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What changed in IPG PHOTONICS CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of IPG PHOTONICS CORP's 2023 and 2024 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 2024 report.

+294 added−341 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-21)

Top changes in IPG PHOTONICS CORP's 2024 10-K

294 paragraphs added · 341 removed · 243 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

44 edited+6 added−11 removed90 unchanged
Biggest changeWe 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".
Biggest changeWe 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." Environmental Regulation Our operations are subject to various federal, state, local and international laws governing the environment, including those relating to the storage, use, discharge, disposal, product composition and labeling of, human exposure to and hazardous and toxic materials.
Our 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.
Our 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) Additive Manufacturing 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.
From January 2011 until February 2013, he served as our Vice President-Asian Operations. Prior to joining us, Mr. Ness was Director of GSI Precision Technologies China from May 2005 to December 2010 and prior to that he held technical sales management roles with GSI Group, Inc. and Cobham Plc, located in UK, Japan and Taiwan. Mr.
From January 2011 until February 2013, he served as our Vice President-Asian Operations. Prior to joining us, Mr. Ness was Director of GSI Precision Technologies China from May 2005 to December 2010 and prior to that he held technical sales management roles with GSI Group, Inc. and Cobham Plc, located in UK, Japan and Taiwan. Through 2000, Mr.
Our direct sales force sells to end users, OEMs and systems integrators. Once our fiber laser products are designed into an OEM system, the OEM's sales force markets its systems, allowing us to leverage our sales capability through the OEM sales channels because the OEMs typically have several sales persons in locations other than where our sales offices are located.
Our direct sales force sells to end users, OEMs and systems integrators. Once our fiber laser products are designed into an OEM system, the OEM's sales force markets its systems, allowing us to leverage our sales capability through the OEM sales channels because the OEMs typically have several salespersons in locations other than where our sales offices are located.
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.
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 We operate in various jurisdictions around the world, including the U.S. and certain states, the European Union, and the United Kingdom, that have adopted or proposed laws related to climate and sustainability reporting.
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.
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 technology industry.
We develop and manufacture most of our key high-volume specialty components, along with optical heads and other products used in conjunction with our lasers, which we believe enhances our ability to meet customer requirements, reduce costs and accelerate product development. Manufacturing Scale.
We develop and manufacture most of our key high-volume specialty components, along with optical heads and other products used in conjunction with our lasers, which we believe enhances our ability to meet customer requirements and accelerate product development. Manufacturing Scale.
We developed advanced molecular beam epitaxy techniques to grow alumina indium gallium arsenide wafers for our diodes. This method yields high-quality optoelectronic material for low-defect density and high uniformity of optoelectronic parameters.
We developed advanced molecular beam epitaxy techniques to grow aluminum indium gallium arsenide wafers for our diodes. This method yields high-quality optoelectronic material for low-defect density and high uniformity of optoelectronic parameters.
We have also developed and are now selling medical laser systems and consumable fiber applications, including benign prostatic hyperplasia and lithotripsy, as an OEM and, in certain territories, as an IPG-branded product. Aesthetic applications addressed by IPG lasers include skin rejuvenation, hair removal, and treatment of pigmented and vascular lesions.
We have also developed and are now selling medical laser systems and consumable fibers for applications, including benign prostatic hyperplasia and lithotripsy, as an OEM and, in certain territories, as an IPG-branded product. Aesthetic applications addressed by IPG lasers include skin rejuvenation, hair removal, and treatment of pigmented and vascular lesions.
We successfully increased output power levels, efficiency and reliability by improving optical components such as diodes and active fibers that increased 3 Table of Contents their power capacities and improved their performance. Fiber lasers now offer output powers that exceed those of other laser technologies in many categories.
We successfully increased output power levels, efficiency and reliability by improving optical components such as diodes and active fibers that increased their power capacities and improved their performance. Fiber lasers now offer output powers that exceed those of other laser technologies in many categories.
Intellectual property claims could result in costly litigation and harm our business " and " Risk Factors — Our inability to protect our intellectual property and proprietary technologies could result in the unauthorized use of our technologies by third parties, hurt our competitive position and adversely affect our operating results ." Manufacturing Vertical integration is one of our core business strategies through which we control our proprietary processes and technologies as well as the supply of key components and assemblies.
