluid and may change due to diplomatic and political considerations outside of our control.
Our business is characterized by short-term purchase orders and shipment schedules and, in some cases, orders may be canceled or delayed without significant penalty or any penalty. As a result, it is difficult to forecast our revenues and to determine the appropriate levels of inventory required to meet future demand.
Our business is characterized by short-term purchase orders and shipment schedules and, in some cases, orders may 16 Table of Contents be canceled or delayed without significant penalty or any penalty. As a result, it is difficult to forecast our revenues and to determine the appropriate levels of inventory required to meet future demand.
In addition, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. We have experienced rapid growth and have extensive and complex international manufacturing and sales and service locations which may make us more vulnerable to weaknesses in our internal controls.
In addition, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. We have extensive and complex international manufacturing and sales and service locations which may make us more vulnerable to weaknesses in our internal controls.
We conduct our business and incur costs in the local currency of most countries in which we operate. In 2022 our net sales outside the United States represented a substantial majority of our total sales.
We conduct our business and incur costs in the local currency of most countries in which we operate. In 2023 our net sales outside the United States represented a substantial majority of our total sales.
If the ASPs of our products decline further and we are unable to increase our unit volumes, introduce new or enhanced products with higher margins or reduce manufacturing costs to offset anticipated decreases in the prices of our existing products, our operating results may be adversely affected.
If the ASPs of our products decline further and we are unable to increase our unit 14 Table of Contents volumes, introduce new or enhanced products with higher margins or reduce manufacturing costs to offset anticipated decreases in the prices of our existing products, our operating results may be adversely affected.
These are not readily available from other sources at our current costs and may not be available at all. If our manufacturing activities were obstructed or hampered significantly, it could take a considerable length of time, or it could increase our costs, to resume 19 Table of Contents manufacturing or find alternative sources of supply.
These are not readily available from other sources at our current costs and may not be available at all. If our manufacturing activities were obstructed or hampered significantly, it could take a considerable length of time, or it could increase our costs, to resume manufacturing or find alternative sources of supply.
Factors which may have an influence on our operating results in a particular quarter include those below and others included in the Risk Factors: • the increase, decrease, cancellation or rescheduling of significant customer orders; • the timing of revenue recognition based on the installation or acceptance of certain products shipped to our customers; 25 Table of Contents • the timing of customer qualification of our products and commencement of volume sales of systems that include our products; • the gain or loss of a key customer; • product or customer mix; • competitive pricing pressures and new market entrants; • our ability to design, manufacture and introduce new products on a cost-effective and timely basis; • our ability to manage our inventory levels and any provisions for excess or obsolete inventory; • our ability to collect outstanding accounts receivable balances; • incurring expenses to develop and improve application and support capabilities, the benefits of which may not be realized until future periods, if at all; • incurring expenses related to impairment of values for goodwill, intangibles and other long-lived assets; • different capital expenditure and budget cycles for our customers, which affect the timing of their spending; • expenses associated with acquisition-related activities; • health pandemic; and • our ability to control expenses.
Factors which may have an influence on our operating results in a particular quarter include those below and others included in the Risk Factors: • the increase, decrease, cancellation or rescheduling of significant customer orders; • the timing of revenue recognition based on the installation or acceptance of certain products shipped to our customers; • the timing of customer qualification of our products and commencement of volume sales of systems that include our products; • the gain or loss of a key customer; • product or customer mix; • competitive pricing pressures and new market entrants; • our ability to design, manufacture and introduce new products on a cost-effective and timely basis; • our ability to manage our inventory levels and any provisions for excess or obsolete inventory; • our ability to collect outstanding accounts receivable balances; • incurring expenses to develop and improve application and support capabilities, the benefits of which may not be realized until future periods, if at all; • incurring expenses related to impairment of values for goodwill, intangibles and other long-lived assets; • different capital expenditure and budget cycles for our customers, which affect the timing of their spending; • expenses associated with acquisition-related activities; • regional epidemics or a global pandemic, such as COVID-19; and 24 Table of Contents • our ability to control expenses.
Defects, integration issues or other performance problems in our fiber laser and other products could also result in personal injury or financial or other damages to our customers, which in turn could damage market acceptance of our products and result in significant product liability claims being brought against us .
Defects, integration issues or other performance problems in our fiber laser and other products could also result in personal injury or financial or other damages to our customers, which in turn could damage market 22 Table of Contents acceptance of our products and result in significant product liability claims being brought against us .
Our operations in Russia and Belarus are subject to additional regulatory and political constraints and additional compliance costs in connection with sanctions, other trade controls and higher tariffs imposed by the United States, the European Union and other governments in response to Russia’s military operations in Ukraine.
Our operations worldwide are subject to additional regulatory and political constraints and additional compliance costs in connection with sanctions, other trade controls and higher tariffs imposed by the United States, the European Union and other governments in response to Russia’s military operations in Ukraine.
A significant portion of our sales are to customers in China, which accounted for 34%, 38% and 42% of net sales in 2022, 2021 and 2020, respectively. Slowing economic growth or recession, tariff-trade wars or other adverse economic developments or uncertainty in any of our key markets, including in China, may result in a decrease in our sales.
A significant portion of our sales are to customers in China, which accounted for 28%, 34% and 38% of net sales in 2023, 2022 and 2021, respectively. Slowing economic growth or recession, tariff-trade wars or other adverse economic developments or uncertainty in any of our key markets, including in China, may result in a decrease in our sales.
It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the materials processing, telecommunications, advanced and medical markets and applications in which we participate.
It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the materials processing, medical procedures and advanced applications in which we participate.
We may not be able to respond by decreasing our expenses quickly enough or sufficiently, due in part, to our fixed overhead structure related to our 16 Table of Contents vertically integrated operations and our commitments to continuing investment in research and development and infrastructure for long term growth.
We may not be able to respond by decreasing our expenses quickly enough or sufficiently, due in part, to our fixed overhead structure related to our vertically integrated operations and our commitments to continuing investment in research and development and infrastructure for long term growth.
In the aggregate, our top five customers accounted for 15%, 19% and 24% of our consolidated net sales in 2022, 2021 and 2020, respectively. A few of our larger customers, including our largest customer, are making fiber lasers or announced plans to develop fiber lasers.
In the aggregate, our top five customers accounted for 13%, 15% and 19% of our consolidated net sales in 2023, 2022 and 2021, respectively. A few of our larger customers, including our largest customer, are making fiber lasers or announced plans to develop fiber lasers.
Provisions in our charter documents and Delaware law, and our severance arrangements, could prevent or delay a change in control of our company, even if a change in control would be beneficial to our stockholders. Provisions of our certificate of incorporation and by-laws, including certain provisions that will take effect when founder of the Company, the late Dr. Valentin P.
Provisions in our charter documents and Delaware law, and our severance arrangements, could prevent or delay a change in control of our company, even if a change in control would be beneficial to our stockholders. 23 Table of Contents Provisions of our certificate of incorporation and by-laws, including certain provisions that will take effect when founder of the Company, the late Dr.
Our security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise.
Our security measures may be breached as a result of third-party action, including intentional misconduct by computer 20 Table of Contents hackers, employee error, malfeasance or otherwise.
As a result of the foregoing factors, competitive pressures have resulted in price reductions, reduced margins, loss of sales and loss of market share. The laser and amplifier industries are experiencing declining average selling prices, which could cause our gross margins to decline and harm our operating results.
As a result of the foregoing factors, competitive pressures have resulted in price reductions, reduced margins, loss of sales and loss of market share. The laser industry is experiencing declining average selling prices, which could cause our gross margins to decline and harm our operating results.
We may not be able to effectively integrate acquired businesses, business cultures, products, patents or 27 Table of Contents technologies into our existing business and products, or retain key employees.
We may not be able to effectively integrate acquired businesses, business cultures, products, patents or technologies into our existing business and products, or retain key employees.
If we do not prevail in any intellectual property litigation brought against us, it could affect our ability to sell our products and materially harm our business, financial condition and results of operations. These developments could adversely affect our ability to compete for customers and increase our revenues. Plaintiffs in intellectual property cases often seek, and sometimes obtain, injunctive relief.
If we do not prevail in any intellectual property litigation brought against us, it could affect our ability to sell our products and materially harm our business, financial condition and results of operations. These developments could adversely affect our ability to compete for customers and increase our revenues.
Approximately 90% of our revenues in 2022 were from customers in the materials processing market. Although applications in this market are broad, sales for these applications are cyclical and have historically experienced sudden and severe downturns and periods of oversupply, resulting in significantly reduced demand for capital equipment, including the products that we manufacture and market.
Although applications in this market are broad, sales for these applications are cyclical and have historically experienced sudden and severe downturns and periods of oversupply, resulting in significantly reduced demand for capital equipment, including the products that we manufacture and market.
Changes in our level of inventory lead to an increase in cash generated from our operations when inventory is sold or a decrease in cash generated from our operations at times when the amount of inventory increases.
Changes in our level of inventory lead to an increase in cash generated from our operations when inventory is sold or a decrease in cash generated from our operations at times when the amount of inventory increases. Decreases in inventory may decrease our overhead absorption and decrease our gross margins and profitability.
Many of the tools and equipment we use are custom-designed, and it could take a significant period of time to repair or replace them. Our primary manufacturing facilities are located in Massachusetts, Germany, Russia and Belarus.
Many of the tools and equipment we use are custom-designed, and it could take a significant period of time to repair or replace them. Our primary manufacturing facilities are located in the United States and Germany, and we have added production in Italy and Poland.
As a global company, we are subject to taxation in the United States and various other countries and jurisdictions. Significant judgment is required to determine worldwide tax liabilities.
Changes in tax rates, tax liabilities or tax accounting rules could affect future results. As a global company, we are subject to taxation in the United States and various other countries and jurisdictions. Significant judgment is required to determine worldwide tax liabilities.
We are subject to risks of doing business in Russia through our subsidiary, NTO-IRE Polus, which sells finished lasers to customers in Russia and supplies our Chinese subsidiary with a portion of the finished lasers they sell to customers in China.
We are subject to risks of doing business in Russia through our subsidiary, NTO-IRE Polus, which sells finished lasers to customers in Russia and supplies our Chinese subsidiary with a portion of the finished lasers they sell to customers in China. 25 Table of Contents We are also subject to risks of doing business in Belarus, which provides mechanical parts to our German and Russian operations.
The trade restrictions impose limits our our ability to purchase components and other items from our subsidiary in Russia. A significant portion of our manufacturing facilities and production equipment, such as our semiconductor production and processing equipment, diode packaging equipment and diode burn-in stations, are special-purpose in nature and cannot be adapted easily to make other products.
A significant portion of our manufacturing facilities and production equipment, such as our semiconductor production and processing equipment, diode packaging equipment and diode burn-in stations, are special-purpose in nature and cannot be adapted easily to make other products.
Although we test our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, our failure to maintain adequate internal controls over financial reporting could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements or a delay in our ability to timely file our periodic reports with the SEC, which ultimately could negatively impact our stock price. 23 Table of Contents Our products could contain defects, which may reduce sales of those products, harm market acceptance of our fiber laser and other products or result in claims against us.
Although we test our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, our failure to maintain adequate internal controls over financial reporting could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements or a delay in our ability to timely file our periodic reports with the SEC, which ultimately could negatively impact our stock price.
We occasionally borrow under our existing credit facilities to fund operations, including working capital investments. Our major credit lines in the United States and Germany expire in April 2025 and July 2023, respectively.
We occasionally borrow under our existing credit facilities to fund operations, including working capital investments. Our major credit line in the United States expires in April 2025.
If we are unable to prevent misappropriation or infringement of our intellectual property rights, or the independent development or design of similar technologies, our competitive position and operating results could suffer. 21 Table of Contents Our information systems are subject to cyber-attacks, interruptions and failures.
If we are unable to prevent misappropriation or infringement of our intellectual property rights, or the independent development or design of similar technologies, our competitive position and operating results could suffer. Our information systems are subject to cyber-attacks, interruptions and failures. If unauthorized access is obtained to our information systems, we may incur significant legal and financial exposure and liabilities.
This military action had significant and immediate adverse economic impacts globally. Given the nature of our business and our global operations, particularly those in Russia and Belarus, the current conflict between Russia and Ukraine has affected and may adversely affect our business and results of operations.
Given the nature of our business and our global operations, particularly those in Russia and Belarus, the current conflict between Russia and Ukraine has affected and may adversely affect our business and results of operations.
IP Fibre Devices (UK) Ltd. ("IPFD"), together with trusts created by the late founder of the Company, Dr. Valentin P. Gapontsev, beneficially own approximately 33% of our common stock. Dr. Scherbakov, our CEO, is the sole managing director of IPFD. Trustees of the trusts are officers or employees of the Company. These trustees and Dr.
("IPFD"), together with trusts created by the late founder of the Company, Dr. Valentin P. Gapontsev, beneficially own approximately 34% of our common stock. Dr. Scherbakov, our CEO, is the sole managing director of IPFD. Trustees of the trusts are officers of the Company and a third-party corporate trustee. These trustees and Dr.
Uncertainty and adverse changes in the general economic conditions of markets in which we participate negatively affect our business. Current and future conditions in the economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole.
Current and future conditions in the economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole.
Trade Controls may require that we obtain a license before we can export, re-export or transfer certain products, software or technology. The requirement to obtain a license could put us at a competitive disadvantage by restricting our ability to sell products to customers in certain countries or by giving rise to delays or expenses related to obtaining a license.
The requirement to obtain a license could put us at a competitive disadvantage by restricting our ability to sell products to customers in certain countries or by giving rise to delays or expenses related to obtaining a license.
The costs to address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays, a cessation of service, and a loss of existing or potential customers, impeding our sales, manufacturing, distribution, and other critical functions.
Our remediation efforts may not be successful and could result in interruptions, delays, a cessation of service, and a loss of existing or potential customers, impeding our sales, manufacturing, distribution, and other critical functions.
These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, increase the risk of loss on investments, or increase costs associated with manufacturing and distributing products. An economic downturn could have a material adverse effect on our business, financial condition and results of operations.
These changes may negatively affect the sales of 13 Table of Contents our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, increase the risk of loss on investments, or increase costs associated with manufacturing and distributing products.
Approximately 79% of our approximately 6,230 employees as of December 31, 2022 were employed in our manufacturing operations. We may not adjust these fixed costs quickly enough or sufficiently to adapt to rapidly changing market conditions.
We have a high fixed cost base due to our vertically integrated business model. Approximately 76% of our approximately 6,180 employees as of December 31, 2023 were employed in our manufacturing operations. We may not adjust these fixed costs quickly enough or sufficiently to adapt to rapidly changing market conditions.
In addition, sanctions targeting the banking sector have impacted the transfer of cash to and from Russia to fund operations or repatriate surplus liquidity. Such disruptions could negatively affect our ability to provide critical components to affiliates or produce finished goods for customers, which could increase our costs, require capital expenditures and harm our results of operations and financial condition.
Such disruptions could negatively affect our ability to provide critical components to affiliates or produce finished goods for customers, which could increase our costs, require capital expenditures and harm our results of operations and financial condition.
We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results.
Also, the process of evaluating the potential impairment of long-lived assets is subjective. We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results.
Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business including those from government regulations, sanctions or tariffs, slower growth rates, lack of growth in our relevant business units or differences in the estimated product acceptance rates could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets.
Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business including those from government regulations, sanctions or tariffs, slower growth rates, lack of growth in our relevant business units or differences in the estimated product acceptance rates could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets. 26 Table of Contents 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.
A significant part of our business involves the export and import of components and products among many countries, including the U.S., Germany, Russia, Belarus and China. The U.S. government and governments of other countries in which we do business have Trade Controls that impact our ability to export, re-export or transfer products, software and technology originating in those countries.
The U.S. government and governments of other countries in which we do business have Trade Controls that impact our ability to export, re-export or transfer products, software and technology originating in those countries. Trade Controls may require that we obtain a license before we can export, re-export or transfer certain products, software or technology.
The results of our operations, business prospects and facilities in Russia, China and Belarus are subject to the economic and political environment there and global geopolitical conditions. The future economic direction of these emerging market countries remains largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory and political developments.
The future economic direction of these emerging market countries remains largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory and political developments.
We anticipate that foreign sales will continue to account for a significant portion of our revenues in the foreseeable future.
A substantial majority of our revenues are derived from customers outside the United States. In addition, we have substantial tangible assets outside of the United States. We anticipate that foreign sales will continue to account for a significant portion of our revenues in the foreseeable future.
Moreover, the frequency with which new patents are granted and the diversity of jurisdictions in which they are granted make it impractical and expensive for us to monitor all patents that may be relevant to our business. 20 Table of Contents From time to time, we have been notified of allegations and claims that we may be infringing patents or intellectual property rights owned by third parties.
Moreover, the frequency with which new patents are granted and the diversity of jurisdictions in which they are granted make it impractical and expensive for us to monitor all patents that may be relevant to our business.
If unauthorized access is obtained to our information systems, we may incur significant legal and financial exposure and liabilities. Like many multinational corporations, we maintain several information technology systems, including software products licensed from third parties. These systems vary from country to country.
Like many multinational corporations, we maintain several information technology systems, including software products licensed from third parties. These systems vary from country to country.
The manufacture of our products involves highly complex and precise processes. Despite testing by us and our customers, errors have been found, and may be found in the future, in our products.
Our products could contain defects, which may reduce sales of those products, harm market acceptance of our fiber laser and other products or result in claims against us. The manufacture of our products involves highly complex and precise processes. Despite testing by us and our customers, errors have been found, and may be found in the future, in our products.
Downturns in the markets we serve, particularly materials processing, could have a material adverse effect on our sales and profitability. Our business depends substantially upon capital expenditures by manufacturers in the materials processing market, which includes general manufacturing, automotive, aerospace, other transportation, heavy industry, electronics and photovoltaic industries.
Our business depends substantially upon capital expenditures by manufacturers in the materials processing market, which includes general manufacturing, automotive, aerospace, other transportation, heavy industry, electronics and photovoltaic industries. Approximately 90% of our revenues in 2023 were from customers in the materials processing market.
Risks Relating to Our Operations Our vertically integrated business results in high levels of fixed costs and inventory levels that may adversely impact our gross profits and our operating results in the event that demand for our products declines or we maintain excess inventory levels. We have a high fixed cost base due to our vertically integrated business model.
Furthermore, if our OEM customers or third-party system integrators experience financial or other difficulties that adversely affect their operations, our financial condition or results of operations may also be adversely affected. 15 Table of Contents Risks Relating to Our Operations Our vertically integrated business results in high levels of fixed costs and inventory levels that may adversely impact our gross profits and our operating results in the event that demand for our products declines or we maintain excess inventory levels.
We pursue acquisitions and investments in new businesses, products, patents or technologies. These involve risks which could disrupt our business and may harm our financial results and condition. We make acquisitions of and investments in new businesses, products, patents and technologies and expand into new geographic areas, or we may acquire operations, products or technologies that expand our current capabilities.
We incurred a foreign exchange gain of $1.4 million in 2023 and a loss of $4.1 million in 2022. We pursue acquisitions and investments in new businesses, products, patents or technologies. These involve risks which could disrupt our business and may harm our financial results and condition.
In addition, some of our OEM customers are developing their own fiber laser sources. If they are successful, this may reduce our sales to these customers. Furthermore, if our OEM customers or third-party system integrators experience financial or other difficulties that adversely affect their operations, our financial condition or results of operations may also be adversely affected.
In addition, some of our OEM customers are developing their own fiber laser sources. If they are successful, this may reduce our sales to these customers.
We have added and are continuing to add substantial manufacturing capacity at our facilities in the United States, Germany, Italy and Poland. We are adding manufacturing capabilities and capacity outside of Russia in response to trade sanctions imposed on Russia, where we have large production facilities.