" and " Risk Factors — Our inability to protect our intellectual property and proprietary technologies could result in the unauthorized use of our technologies by third parties, hurt our competitive position and adversely affect our operating results ." Manufacturing Vertical integration is one of our core business strategies through which we control our proprietary processes and technologies as well as the supply of key components and assemblies.
Our diverse customer base, end markets and applications provide us with many growth opportunities. In 2023, we shipped products to thousands of customers worldwide.
Our diverse customer base, end markets and applications provide us with many growth opportunities. In 2024, we shipped products to thousands of customers worldwide.
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.
Also, lasers are utilized in applications that require consistent and stable operation with lower power densities, such as heating, cleaning and drying. Laser-based systems are gaining share within the materials processing market because of the greater precision, processing speeds and flexibility enabled by this technology.
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.
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 2024 fiscal year, high power continuous wave ("CW") lasers accounted for 34% of revenue and were 41% and 43% of revenue, in 2023 and 2022, respectively.
Our substantial advancements in diode technology, packaging design and other optical components together with increased production volumes over the last two decades reduced the cost and increased the reliability of our products.
Our substantial advancements in diode technology, packaging design and other optical components together with increased production volumes over the last two decades reduced the cost and increased the reliability 3 Table of Contents of our products.
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.
We also make direct diode lasers, packaged semiconductor diodes, laser and non-laser systems and laser based medical 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.
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.
Frame agreements are non-binding indications of customer pricing and volume levels but are not firm customer purchase obligations with delivery dates. 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 2025.
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.
Pulsed lasers accounted for 15%, 14%, and 18% of revenue in 2024, 2023 and 2022, 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 $98.7 million, $116.1 million and $139.6 million for the years ended December 31, 2023, 2022 and 2021, 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 $109.8 million, $98.7 million and $116.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.
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.
Of our total full-time employees, approximately 1,940 were in the United States and 1,630 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.
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.
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 expertise to drive the proliferation of fiber lasers in existing and new applications. Vertically Integrated Development and Manufacturing.
ITEM 1. BUSINESS Our Company IPG Photonics Corporation ("IPG", the "Company", the "Registrant", "we", "us" or "our") develops, manufactures and sells high-performance fiber lasers, fiber amplifiers and diode lasers that are used for diverse applications, primarily in materials processing.
ITEM 1. BUSINESS Our Company IPG Photonics Corporation ("IPG", the "Company", the "Registrant", "we", "us" or "our") develops, manufactures and sells high-performance fiber lasers, fiber amplifiers, diode lasers and laser-based systems that are used for diverse applications in materials processing, medical and advanced applications.
Our principal executive offices are located at 377 Simarano Drive, Marlborough, Massachusetts 01752, and our telephone number is (508) 373-1100. Industry Overview Laser technology has revolutionized a broad range of applications and products in manufacturing, automotive, aerospace, medical, research, consumer electronics, semiconductors and communications.
We began operations in 1990, and we were incorporated in Delaware in 1998. Our principal executive offices are located at 377 Simarano Drive, Marlborough, Massachusetts 01752, and our telephone number is (508) 373-1100. Industry Overview Laser technology has revolutionized a broad range of applications and products in manufacturing, automotive, aerospace, medical, research, consumer electronics, semiconductors and communications.
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.
At December 31, 2024, our backlog included $371.1 million of orders with firm shipment dates and $265.1 million of frame agreements that we expect to ship within one year, compared to $401.1 million of orders with firm shipment dates and $290.3 million of frame agreements at December 31, 2023.
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.
Backlog At December 31, 2024, our backlog of orders (generally scheduled for shipment within one year) was approximately $636.2 million compared to $691.4 million at December 31, 2023.
Prior to that, he was Chief Technology Officer from 2011 to 2022 and Deputy General Manager of our Russian subsidiary, NTO IRE-Polus from 2005 to 2011 after having served in technical leadership roles at NTO IRE-Polus. Dr. Samartsev holds a Ph.D. in Physics from the Imperial College London.
Prior to that, he was Chief Technology Officer from 2011 to 2022 and Deputy General Manager of one of our foreign subsidiaries from 2005 to 2011 after having served in technical leadership roles there. Dr. Samartsev holds a Ph.D. in Physics from the Imperial College London.
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.
As of December 31, 2024, we had approximately 4,740 full-time employees, including 410 in research and development, 3,550 in manufacturing and service operations, 380 in sales and marketing, and 400 in general and administrative functions. As a global company, our employees are distributed throughout our more than thirty locations in twenty-four countries.