We are adding manufacturing capabilities and capacity outside of Russia in response to trade sanctions imposed on Russia, where we have large production facilities. The trade restrictions impose limits on our ability to purchase components and other items from our subsidiary in Russia.
We would incur any such costs with the intent that proactively preventing a cybersecurity incident ultimately helps to mitigate potential cybersecurity liability. As previously disclosed, on September 14, 2020, the Company detected a ransomware attack impacting certain of our operational and information technology systems that did not have a material impact on the Company's business, operations or financial condition.
As previously disclosed, on September 14, 2020, the Company detected a ransomware attack impacting certain of our operational and information technology systems that we do not believe had a material impact on the Company's business, operations or financial condition. The costs to address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant.
Due to the lack of experience with the interpretation and enforcement of many of these laws and regulations, some measures initially might not satisfy standard or best practices that will be established in the coming years. 22 Table of Contents Changes in tax rates, tax liabilities or tax accounting rules could affect future results.
We are evaluating these requirements and taking measures to ensure compliance with all applicable privacy and data protection-related laws and regulations. Due to the lack of experience with the interpretation and enforcement of many of these laws and regulations, some measures initially might not satisfy standard or best practices that will be established in the coming years.
There can be no assurance that violations of environmental laws or regulations will not occur in the future as a result of the lack of, or failure to obtain, permits, human error, accident, equipment failure or other causes. 24 Table of Contents Risks Relating to Our Common Stock Certain trusts and a company created by the late founder of the Company collectively control over 30% of our voting power and have a significant influence on the outcome of director elections and other matters requiring stockholder approval, including a change in corporate control.
Risks Relating to Our Common Stock Certain trusts and a company created by the late founder of the Company collectively control over 30% of our voting power and have a significant influence on the outcome of director elections and other matters requiring stockholder approval, including a change in corporate control. IP Fibre Devices (UK) Ltd.
As a result, we have submitted a limited number of voluntary self-disclosures regarding compliance with export control laws and regulations with the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). In October 2021, the U.S. Department of Justice (“DOJ”) advised us it was conducting an investigation into certain shipments of equipment.
As a result, we have submitted a limited number of voluntary self-disclosures regarding compliance with export control laws and regulations with the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). BIS issued warning letters to the Company in response to the self-disclosures. Following the submission of the self-disclosures, the Company received subpoenas from the U.S.
In addition, new risks may emerge at any time and we cannot predict those risks or estimate the extent to which they may affect us. Risks Relating to Economic Conditions and Other External Factors The COVID-19 pandemic, including private and public sector responses, could materially adversely affect our business, financial condition, results of operations and/or cash flows.
In addition, new risks may emerge at any time and we cannot predict those risks or estimate the extent to which they may affect us. Risks Relating to Economic Conditions Uncertainty and adverse changes in the general economic conditions of markets in which we participate negatively affect our business.
We had capital expenditures of $110 million and $123 million in 2022 and 2021, respectively, and we expect to incur approximately $140 million to $160 million in capital expenditures, excluding acquisitions, in 2023.
We had capital expenditures of $110 million in both 2023 and 2022, and we expect to incur approximately $120 million to $130 million in capital expenditures in 2024, net of asset divestitures.
We have defended against several patent infringement claims in the past and we engage in patent office opposition proceedings internationally for patents owned by others. There can be no assurance that we will be able to dispose without a material effect any claims or other allegations made or asserted in the future.
From time to time, we have been notified of allegations and claims that we may be infringing patents or intellectual property rights owned by third parties. We have defended against several patent infringement claims in the past and we engage in patent office opposition proceedings internationally for patents owned by others.
We are also subject to risks of doing business in Belarus, which provides mechanical parts to our German and Russian operations. We are also subject to risks of doing business in China, as approximately 34% of our sales in 2022 were to Chinese customers.
We are also subject to risks of doing business in China, as approximately 28% of our sales in 2023 were to Chinese customers. The results of our operations, business prospects and facilities in Russia, China and Belarus are subject to the economic and political environment there and global geopolitical conditions.
These factors, and others that are currently unknown or considered immaterial, could have a material adverse effect on our business, prospects, financial condition, cash flows and results of operations. The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations. In the first quarter of 2022, Russian military forces invaded Ukraine.
The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations. In the first quarter of 2022, Russian military forces invaded Ukraine. This military action had significant and immediate adverse economic impacts globally.
Decreases in inventory may decrease our overhead absorption and decrease our gross margins and profitability. 18 Table of Contents Our manufacturing capacity and operations may not be appropriate for future levels of demand and may adversely affect our gross margins.
Our manufacturing capacity and operations may not be appropriate for future levels of demand and may adversely affect our gross margins. We have added and are continuing to add substantial manufacturing capacity at our facilities in the United States, Germany, Italy and Poland.
The European Union enacted additional sanctions effective in January 2023 that restrict our ability to import components in Europe from Russia. While certain components can be exported from Russia to the United States, the United States imposed significant import tariffs that make it commercially undesirable.
While certain components can be exported 17 Table of Contents from Russia to the United States, the United States imposed significant import tariffs that make it commercially undesirable. Further, transfer of funds to and from Russia and Belarus are difficult or slow because of bank compliance with sanctions.
Although we have pursued relatively small acquisitions in the past, we may pursue larger transactions in the future.
We may make acquisitions of and investments in new businesses, products, patents and technologies and expand into new geographic areas, or we may acquire operations, products or technologies that expand our current capabilities. Although we have pursued relatively small acquisitions in the past, we may pursue larger transactions in the future.
Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. 28 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Our short-term investment portfolio and certain cash balances could experience a decline in market value or otherwise become illiquid, which could materially and adversely affect our financial results.
Removed
The ongoing COVID-19 pandemic and related countermeasures have caused economic and financial disruptions in most of the regions in which we sell our products and services and conduct our business operations. Governmental authorities have implemented numerous and evolving measures to address the virus as it continues to mutate.
Added
An economic downturn could have a material adverse effect on our business, financial condition and results of operations. Downturns in the markets we serve, particularly materials processing, could have a material adverse effect on our sales and profitability.
Removed
There is no certainty that measures implemented by governmental authorities or by us in our operations will be sufficient to mitigate the risks posed by the COVID-19 virus.
Added
The United States and the European Union have enacted numerous sanctions packages and may enact additional sanctions until the conflict has been resolved. These sanctions restrict our ability to import components in Europe from Russia, and provide or receive services from our Russian subsidiary.
Removed
Changes in customer demand, supply chain constraints experienced by us, our suppliers and our customers, pandemic fears and market downturns, and restrictions on business and individual activities has created significant economic and demand uncertainty. COVID-19 may impact different markets at different times with disparate severity.
Added
In addition, we are not able to access cash held by or receive dividends from our Russian and Belarus subsidiaries because of various sanctions.
Removed
We have experienced and expect to continue to experience unpredictable volatility in demand in several of our end-markets.
Added
Additionally, many of our scientists and managers were born in Russia and now reside in Europe and the United States. Such persons have had, and may continue to have, difficulties or delays in obtaining or renewing the necessary visas to enter the United States and other countries in which we operate.
Removed
The degree to which the COVID-19 pandemic impacts our financial condition, cash flows and results of operations depends upon future developments, which are highly uncertain and cannot be predicted, including but not limited to the duration, location and spread of outbreak, the emergence, contagiousness, and threat of new and different strains of virus, the availability, acceptance, and effectiveness of vaccines, governmental and business measures to contain the virus and address its 14 Table of Contents impact, and how quickly and to what extent normal economic and operating conditions can resume.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe plan to continue the expansion of our manufacturing operations in Germany, the United States, Italy and Poland to meet the demand for our products and our sales and support needs.
Biggest changeWe 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.
PROPERTIES Our significant facilities at December 31, 2022 include the following: Location Owned or Leased Lease Expiration Approximate Size (sq. ft.) Primary Activity Oxford, Massachusetts Owned 550,300 Diodes, components, final assembly, complete device manufacturing, R&D, administration Burbach, Germany Owned 553,500 Optical fiber, components, final assembly, complete device manufacturing, R&D, administration Leased May 2027 14,348 Complete device manufacturing Fryazino, Russia Owned 496,000 Optical fiber, components, final assembly, complete device manufacturing, R&D, administration Leased May 2023 - November 2026 172,300 Components, complete device manufacturing Marlborough, Massachusetts Owned 389,800 Components, systems manufacturing, applications, sales, R&D, administration Minsk, Belarus Owned 372,100 Manufacturing of cabinets and mechanical subcomponents Davenport, Iowa Owned 160,300 Systems integration, sales, administration Our corporate headquarters is in Marlborough, Massachusetts.
PROPERTIES Our significant facilities at December 31, 2023 include the following: Location Owned or Leased Lease Expiration Approximate Size (sq. ft.) Primary Activity Oxford, Massachusetts Owned 550,300 Diodes, components, final assembly, complete device manufacturing, R&D, administration Burbach, Germany Owned 567,100 Optical fiber, components, final assembly, complete device manufacturing, R&D, administration Leased May 2027 1,500 Complete device manufacturing Fryazino, Russia Owned 496,000 Optical fiber, components, final assembly, complete device manufacturing, R&D, administration Leased November 2026 20,000 Components Marlborough, Massachusetts Owned 377,800 Components, systems manufacturing, applications, sales, R&D, administration Minsk, Belarus Owned 372,100 Manufacturing of cabinets and mechanical subcomponents Davenport, Iowa Owned 160,300 Systems integration, sales, administration Our corporate headquarters is in Marlborough, Massachusetts.
As of December 31, 2022, we occupied more than 3.4 million square feet of facilities worldwide. Of this we own 2.9 million square feet and lease 0.5 million square feet of building space, of which the majority is used for manufacturing.
As of December 31, 2023, we occupied more than 3.3 million square feet of facilities worldwide. Of this we own 2.9 million square feet and lease 0.4 million square feet of building space, of which the majority is used for manufacturing. Our major manufacturing facilities are located in the United States and Germany.
We own additional facilities and land for various purposes, such as sales and support and applications labs. We believe the existing facilities are in good operating condition and are suitable for the conduct of our operations. The productive capacity at our current facilities is substantially utilized.
We conduct our major research and development activities in Oxford and Marlborough, Massachusetts and Burbach, Germany. We own additional facilities and land for various purposes, such as sales and support and applications labs. We believe the existing facilities are in good operating condition and are suitable for the conduct of our operations.
Removed
We operate four principal manufacturing facilities for fiber lasers, laser systems, fiber amplifiers, and related optical and mechanical components, which are located in the United States, Germany, Russia and Belarus. We conduct our major research and development activities in Oxford and Marlborough, Massachusetts and Burbach, Germany.
Removed
In response to the risks from the Russia-Ukraine conflict, we have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+1 added−2 removed3 unchanged
Biggest changeBase Period 5-Year Cumulative Total Return 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 IPG Photonics Corporation $ 100.00 $ 52.91 $ 67.68 $ 104.51 $ 80.39 $ 44.21 S&P 500 Index $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.88 Russell 3000 Index $ 100.00 $ 93.01 $ 119.55 $ 142.06 $ 176.16 $ 140.08 S&P 1500 Composite / Electronic Equipment Instruments & Components Index $ 100.00 $ 87.48 $ 116.05 $ 143.73 $ 185.67 $ 145.24 30 Table of Contents The above graph represents and compares the value, through December 31, 2022, of a hypothetical investment of $100 made at the closing price on December 31, 2017 in each of (i) our common stock, (ii) S&P 500 Index, (iii) Russell 3000 Index, and (iv) the S&P 1500 Composite / Electronic Equipment Instruments & Components Index, in each case assuming the reinvestment of dividends.
Biggest changeBase Period 5-Year Cumulative Total Return 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 IPG Photonics Corporation $ 100.00 $ 127.92 $ 197.54 $ 151.95 $ 83.56 $ 95.81 Russell 3000 Index $ 100.00 $ 128.54 $ 152.73 $ 189.39 $ 150.61 $ 186.68 S&P Composite 1500 - Electronic Equipment, Instruments & Components Index $ 100.00 $ 132.66 $ 164.30 $ 212.24 $ 166.02 $ 199.92 The above graph represents and compares the value, through December 31, 2023, of a hypothetical investment of $100 made at the closing price on December 31, 2018 in each of (i) our common stock, (ii) Russell 3000 Index, and (iii) the S&P Composite 1500 - Electronic Equipment, Instruments & Components Index, in each case assuming the reinvestment of dividends.
Any future determination related to our dividend policy will be made at the discretion of our Board of Directors, taking into account any contractual and legal restrictions on our payment of dividends. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities None.
Any future determination related to our dividend policy will be made at the discretion of our Board, taking into account any contractual and legal restrictions on our payment of dividends. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities None.
We include the S&P Composite 1500 / Electronic Equipment Instruments & Components Index because outstanding performance stock units awarded to executive officers use this index when comparing total shareholder return and due to our being an index member, industry similarities, our internal use to monitor executive compensation, and the fact that it contains several direct competitors.
We include the S&P Composite 1500 - Electronic Equipment, Instruments & Components Index because outstanding performance stock units awarded to executive officers and outstanding at December 31, 2023 use this index when comparing total shareholder return and due to our being an index member, industry similarities, our internal use to monitor executive compensation, and the fact that it contains several direct competitors.
The stock price performance shown in this graph is not necessarily indicative of, and not is intended to suggest, future stock price performance. Dividends We currently intend to retain future earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.
The stock price performance shown in this graph is not necessarily indicative of, and not is intended to suggest, future stock price performance. 30 Table of Contents Dividends We currently intend to retain future earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.
The following graph presents the cumulative shareholder returns for our Common Stock compared with the S&P 500 Index, the Russell 3000 Index and the S&P 1500 Composite 1500 / Electronic Equipment Instruments & Components Index. We include the Russell 3000 Index because we ceased being a member of the S&P 500 Index in June 2022.
The following graph presents the cumulative shareholder returns for our Common Stock compared with the Russell 3000 Index and the S&P Composite 1500 - Electronic Equipment, Instruments & Components Index. We include the Russell 3000 Index because we became a member of this index in 2022.
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 fourth quarter of 2022, the Company withheld 363 shares at an average price of $88.92.
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 fourth quarter of 2023, the Company withheld 1,201 shares at an average price of $93.87.
As of February 24, 2023, there were 47,627,143 shares of our common stock outstanding held by 30 holders of record, which does not include beneficial owners of common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.
As of February 20, 2024, there were 46,098,133 shares of our common stock outstanding held by 30 holders of record, which does not include beneficial owners of common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.
Issuer Purchases of Equity Securities The following table shows repurchases of our common stock in the fiscal quarter ended December 31, 2022: Date 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 October 1, 2022 — October 31, 2022 680,578 (2) $ 86.67 680,578 $ 169,759 November 1, 2022 — November 30, 2022 286 (1) 87.87 — 169,759 December 1, 2022 — December 31, 2022 618,493 (1), (2) 93.15 618,416 112,153 Total 1,299,357 $ 89.75 1,298,994 $ 112,153 (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.
Issuer Purchases of Equity Securities The following table shows repurchases of our common stock in the fiscal quarter ended December 31, 2023: Date 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 October 1, 2023 — October 31, 2023 340,488 (1), (2) $ 93.14 339,946 $ 122,307 November 1, 2023 — November 30, 2023 242,335 (1), (2) 92.30 241,676 100,000 December 1, 2023 — December 31, 2023 87,273 (2) 108.65 87,273 90,518 Total 670,096 $ 94.86 668,895 $ 90,518 (1) In 2012, our Board approved "withhold to cover" as a tax payment method for vesting of restricted stock awards for certain employees.
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.
The share purchase program authorizations do 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 668,895 shares in the fourth quarter of 2023 under the May 2023 authorization. ITEM 6. RESERVED
(2) The previously announced stock repurchase programs authorized in May 2020 and February 2022 were completed in the second quarter of 2022. On August 2, 2022, we announced that our Board of Directors authorized the purchase of up to $300 million of IPG common stock (the "August 2022 authorization"), exclusive of any fees, commissions or other expenses.
(2) On May 2, 2023, we announced that our Board 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.
Removed
We include the S&P 500 Index because it was the index used in the graph in the 10-K for the immediately preceding fiscal year.
Added
On February 13, 2024, we announced that our Board authorized the purchase of up to $300 million of IPG common stock, exclusive of any fees, commissions or other expenses. Share repurchases under these authorizations may be made periodically in open-market transactions, and are subject to market conditions, legal requirements and other factors.
Removed
We repurchased 1,298,994 shares in the fourth quarter of 2022 under the August 2022 authorization. ITEM 6. RESERVED

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe table below sets forth sales by application: Year Ended December 31, 2022 2021 Change (In thousands, except for percentages) Sales by Application % of Total % of Total Materials Processing $ 1,291,262 90.3 % $ 1,325,404 90.7 % $ (34,142) (2.6) % Other Applications 138,285 9.7 % 135,456 9.3 % 2,829 2.1 % Total $ 1,429,547 100.0 % $ 1,460,860 100.0 % $ (31,313) (2.1) % 39 Table of Contents The table below sets forth sales by type of product and other revenue: Year Ended December 31, 2022 2021 Change (In thousands, except for percentages) Sales by Product % of Total % of Total High Power Continuous Wave ("CW") Lasers $ 613,734 42.9 % $ 687,406 47.1 % $ (73,672) (10.7) % Medium Power CW Lasers 77,079 5.4 % 80,501 5.5 % (3,422) (4.3) % Pulsed Lasers 250,677 17.5 % 240,978 16.5 % 9,699 4.0 % Quasi-Continuous Wave ("QCW") Lasers 50,212 3.5 % 60,668 4.2 % (10,456) (17.2) % Laser and Non-Laser Systems 153,471 10.8 % 126,642 8.7 % 26,829 21.2 % Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 284,374 19.9 % 264,665 18.0 % 19,709 7.4 % Total $ 1,429,547 100.0 % $ 1,460,860 100.0 % $ (31,313) (2.1) % Materials processing Sales for materials processing applications decreased due to lower sales volumes of high power lasers, QCW lasers and medium power lasers, offset by higher sales volumes of laser and non-laser systems, other laser products, and pulsed lasers. • The decrease in high power CW laser sales was due to lower sales for cutting application, partially offset by an increase in sales for welding applications.
Biggest changeThe table below sets forth sales by application: Year Ended December 31, 2023 2022 Change (In thousands, except for percentages) Sales by Application % of Total % of Total Materials Processing $ 1,152,804 89.5 % $ 1,291,262 90.3 % $ (138,458) (10.7) % Other Applications 134,635 10.5 % 138,285 9.7 % (3,650) (2.6) % Total $ 1,287,439 100.0 % $ 1,429,547 100.0 % $ (142,108) (9.9) % The table below sets forth sales by type of product and other revenue: Year Ended December 31, 2023 2022 Change (In thousands, except for percentages) Sales by Product % of Total % of Total High Power Continuous Wave ("CW") Lasers $ 524,981 40.8 % $ 613,734 42.9 % $ (88,753) (14.5) % Medium Power CW Lasers 71,672 5.6 % 77,079 5.4 % (5,407) (7.0) % Pulsed Lasers 185,581 14.4 % 250,677 17.5 % (65,096) (26.0) % Quasi-Continuous Wave ("QCW") Lasers 48,648 3.8 % 50,212 3.5 % (1,564) (3.1) % Laser and Non-Laser Systems 161,177 12.5 % 153,471 10.8 % 7,706 5.0 % Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 295,380 22.9 % 284,374 19.9 % 11,006 3.9 % Total $ 1,287,439 100.0 % $ 1,429,547 100.0 % $ (142,108) (9.9) % Materials Processing Sales for materials processing applications decreased due to lower sales of high power lasers, medium power lasers, pulsed lasers, and QCW lasers, partially offset by higher sales of laser and non-laser systems and other laser products. • The decrease in high power CW laser sales was due to lower sales for cutting applications as a result of soft industrial demand in China and Europe and increased competition in China. • The decrease in medium power CW laser sales related to a decrease in demand for cutting applications, partially offset by an increase in additive manufacturing applications. • Pulsed laser sales, including high power pulsed lasers, decreased due to decreases in e-mobility foil cutting applications, marking and engraving applications and 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 benefited from higher demand for LightWELD. • Other revenue for materials processing increased due to higher sales of accessories and parts and service.