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.
The following table shows the allocation of our net sales (in thousands) among our principal markets: Year Ended December 31, 2024 2023 2022 % of Total % of Total % of Total Materials processing $ 857,336 87.7 % $ 1,152,804 89.5 % $ 1,291,262 90.3 % Medical procedures 61,040 6.3 % 71,571 5.6 % 70,402 4.9 % Advanced applications 53,778 5.5 % 55,576 4.3 % 54,308 3.8 % Communications 4,980 0.5 % 7,488 0.6 % 13,575 1.0 % Total $ 977,134 100.0 % $ 1,287,439 100.0 % $ 1,429,547 100.0 % These estimates are based upon customer information and when customer information has not been provided, upon our best information and belief.
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.
As of December 31, 2024, we have over 850 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 — We are subject to litigation alleging that we infringe third-party intellectual property rights.
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.
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.
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.
Executive Officers of the Registrant The following table sets forth certain information regarding our executive officers as of February 20, 2025: Name Age Position with the Company Mark M. Gitin, Ph.D. 58 Chief Executive Officer Angelo P. Lopresti 61 General Counsel, Secretary and Senior Vice President Timothy P.V. Mammen 55 Chief Financial Officer and Senior Vice President Trevor D.
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.
Our Markets We broadly classify our principal end markets as material processing, medical procedures, advanced applications and communications . With the 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.
Ness holds a B.S. in Geology from Imperial College, a H.N.C. from Bournemouth University and an M.B.A. from The Open University. Alexander Ovtchinnikov, Ph.D., has served as our Senior Vice President, Chief Technology Officer since February 2022.
Ness performed a variety of roles in the UK, including Service and Aftersales Management. Mr. Ness holds a B.S. in Geology from Imperial College, a H.N.C. from Bournemouth University and an M.B.A. from The Open University. Igor Samartsev, Ph.D. has served as our Senior Vice President, Chief Scientist since February 2022.
He was promoted to Senior Vice President in February 2013. Prior to joining us, Mr. Lopresti was a partner at the law firm of Winston & Strawn LLP from 1999 to 2001. He was a partner at the law firm of Hertzog, Calamari & Gleason from 1998 to 1999 and an associate there from 1991 to 1998.
Lopresti was a partner at the law firm of 11 Table of Contents Winston & Strawn LLP from 1999 to 2001. He was a partner at the law firm of Hertzog, Calamari & Gleason from 1998 to 1999 and an associate there from 1991 to 1998.
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.
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.
In the event of an accident involving such materials, we could be liable for damages and such liability could exceed the amount of our liability insurance coverage and the resources of our business.
In the event of an accident involving such materials, we could be liable for damages and such liability could exceed the amount of our liability insurance coverage and the resources of our business. 12 Table of Contents We face increasing complexity in our product design and procurement operations due to the evolving nature of environmental compliance regulations and standards, as well as specific customer compliance requirements.
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.
Our major manufacturing facilities are located in the United States and Germany. We have sales service offices and applications laboratories worldwide. We are vertically integrated such that we design and manufacture most of the key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers and amplifiers.
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.
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.
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.
Ness 52 Senior Vice President, Sales and Strategic Business Development Igor Samartsev, Ph.D. 61 Senior Vice President, Chief Scientist Mark M. Gitin, Ph.D. has served as the Chief Executive Officer of the company since June 2024. Previously, Dr.
We face increasing complexity in our product design and procurement operations due to the evolving nature of environmental compliance regulations and standards, as well as specific customer compliance requirements. These regulations and standards have an impact on the material composition of our products entering specific markets.
These regulations and standards have an impact on the material composition of our products entering specific markets.
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.
Fiber lasers 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. 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.
We offer laser-based and non-laser based systems for certain markets and applications. Our vertically integrated operations allow us to reduce manufacturing costs, control quality, rapidly develop and integrate advanced products and protect our proprietary technology. We are listed on the Nasdaq Global Select Market (ticker: IPGP). We began operations in 1990, and we were incorporated in Delaware in 1998.
We manufacture complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers. Our vertically integrated operations allow us to control quality, rapidly develop and integrate advanced products and protect our proprietary technology. We are listed on the Nasdaq Global Select Market (ticker: IPGP).
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.
IPG sponsors formal apprentice and internship programs to build leadership capabilities for the future. 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.
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 .