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.
The secular shift to fiber laser technology in large materials processing applications, such as welding and cutting applications, had a positive effect on our sales trends in the past such that our sales trends were often better than other capital equipment manufacturers in both positive and negative economic cycles.
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.
We believe the contingency measures outlined above that we have already put in place substantially mitigate the effects of the recent sanctions on our ability to supply finished products to customers.
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.
Since 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.
Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S. 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 December 31, 2022.
Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S. 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 December 31, 2023.
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 in 2022 were from customers using our products for materials processing.
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 in 2023 were from customers using our products for materials processing.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed under Item 1A, "Risk Factors." The following analysis generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed under Item 1A, "Risk Factors." The following analysis generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
As of December 31, 2022, 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.
As of December 31, 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.
The cash provided by investing activities in 2022 primarily related to $329.3 million of net proceeds from short-term investments, $52.9 million of proceeds received from the divestiture of the telecommunications transmission product lines, net of cash sold, and $26.9 million of proceeds from the sale of property, plant 44 Table of Contents and equipment mainly from the sale of corporate aircraft; partially offset by $110.1 million of cash used for property, plant and equipment.
The cash provided by investing activities in 2022 primarily related to $329.3 million of net proceeds from short-term investments, $52.9 million of proceeds received from the divestiture of the telecommunications transmission product lines, net of cash sold, and $26.9 million of proceeds from the sale of property, plant and equipment mainly from the sale of corporate aircraft; partially offset by $110.1 million of cash used for property, plant and equipment.
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 and amplifier sources, depending on 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.
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 and amplifier sources, depending on 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. • Our gross margin from products on new manufacturing lines can be lower due to production inefficiencies and high scrap costs.
When testing for impairment of definite-lived intangible assets held for use, we group assets at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value.
When testing for impairment of long-lived assets held for use, we group assets at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value.
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.
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 35 Table of Contents reduced. Gross margins generally improve when the opposite occurs.
See Note 11, "Financing Arrangements" in the notes to the consolidated financial statements for further information about our facilities and term debt. 43 Table of Contents The following table summarizes our material cash commitments at December 31, 2022 and the effect such commitments are expected to have on our liquidity and cash flow in future periods.
See Note 11, "Financing Arrangements" in the notes to the consolidated financial statements for further information about our facilities and term debt. 43 Table of Contents The following table summarizes our material cash commitments at December 31, 2023 and the effect such commitments are expected to have on our liquidity and cash flows in future periods.
These decreases result from factors such as increased competition, decreased manufacturing costs and increases in 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.
These decreases result from factors such as increased competition, decreased manufacturing costs and increases in unit volumes. We may also reduce selling prices 34 Table of Contents 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.
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 35 Table of Contents decrease in the level of production.
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.
Treasury and agency obligations 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 consolidated financial statements for further information about our short-term investments.
Treasury and agency obligations, corporate bonds, commercial paper, 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 consolidated financial statements for further information about our short-term investments.
At December 31, 2022, there were no amounts drawn on this line, however, there were $2.4 million of guarantees issued against the line which reduces total availability. (2) This facility is available to certain foreign subsidiaries in their respective local currencies.
At December 31, 2023, there were no amounts drawn on this line, however, there were $2.5 million of guarantees issued against the line which reduces total availability. (2) This facility is available to certain foreign subsidiaries in their respective local currencies.
To date, we have been able to accommodate these challenges 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.
To date, we have been able to accommodate these challenges to our business operations and continue to meet customer demand. If guidelines or mandates from relevant 33 Table of Contents 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 are evaluating the sale of certain U.S.-based assets, including land and buildings. If the estimated sales value of any of these assets is below carrying value, then we may need to record an asset impairment charge when they are classified as held-for-sale. We have long-lived assets in Belarus with a carrying value of $39.4 million.
We are evaluating the sale of certain U.S.-based assets, including land and building. If the estimated sales value of any of these assets is below carrying value, then we may need to record an asset impairment charge when they are classified as held-for-sale. We have long-lived assets in Belarus with a carrying value of $31.8 million.
The change in interest income (expense), net, was due to an increase in yields on cash equivalents and short term investments that resulted in higher market interest rates as compared to prior year rates. Provision for income taxes .
The change in interest income, net, was driven by an increase in yields on cash equivalents and short term investments that resulted in higher market interest rates as compared to prior year rates. Provision for income taxes.
In addition, some restructuring charges related to the closure of our office in Lebanon which had supported the telecommunications transmission business which we divested in the third quarter of 2022. Loss (gain) on foreign exchange. We incurred a foreign exchange loss of $4.1 million in 2022 as compared to a gain of $15.1 million in 2021.
In addition, some restructuring charges related to the closure of our office in Lebanon which had supported the communications transmission business which we divested in the third quarter of 2022. (Gain) loss on foreign exchange. We incurred a foreign exchange gain of $1.4 million in 2023 as compared to a loss of $4.1 million in 2022.
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 and other inventory related charges totaling $128.0 million, $34.3 million and $45.4 million in 2022, 2021 and 2020, respectively. Inventory provision and related charges of $74.1 million in 2022 are attributable to Russian operations.
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 and other inventory related charges totaling $45.5 million, $128.0 million and $34.3 million in 2023, 2022 and 2021, respectively. Inventory provision and related charges of $74.1 million in 2022 were attributable to Russian operations.
We invested $110.1 million, $123.1 million and $87.7 million in capital expenditures in 2022, 2021 and 2020, respectively. Most of this investment relates to expansion of our manufacturing capacity and, to a lesser extent, research and development and sales-related facilities.
We invested $110.5 million, $110.1 million and $123.1 million in capital expenditures in 2023, 2022 and 2021, respectively. Most of this investment relates to expansion of our manufacturing capacity and, to a lesser extent, research and development and sales-related facilities.
In response to inflation, some global central banks are adopting less accommodating monetary policy and have increased benchmark interest rates in several major global economies with further increases in interest rates expected in 2023. The increase in interest rates is intended to dampen demand that could lead to regional or global recession that may reduce demand for our products.
In response to inflation, some global central banks have adopted less accommodating monetary policy and have increased benchmark interest rates in several major global economies in 2023. The increase in interest rates is intended to dampen demand that could lead to regional or global recession that may reduce demand for our products.
In response to the risks from the Russia-Ukraine conflict, we have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries, increasing inventories worldwide, and qualifying third-party suppliers.
Since 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.
The amount of research and development expense we incur may vary from period to period. As part of the telecommunications transmission product line divestiture mentioned above, we will no longer be incurring research and development expenses attributed to the development of telecommunications transmission products. Goodwill and long-lived assets impairments .
As part of the telecommunications transmission product line divestiture mentioned above, we will no longer be incurring research and development expenses attributed to the development of telecommunications transmission products. Goodwill and long-lived assets impairments .
Potential interest and penalties associated with such uncertain tax positions is recorded as a component of income tax expense. As of December 31, 2022, we had $15.8 million of unrecognized tax benefits, excluding interest and penalties, recorded in deferred income taxes and other long-term liabilities.
Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. As of December 31, 2023, we had $17.2 million of unrecognized tax benefits, excluding interest and penalties, recorded in other long-term liabilities and deferred income taxes.
Global demand trends have been impacted by the ongoing COVID-19 pandemic and therefore remain uncertain at this time . 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 33 Table of Contents COVID-19 infections.
Global demand trends have been impacted by the 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.
In the fourth quarter of 2022, we performed a review of the estimated of fair value of the long-lived assets in Russia in light of new sanctions and recorded long-lived asset impairment of $79.0 million as a result of that review.
We recorded long-lived asset impairment charge of $1.2 million, $79.9 million, and nil in 2023, 2022 and 2021, respectively. In the fourth quarter of 2022, we performed a review of the estimated fair value of the long-lived assets in Russia in light of new sanctions and recorded long-lived asset impairment of $79.0 million as a result of that review.
The following table details our line-of-credit facilities and long-term notes as of December 31, 2022: Description Total Facility/ Note Interest Rate Maturity Security U.S.
The following table details our line-of-credit facilities as of December 31, 2023: Description Total Facility/ Note Interest Rate Maturity Security U.S.
The loss was primarily attributable to the depreciation of the Chinese yuan and the appreciation of the Russian ruble, partially offset by the gain from the depreciation of Euro as compared to the U.S. dollar. Interest income (expense), net. Interest income (expense), net was $12.6 million of income in 2022 compared to $1.8 million of expense in 2021.
The gain in 2023 was primarily attributable to depreciation of the Russian ruble, partially offset by losses from appreciation of the Euro and depreciation of the Chinese yuan as compared to the U.S. dollar. Interest income, net. Interest income, net was $41.7 million in 2023 compared to $12.6 million in 2022.
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 $39.4 million at December 31, 2022, and we had working capital excluding cash and short-term investments of $4.7 million in Belarus of which $4.9 million is inventory.
Trade sanctions 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 $31.8 million at December 31, 2023, and we had working capital excluding cash of $4.4 million in Belarus of which $4.5 million is inventory. In addition, we had $5.5 million cash in Belarus.
We are vertically integrated and currently manufacture all critical components for our products as well as assemble finished products. We believe our vertical integration allows us to increase efficiencies, leverage our scale and lower our cost of sales.
Our cost of sales consists primarily of the cost of raw materials and components, direct labor expenses and manufacturing overhead. We are vertically integrated and currently manufacture all critical components for our products as well as assemble finished products. We believe our vertical integration allows us to increase efficiencies, leverage our scale and lower our cost of sales.
Judgments and Uncertainties: We must estimate our income tax expense after considering, among other factors, the pricing of inter-company transactions on an arm’s length basis, differing tax rates between jurisdictions, allocation factors, tax credits, nondeductible items and changes in enacted tax rates. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions.
Judgments and Uncertainties: We estimate our income tax expense in each jurisdiction we operate in after considering, among other factors, the pricing of inter-company transactions on an arm’s length basis, the differing tax rates between jurisdictions, allocation factors, tax credits, nondeductible items and changes in enacted tax rates.
The cash used in financing activities in 2021 was primarily related to the purchase of $134.9 million of treasury stock, $3.8 million of principal payments on our long-term borrowings and $2.6 million of payment of a purchase price holdback from a business combination; partially offset by net proceeds of $16.3 million from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan.
The cash used in financing activities in 2023 was primarily related to the purchase of $223.5 million of treasury stock, $16.0 million of principal payments on our long-term borrowings; partially offset by net proceeds of $3.1 million from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan.
Fair value estimates performed if there is indication of impairment are subject to underlying changes in estimates and market conditions. Assumptions used in long-lived asset impairment are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each impairment test date.
Assumptions used in long-lived asset impairment are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each impairment test date. Sensitivity of Estimate to Change: Undiscounted cash flow and fair value are sensitive to changes in underlying assumptions, estimates, and market factors.
Net cash provided by investing activities was $297.0 million in 2022 as compared to cash used in investing activities of $416.3 million in 2021.
Investing activities. Net cash used in investing activities was $237.6 million in 2023 as compared to cash provided by investing activities of $297.0 million in 2022.
Expenses related to provisions for excess or obsolete inventory and other valuation adjustments increased by $93.7 million to $128.0 million, or 9% of sales, for the year ended December 31, 2022, as compared to $34.3 million, or 2.3% of sales, for the year ended December 31, 2021. Sales and marketing expense.
Expenses related to provisions for excess or obsolete inventory and other valuation adjustments decreased by $82.5 million to $45.5 million, or 3.5% of sales, for the year ended December 31, 2023, as compared to $128.0 million, or 9.0% of sales, for the year ended December 31, 2022. Sales and marketing expense.
In the fourth quarter of 2022, we performed a review of the inventory in Russia in light of new sanctions which restricted our Russian factory's ability to supply components and finished goods to other IPG locations. We recorded $74.1 million of additional inventory provision and related charges as a result of that review.
In the fourth quarter of 2022, we performed a review of the inventory in Russia in light of new sanctions which restricted our Russian factory's ability to supply components and finished goods to other IPG locations.
Reserves recorded are based on a determination of whether and how much of a tax benefit taken by us in our tax filings or positions is "more likely than not" to be realized following resolution of any potential contingencies present related to the tax benefit, assuming that the matter in question will be raised by the tax authorities.
Reserves recorded are based on a determination of tax benefits claimed in our tax filings and whether these positions are more likely than not to be realized following the resolution of any potential tax audits related to the tax benefit, assuming that the matter in question will be reviewed by the tax authorities.
These detriments were partly offset by (i) $10.1 million for the acceptance of amended returns and the receipt of cash in foreign jurisdictions; (ii) $3.9 million related to a reversal of tax reserves primarily due to the expiry of the statute of limitations for the year in which the reserve was established.
These detriments were partly offset by (i) $10.1 million for the acceptance of amended returns related to incentives offered for capital investment; (ii) $3.9 million related to a reversal of tax reserves primarily due to the expiry of the statute of limitations for the year in which the reserve was established. Net income attributed to IPG Photonics Corporation.
As a percentage of sales, sales and marketing expense was 5.3% and 5.4% of sales in 2022 and 2021, respectively. Research and development expense. Research and development expense decreased by $23.5 million, or 16.8%, to $116.1 million in 2022 from $139.6 million in 2021.
As a percentage of sales, sales and marketing expense was 6.7% and 5.3% of sales in 2023 and 2022, respectively. Research and development expense. Research and development expense decreased by $17.4 million, or 15.0%, to $98.7 million in 2023 from $116.1 million in 2022.
Net income attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 11.4% to 7.6% in 2022 from 19.0% in 2021 due to the factors described above.
Net income attributable to IPG Photonics Corporation increased by $109.0 million to $218.9 million in 2023 from $109.9 million in 2022. Net income attributable to IPG Photonics Corporation as a percentage of our net sales increased by 9.4% to 17.0% in 2023 from 7.6% in 2022 due to the factors described above.
We are making no new investments in Russia. 42 Table of Contents The following table presents our principal sources of liquidity: As of December 31, 2022 2021 (In thousands) Cash and cash equivalents $ 698,209 $ 709,105 Short-term investments 479,374 805,400 Unused credit lines and overdraft facilities 125,965 128,772 Working capital (excluding cash and cash equivalents and short-term investments) 534,045 519,745 Short-term investments at December 31, 2022 consist of liquid investments including corporate bonds, commercial paper, and U.S.
We are making no new investments in Russia. 42 Table of Contents The following table presents our principal sources of liquidity: As of December 31, 2023 2022 (In thousands) Cash and cash equivalents $ 514,674 $ 698,209 Short-term investments 662,807 479,374 Unused credit lines and overdraft facilities 78,506 125,965 Working capital (excluding cash and cash equivalents and short-term investments) 522,312 534,045 Short-term investments at December 31, 2023 consist of liquid investments including U.S.
Judgments and Uncertainties: Estimating undiscounted operating cash flow used to determine if there is indication of impairment of a long lived asset requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions.
Estimating undiscounted operating cash flow used to determine if there is indication of impairment of a long-lived asset requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. Fair value estimates performed to determine impairment charge amounts. The fair values are subject to underlying changes in estimates and market conditions.
Depending upon the outcome of our review of our Russian operations, the cumulative translation affect of foreign exchange fluctuations that is currently included in accumulated comprehensive loss on our consolidated balance sheets may be charged to our consolidated statements of income. We continue to manufacture laser cabinets and other mechanical components in Belarus.
Depending upon the outcome of our review of our Russian operations, we may incur additional asset impairment charges and the other comprehensive loss that is currently in the equity section of our consolidated balance sheets may be charged to our consolidated statements of income. We continue to manufacture laser cabinets and other mechanical components in Belarus.
We sell our products to OEMs that supply materials processing laser systems, communications systems, medical laser systems and other laser systems to end users. With the sale of our telecommunications transmission product lines to Lumentum Holdings Inc. in August 2022, we no longer intend to target communications as a principal market.
With the sale of our communications transmission product lines in August 2022, we no longer intend to target communications as a principal market. We also sell our laser products and laser and non-laser based systems to end users.
Effect of exchange rates on sales, gross margin and operating expenses. We estimate that if exchange rates had been the same as one year ago, sales in 2022 would have been $79.0 million higher, gross margin would have been $46.5 million higher and sales and marketing, research and development and general and administrative expenses would have been $3.9 million higher.
We estimate that if exchange rates had been the same as one year ago, sales in 2023 would have been $34.9 million higher, gross margin would have been $21.2 million higher and sales and marketing, research and development and general and administrative expenses would have been $4.9 million higher.
This tax liability increased by $0.7 million for tax positions taken in the current year offset by reductions of $3.9 million for changes in prior period positions. 38 Table of Contents Results of Operations The following table sets forth selected statement of operations data for the periods indicated in dollar amounts and expressed as a percentage of net sales: Year Ended December 31, 2022 2021 2020 (In thousands, except percentages and per share data) Net sales $ 1,429,547 100.0 % $ 1,460,860 100.0 % $ 1,200,724 100.0 % Cost of sales 874,134 61.1 764,462 52.3 661,728 55.1 Gross profit 555,413 38.9 696,398 47.7 538,996 44.9 Operating expenses: Sales and marketing 76,643 5.3 78,180 5.4 70,583 5.9 Research and development 116,114 8.1 139,573 9.6 126,898 10.6 General and administrative 131,253 9.2 125,882 8.6 110,005 9.2 Goodwill impairment — — — — 44,589 3.7 Gain on divestiture and sale of asset (31,846) (2.2) — — — — Impairment of long-lived assets 79,949 5.6 — — 671 0.1 Other restructuring charges 9,697 0.7 — — 506 — Loss (gain) on foreign exchange 4,103 0.3 (15,120) (1.0) (12,915) (1.1) Total operating expenses 385,913 27.0 328,515 22.6 340,337 28.4 Operating income 169,500 11.8 367,883 25.2 198,659 16.5 Interest income (expense), net 12,620 0.9 (1,839) (0.1) 6,270 0.5 Other income, net 1,231 0.1 437 — 763 0.1 Income before provision for income taxes 183,351 12.8 366,481 25.1 205,692 17.1 Provision for income taxes 72,589 5.1 88,615 6.1 45,354 3.8 Net income 110,762 7.7 277,866 19.0 160,338 13.3 Less: net income (loss) attributable to non-controlling interest 853 0.1 (550) — 766 0.1 Net income attributable to IPG Photonics Corporation common stockholders $ 109,909 7.6 % $ 278,416 19.0 % $ 159,572 13.2 % Net income attributable to IPG Photonics Corporation per common share: Basic $ 2.17 $ 5.21 $ 3.00 Diluted $ 2.16 $ 5.16 $ 2.97 Weighted average common shares outstanding: Basic 50,761 53,410 53,186 Diluted 50,925 53,930 53,785 Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021 Net sales.