IPG also develops and sells specialized fiber laser systems for unique material processing applications as requested by customers desiring complete laser-based solutions. For the 2024, 2023 and 2022 fiscal years, laser and non-laser systems accounted for 14%, 13%, and 11%, respectively, of revenues.
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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.
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Intellectual property claims could result in costly litigation and harm our business.
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IPG also develops and sells specialized fiber laser systems for unique material processing applications as requested by customers desiring a complete laser-based solution, including orbital welding, pipe welding and remote welding. The platforms include robotic and multi-axis workstations for welding, cutting and cladding, flatbed cutting systems, and diode markers.
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Many of our fiber laser competitors are increasing the output powers of their fiber lasers and reducing sales prices to compete with our products.
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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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Gitin served in a number of positions at MKS Instruments, including Executive Vice President and General Manager of MKS's Photonics Solutions Division since 2023.
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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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Prior to that, he served as Senior Vice President and General Manager of the Photonics Solutions Division from 2019 to 2023, and Vice President and General Manager of MKS's Photonics Business Unit from 2017 to 2019 and in 2018 he also assumed responsibility for the Instruments and Motion Business Unit.
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Prior to that, he was Chief Operating Officer since February 2017, Managing Director of IPG Laser GmbH, our German subsidiary, since August 2000 and Senior Vice President, Europe, since 2013. He served as the Technical Director of IPG Laser from 1995 to August 2000. From 1983 to 1995, Dr.
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Prior to joining MKS, from March 1995 to September 2017, Dr. Gitin held various management positions covering a wide range of technologies at Coherent, Inc., including Vice President of Strategic Marketing, Vice President of Business Development, and Vice President and General Manager of the Diodes, Fibers and Systems Business Unit. Dr.
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Scherbakov was a senior scientist in fiber optics and head of the optical communications laboratory at the General Physics Institute, Russian Academy of Science in Moscow. Dr. Scherbakov graduated from the Moscow Physics and Technology Institute with an M.S. in Physics. In addition, Dr.
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Gitin holds a B.S. in Electrical Engineering from University of California, Davis and an M.Eng. and Ph.D. in Electrical Engineering from Cornell University. Angelo P. Lopresti has served as our General Counsel, Secretary and Vice President since February 2001. He was promoted to Senior Vice President in February 2013. Prior to joining us, Mr.
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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.
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Prior to that, he was Vice President, Components, from September 2005 to February 2022 and Director of Material Sciences from October 2001 to September 2005. He was promoted to Senior Vice President in February 2013. Prior to joining us, Dr. Ovtchinnikov was Material Science Manager of Lasertel, Inc., a maker of high-power semiconductor lasers, from 1999 to 2001.
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For 15 years prior to joining Lasertel, Inc., he worked on the development and commercialization of high power diode pump technology at the Ioffe Institute, Tampere University of Technology, Coherent, Inc. and Spectra-Physics Corporation. He holds an M.S. in Electrical Engineering from the Electrotechnical University of St.
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Petersburg, Russia, and a Ph.D. from Ioffe Institute of the Russian Academy of Sciences. Igor Samartsev, Ph.D. has served as our Senior Vice President, Chief Scientist since February 2022.
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Environmental Regulation Our operations are subject to various federal, state, local and international laws governing the environment, including those relating to the storage, use, discharge, disposal, product composition and labeling of, human exposure to and hazardous and toxic materials.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

75 edited+12 added−33 removed153 unchanged
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.
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.
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.
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 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.
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.
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. and Germany provide finished products to China, our largest market.
Our failure to manage the risks associated with our operations in Russia, China and Belarus and our other existing and potential future international business operations could have a material adverse effect upon our results of operations. Foreign currency risk may negatively affect our net sales, cost of sales and operating margins and could result in exchange losses.
Our failure to manage the risks associated with our operations in China and Belarus and our other existing and potential future international business operations could have a material adverse effect upon our results of operations. Foreign currency risk may negatively affect our net sales, cost of sales and operating margins and could result in exchange losses.
Potential customers may have substantial investments and know-how related to their existing laser and non-laser technologies. They may perceive risks relating to the reliability, quality, usefulness and profitability of integrating fiber lasers in their systems when compared to other laser or non-laser technologies available in the market or that they manufacture themselves.
Potential customers may have substantial investments and know-how related to their existing laser and non-laser technologies and processes. They may perceive risks relating to the reliability, quality, usefulness and profitability of integrating fiber lasers in their systems when compared to other laser or non-laser technologies available in the market or that they manufacture themselves.