Results of Operations The following table sets forth selected statement of operations data for the periods indicated in dollar amounts and expressed as a percentage of net sales: Year Ended December 31, 2023 2022 2021 (In thousands, except percentages and per share data) Net sales $ 1,287,439 100.0 % $ 1,429,547 100.0 % $ 1,460,860 100.0 % Cost of sales 745,741 57.9 874,134 61.1 764,462 52.3 Gross profit 541,698 42.1 555,413 38.9 696,398 47.7 Operating expenses: Sales and marketing 85,679 6.7 76,643 5.3 78,180 5.4 Research and development 98,704 7.7 116,114 8.1 139,573 9.6 General and administrative 125,749 9.7 131,253 9.2 125,882 8.6 Gain on divestiture and sale of asset — — (31,846) (2.2) — — Impairment of long-lived assets 1,237 0.1 79,949 5.6 — — Restructuring charges (recoveries), net (288) — 9,697 0.7 — — (Gain) loss on foreign exchange (1,356) (0.1) 4,103 0.3 (15,120) (1.0) Total operating expenses 309,725 24.1 385,913 27.0 328,515 22.6 Operating income 231,973 18.0 169,500 11.8 367,883 25.2 Interest income (expense), net 41,735 3.2 12,620 0.9 (1,839) (0.1) Other income, net 1,167 0.1 1,231 0.1 437 — Income before provision for income taxes 274,875 21.3 183,351 12.8 366,481 25.1 Provision for income taxes 55,997 4.3 72,589 5.1 88,615 6.1 Net income 218,878 17.0 110,762 7.7 277,866 19.0 Less: net income (loss) attributable to non-controlling interest — — 853 0.1 (550) — Net income attributable to IPG Photonics Corporation common stockholders $ 218,878 17.0 % $ 109,909 7.6 % $ 278,416 19.0 % Net income attributable to IPG Photonics Corporation per common share: Basic $ 4.64 $ 2.17 $ 5.21 Diluted $ 4.63 $ 2.16 $ 5.16 Weighted average common shares outstanding: Basic 47,154 50,761 53,410 Diluted 47,320 50,925 53,930 39 Table of Contents Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022 Net sales.
Additionally, due to the lack of uniformity among all of the foreign and domestic taxing authorities, there may be situations where the tax treatment of an item in one jurisdiction is different from the tax treatment in another jurisdiction or that the transaction causes a tax liability to arise in another jurisdiction.
Additionally, due to the lack of uniformity among all of the foreign and domestic taxing authorities, there may be situations where the tax treatment of an item in one jurisdiction is different from the tax treatment in another jurisdiction or that the transaction causes a tax liability to arise in another jurisdiction. 38 Table of Contents In addition, we review the deferred tax assets in each jurisdiction and the positive and negative evidence that would support a conclusion that a valuation allowance is or is not needed.
We are required to meet certain financial covenants associated with our U.S. revolving line of credit and long-term debt facility. These covenants, tested quarterly, include an interest coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.
Our largest committed credit line is with Bank of America N.A. in the amount of $75.0 million, which is not syndicated. We are required to meet certain financial covenants associated with our U.S. revolving line of credit. These covenants, tested quarterly, include an interest coverage ratio and a funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.
In 2022, a valuation allowance of $35.8 million was recorded primarily related to deferred tax assets in our Russian subsidiary. The decision to establish a valuation allowance or reverse it is based on management’s judgment based on the weight of available evidence including forecasts of future taxable income and the future reversal of existing taxable temporary differences.
The decision to establish a valuation allowance or reverse it is based on management’s judgment based on the weight of available evidence including forecasts of future taxable income and the future reversal of existing taxable temporary differences.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 22, 2022. 31 Table of Contents Overview We develop, manufacture and sell high-performance fiber lasers, fiber amplifiers and diode lasers that are used for diverse applications, primarily in materials processing.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 27, 2023.
Cost of sales and gross margin. Cost of sales increased by $109.6 million, or 14.3%, to $874.1 million in 2022 from $764.5 million in 2021. Our gross margin decreased to 38.9% in 2022 from 47.7% in 2021.
Cost of sales and gross margin. Cost of sales decreased by $128.4 million, or 14.7%, to $745.7 million in 2023 from $874.1 million in 2022. Our gross margin increased to 42.1% in 2023 from 38.9% in 2022.
Cash, cash equivalents and short-term investments 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.
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 6% of our consolidated working capital including cash, cash equivalents and short-term investments is located in Russia.
These estimates assume constant exchange rates between fiscal year 2022 and fiscal year 2021 and are calculated using the average exchange rates for the twelve-month period ended December 31, 2021 for the respective currencies, which were US$1=Euro 0.85, US$1=Japanese yen 110, US$1=Chinese yuan 6.45 and US$1=Russian ruble 74. Gain on divestiture and sale of asset.
These estimates assume constant exchange rates between fiscal year 2023 and fiscal year 2022 and are calculated using the average exchange rates for the twelve-month period ended December 31, 2022 for the respective currencies, which were US$1=Euro 0.95, US$1=Japanese yen 131, US$1=Chinese yuan 6.73 and US$1=Russian ruble 68. 41 Table of Contents Impairment of long-lived assets.
Net cash provided by operating activities decreased by $177.1 million to $212.6 million in 2022 from $389.7 million in 2021 primarily due to a decrease in net income and an increase in cash used by working capital. Our largest working capital items typically are inventory and accounts receivable.
Net cash provided by operating activities increased by $83.4 million to $296.0 million in 2023 from $212.6 million in 2022 primarily due to a decrease in cash used by working capital. Our largest working capital items are inventory and accounts receivable.
In addition, we review the deferred tax assets in each jurisdiction and the positive and negative evidence that would support a conclusion that a valuation allowance is or is not needed. Where it is more likely than not that some portion of the deferred tax assets will not be realized, we record a valuation allowance against the deferred tax assets.
Where it is more likely than not that some portion of the deferred tax assets will not be realized, we record a valuation allowance against the deferred tax assets.
At December 31, 2022, there were no drawings, however, there were $1.7 million of guarantees issued against the line which reduces total availability. (3) At December 31, 2022, there were no drawings. This facility renews annually. (4) At maturity, the outstanding note balance will be $15.4 million.
At December 31, 2023, there were no amounts drawn on this line, however, there were $1.2 million of guarantees issued against the line which reduces total availability. (3) At December 31, 2023, there were no drawings. This facility renews annually.
Provision for income taxes was $72.6 million in 2022 compared to $88.6 million in 2021, representing an effective tax rate of 39.6% in 2022 and 24.2% in 2021. The decrease in tax expense was due primarily to a reduction in book income before taxes which was partly offset by discrete items.
Provision for income taxes was $56.0 million in 2023 compared to $72.6 million in 2022, representing an effective tax rate of 20.4% in 2023 and 39.6% in 2022. The decrease in tax expense was due primarily to discrete items.
Going forward, 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.
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.
Our Board of Directors has been monitoring and continues to assess and monitor risks to our business associated with the Russia-Ukraine conflict and our Russian and Belarus operations. Our Directors request and receive management reports from management regarding our Russian and Belarus operations, contingency planning and execution, and impacts on our business at its quarterly and special meetings. COVID-19.
Our Directors request and receive management reports from management regarding our Russian and Belarus operations, contingency planning and execution, and impacts on our business at its quarterly and special meetings. COVID-19.
Other Applications Sales from other applications increased due to increased demand for lasers used in medical procedures, partially offset by decreased demand for lasers used in advanced applications and decreased sales for telecommunications products mainly due to the business divestiture during the third quarter. 40 Table of Contents Our net sales were derived from customers in the following geographic regions: Year Ended December 31, 2022 2021 Change (In thousands, except for percentages) Sales by Geography % of Total % of Total North America (1) $ 338,713 23.7 % $ 314,984 21.6 % $ 23,729 7.5 % Europe: Germany 85,491 6.0 % 101,738 7.0 % (16,247) (16.0) % Other Europe 294,481 20.6 % 289,136 19.8 % 5,345 1.8 % Asia: China 479,926 33.6 % 548,348 37.5 % (68,422) (12.5) % Japan 57,865 4.0 % 54,077 3.7 % 3,788 7.0 % Other Asia 152,373 10.7 % 139,148 9.5 % 13,225 9.5 % Rest of World 20,698 1.4 % 13,429 0.9 % 7,269 54.1 % Total $ 1,429,547 100.0 % $ 1,460,860 100.0 % $ (31,313) (2.1) % (1) The substantial majority of sales in North America are to customers in the United States.
Other Applications Sales from other applications decreased mainly due to decreased sales for communications products as a result of the business divestiture in the third quarter of 2022, partially offset by increased demand for lasers used in medical procedures and advanced applications. 40 Table of Contents Our net sales were derived from customers in the following geographic regions: Year Ended December 31, 2023 2022 Change (In thousands, except for percentages) Sales by Geography % of Total % of Total North America (1) $ 313,986 24.4 % $ 338,713 23.7 % $ (24,727) (7.3) % Europe: Germany 88,026 6.8 % 85,491 6.0 % 2,535 3.0 % Other Europe 291,336 22.6 % 294,481 20.6 % (3,145) (1.1) % Asia: China 355,321 27.6 % 479,926 33.6 % (124,605) (26.0) % Japan 72,333 5.6 % 57,865 4.0 % 14,468 25.0 % Other Asia 142,378 11.1 % 152,373 10.7 % (9,995) (6.6) % Rest of World 24,059 1.9 % 20,698 1.4 % 3,361 16.2 % Total $ 1,287,439 100.0 % $ 1,429,547 100.0 % $ (142,108) (9.9) % (1) The substantial majority of sales in North America are to customers in the United States.
Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter due to acquisitions, litigation and project related consulting expenses. Research and development expenses. In 2022 our research and development expenses decreased primarily due to a reduction of expenses associated with our telecommunications transceiver business, which was sold in August 2022.
Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter due to acquisitions, litigation and project related consulting expenses. Research and development expenses.
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.
We, our customers and our suppliers continue to face some constraints related to supply chain and logistics, including availability of capacity, materials, warehouse space, sea containers and higher freight rates. While supply chain and logistics constraints moderated in 2023, they have not yet fully returned to pre-pandemic conditions.
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. We file federal and state income tax returns in the United States and tax returns in numerous international jurisdictions.
Income Taxes and Deferred Taxes . Our annual tax rate is based on the income generated in the jurisdictions in which we operate, the statutory tax rates in those jurisdictions and tax planning opportunities available to the Company.
The decreases in cash provided by operating activities were partially offset by: • an increase in cash provided by accounts receivable, including a decrease in days sales outstanding due to increased collection efforts; and, • an increase in cash provided by prepaid expenses and other assets. Investing activities.
The increases in cash provided by operating activities were partially offset by: • a decrease in cash provided by net income after adjusting for non-cash operating activities, mainly due to lower sales in 2023; • an increase in cash used by accounts receivable, including an increase in days sales outstanding; • an increase in cash used by prepaid expenses and other assets; and • an increase in cash used by accounts payable due to timing of payments.
Sales and marketing expense decreased by $1.6 million, or 2.0%, to $76.6 million in 2022 from $78.2 million in 2021. This change was primarily a result of a decrease of $1.6 million in personnel and related costs, mainly from reductions in bonus expense.
Sales and marketing expense increased by $9.1 million, or 11.9%, to $85.7 million in 2023 from $76.6 million in 2022. This change was primarily a result of an increase of $7.0 million in personnel and related costs, driven by an increase in sales and marketing department headcount.
As a percentage of sales, research and development expense decreased to 8.1% in 2022 from 9.6% in 2021. We expect to continue to invest in research and development efforts for our continuing products and increase expenses in whole dollars. General and administrative expense.
We expect to continue to invest in research and development efforts for our continuing products and increase expenses in whole dollars. General and administrative expense. General and administrative expense decreased by $5.6 million, or 4.3%, to $125.7 million in 2023 from $131.3 million in 2022.
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, increased the cost of certain electronic components, pushed out customer deliveries and caused delays in recognizing revenue for certain custom processing systems in our Genesis business due to delays in receiving robots.
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. We received substantial shipments in 2023 of electronic components ordered during the occurrence of shortages from the COVID-19 pandemic.
Judgments and Uncertainties: Estimating demand and current market values is inherently difficult, particularly given that we make highly specialized components and products. We determine the valuation of excess and obsolete inventory by making our best estimate considering the current quantities of inventory on hand and our forecast of the need for this inventory to support future sales of our products.
We determine the valuation of excess and obsolete inventory by making our best estimate considering the current quantities of inventory on hand and our forecast of the need for this inventory to support future sales of our products. We often have limited information on which to base our forecasts.
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.
In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than is required by sales levels, gross margins could be negatively affected.
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 are used in materials processing, communications, medical and advanced applications.
Overview We develop, manufacture and sell high-performance fiber lasers, fiber amplifiers and diode lasers that are used for diverse applications, primarily in materials processing. We also manufacture and sell complementary products used with our 31 Table of Contents lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers.
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. Sales of our products are generally recognized upon shipment, provided that no obligations remain and collection of the receivable is reasonably assured. Sales of customized large scale material processing systems are recognized over time.
Sales of our products are generally recognized upon shipment, provided that no obligations remain and collection of the receivable is reasonably assured. Sales of customized large scale material processing systems are recognized over time. Our sales typically are made on a purchase order basis rather than through long-term purchase commitments.
Net sales decreased by $31.3 million, or 2.1%, to $1,429.5 million in 2022 from $1,460.8 million in 2021.
Net sales decreased by $142.1 million, or 9.9%, to $1,287.4 million in 2023 from $1,429.5 million in 2022.
Revolving Line of Credit (1) $75.0 million BSBY plus 0.8% to 1.2%, depending on our performance April 2025 Unsecured Euro Credit Facility (Germany) (2) Euro 50.0 million ($53.5 million) ESTR plus 0.8% or Euribor plus 0.65% July 2023 Unsecured, guaranteed by parent company and German subsidiary Other Euro Facilities (3) Euro 1.5 million ($1.6 million) 2.03% March 2023 Common pool of assets of Italian subsidiary Long-term Unsecured Note (4) $16.0 million 1.20% above LIBOR, fixed using an interest rate swap at 2.85% per annum May 2023 Unsecured (1) This facility is available to certain foreign subsidiaries in their respective local currencies.
Revolving Line of Credit (1) $75.0 million BSBY plus 0.8% to 1.2%, depending on our performance April 2025 Unsecured Euro Credit Facility (Germany) (2) Euro 5.0 million ($5.5 million) €STR rate plus 0.97% December 2028 Unsecured, guaranteed by parent company Euro Facility (3) Euro 1.5 million ($1.7 million) Euribor plus 1.25% June 2024 Common pool of assets of Italian subsidiary (1) This facility is available to certain foreign subsidiaries in their respective local currencies.
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.
We are also susceptible to global or regional disruptions such as political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, natural disasters and pandemics to the extent that they affect macroeconomic conditions, global supply chains or individual IPG locations The average selling prices of our products generally decrease as the products mature.
The following table presents cash flow activities: As of December 31, 2022 2021 (In thousands) Cash provided by operating activities $ 212,649 $ 389,700 Cash provided by (used in) investing activities 296,952 (416,282) Cash used in financing activities (514,549) (125,066) Operating activities.
See Note 17, "Income Taxes" to the consolidated financial statements. The following table presents cash flow activities: As of December 31, 2023 2022 (In thousands) Cash provided by operating activities $ 295,986 $ 212,649 Cash (used in) provided by investing activities (237,554) 296,952 Cash used in financing activities (236,380) (514,549) Operating activities.
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.
In 2024, we expect to incur approximately $120.0 million to $130.0 million in capital expenditures net of asset divestitures. 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.
Our vertically integrated operations allow us to reduce manufacturing costs, control quality, rapidly develop and integrate advanced products and protect our proprietary technology. Description of Our Net Sales, Costs and Expenses Net sales. We derive net sales primarily from the sale of fiber lasers, diode lasers, laser and non-laser based systems, amplifiers and complementary products.
We are vertically integrated such that we design and manufacture most of the key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers, amplifiers and complementary products. Our vertically integrated operations allow us to reduce manufacturing costs, control quality, rapidly develop and integrate advanced products and protect our proprietary technology.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+2 added−0 removed8 unchanged
Biggest changeAs a result, our international operations give rise to transactional market risk associated with exchange rate movements of the U.S. dollar, the Euro, the Chinese yuan, and the Russian ruble. In 2022 we incurred a loss on foreign exchange transactions of $4.1 million as compared to a gain of $15.1 million in 2021.
Biggest changeIn 2023 we incurred a gain on foreign exchange transactions of $1.4 million as compared to a loss of $4.1 million in 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash and cash equivalents and our debt and foreign exchange rate risk. Interest rate risk . Certain interest rates are variable and fluctuate with current market conditions.
ITEM 7A. 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.
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 instrument hedges as of December 31, 2022.
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 instrument hedges as of December 31, 2023.
Although our U.S. revolving line of credit and our Euro credit facility have variable rates, we do not believe that a 10% change in market interest rates would have a material impact on our financial position or results of operations. Exchange rates.
Although our U.S. revolving line of credit and our Euro credit facilities 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.
However, it is difficult to predict foreign currency movements accurately. At December 31, 2022, 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.
However, it is difficult to predict foreign currency movements accurately. At December 31, 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.
As a result, we are unable to create a perfect offset of the foreign currency denominated assets and liabilities. Furthermore, if we 45 Table of Contents expect a currency movement to be beneficial to us in the short or medium term, we have, on occasions, chosen not to hedge or otherwise offset the underlying assets or liabilities.
As a result, we are unable to create a perfect offset of the foreign currency denominated assets and liabilities. Furthermore, if we expect a currency movement to be beneficial to us in the short or medium term, we have, on occasions, chosen not to hedge or otherwise offset the underlying assets or 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.
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 on the consolidated statements of comprehensive income.
A 5% change in the relative exchange rate of the U.S. dollar to the Chinese yuan applied to the net U.S. dollar liability balances as of December 31, 2022, would result in a foreign exchange loss of $2.0 million if the U.S. dollar appreciated and a $2.1 million foreign exchange gain if the U.S. dollar depreciated.
A 5% change in the relative exchange rate of the U.S. dollar to the Chinese yuan applied to the net U.S. dollar liability balances as of December 31, 2023, 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.
A 5% change in the relative exchange rate of the U.S. dollar to the Ruble applied to the net U.S. dollar asset balances as of December 31, 2022, would result in a foreign exchange gain of $2.4 million if the U.S. dollar appreciated and a $2.5 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 Ruble applied to the net U.S. dollar asset balances as of December 31, 2023, would result in a foreign exchange gain of $0.2 million if the U.S. 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 Euro applied to the net U.S. dollar asset balances as of December 31, 2022, would result in a foreign exchange gain of $2.4 million if the U.S. dollar appreciated and a $2.5 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 Euro applied to 45 Table of Contents the net U.S. dollar asset balances as of December 31, 2023, would result in a foreign exchange gain of $1.9 million if the U.S. dollar appreciated and a $2.0 million foreign exchange loss if the U.S. dollar depreciated.
We are also exposed to market risk as a result of increases or decreases in the amount of interest expense we must pay on our bank debt and borrowings on our bank credit facilities. Our interest obligations on our long-term debt are fixed by means of an interest rate swap agreement.
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.
As our China subsidiary has net U.S. dollar denominated liabilities, the depreciation of the Chinese yuan contributed to most of the foreign exchange loss in 2022, partially off set by the gain from the depreciation of the Euro as our German subsidiary has net U.S. dollar denominated assets.
As our Russia subsidiary has net U.S. dollar denominated assets, the depreciation of the Russian ruble contributed to most of the foreign exchange gain in 2023, partially offset by the loss from the appreciation of the Euro as our German subsidiary has net U.S. dollar denominated assets, and the loss from the depreciation of the Chinese yuan as our Chinese subsidiary has net U.S. dollar denominated liability.
Added
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.
Added
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.

Other IPGP 10-K year-over-year comparisons