As fiber lasers increase penetration in core materials processing applications and there is more competition in these core material processing applications, the development of new applications, end markets and products outside our core applications becomes more important to our ability to generate sales.
As fiber lasers increase penetration in core materials processing applications and there is more competition in these core material processing applications, the development of new applications, end markets and products outside our core applications becomes more important to our ability to generate sales growth.
The FDA and other regulatory agencies may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing.
The FDA and other regulatory agencies may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing and sales.
With respect to such products, some of our manufacturing facilities, and the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation and those of other countries (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell in the medical industry, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products.
With respect to such products, some of our manufacturing facilities, and the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation and those of other countries (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the 20 Table of Contents products we sell in the medical industry, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products.
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.
We are a multinational corporation, with manufacturing located both in the United States and internationally and with approximately 75% 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.
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.
Risks Relating to Our Common Stock Certain trusts and a company created by the late founder of the Company collectively control over 35% 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.
If the global financial markets continue to experience volatility or deteriorate, our investment portfolio and cash balances may be impacted and some or all of our investments may become illiquid or otherwise experience loss which could adversely impact our financial results and position. 27 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
If the global financial markets continue to experience volatility or deteriorate, our investment portfolio and cash balances may be impacted and some or all of our investments may become illiquid or otherwise experience loss which could adversely impact our financial results and position. 26 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
To date, a significant portion of our revenue growth has been derived from sales of fiber lasers primarily for applications where CO 2 and YAG lasers historically have been used. We have made significant sales into the cutting, welding and marking and engraving applications, large applications where the use of other laser technologies was well established.
Historically, a significant portion of our revenue growth has been derived from sales of fiber lasers primarily for applications where CO 2 and YAG lasers historically have been used. We have made significant sales into the cutting, welding and marking and engraving applications, large applications where the use of other laser technologies was well established.
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.
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 and capital investment, or it could increase our costs, to resume manufacturing or find alternative sources of supply.
Some of our suppliers may not be able to meet demand from our growing business or because of global demand for their components. As a result, we experienced and may in the future experience longer lead times or delays in fulfillment of our orders.
Some of our suppliers may not be able to meet demand from our because of global demand for their components. As a result, we experienced and may in the future experience longer lead times or delays in fulfillment of our orders.
In recent years, the U.S. instituted changes in trade policies that included the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, including, in particular, on Russian and Chinese-made goods, economic sanctions on individuals, corporations or countries and other government regulations affecting trade between the United States and other countries where we conduct our business.
In recent years, the U.S. instituted 21 Table of Contents changes in trade policies that included the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, including, in particular, on Russian and Chinese-made goods, economic sanctions on individuals, corporations or countries and other government regulations affecting trade between the United States and other countries where we conduct our business.
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.
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 • our ability to control expenses. 23 Table of Contents These factors make it difficult for us to accurately predict our operating results.
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.
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.
If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an investigator from the FDA observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection.
If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an investigator from the FDA or another regulatory agency observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection.
Our current or potential customers may determine to develop and produce products for their own use which are competitive to our products. Such vertical integration could reduce the market opportunity for our products.
Our current or potential customers may decide to develop and produce products for their own use which are competitive to our products. Such vertical integration could reduce the market opportunity for our products.
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.
We conduct our business and incur costs in the local currency of most countries in which we operate. In 2024 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 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.
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.
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.
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 16 Table of Contents located in the United States and Germany, and we have added production in Italy and Poland.
Additionally, such actions could result in significant costs associated with loss of our intellectual property, impairment of our ability to conduct our operations, rebuilding our network and systems, prosecuting and defending litigation, responding to regulatory inquiries or actions, paying damages or taking other remedial steps.
Additionally, such actions could result in significant costs associated with loss of our intellectual property, impairment of our ability to conduct our 19 Table of Contents operations, rebuilding our network and systems, prosecuting and defending litigation, responding to regulatory inquiries or actions, paying damages or taking other remedial steps.
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 .
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 .
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.
We incurred a foreign exchange loss of $5.5 million in 2024 and a gain of $1.4 million in 2023. 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.
Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers' data or our data, including our intellectual property and other confidential business information, employee information or our information technology systems.
Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords or other information in order to gain access to our customers' data or our data, including our intellectual property and other confidential business information, employee information or our information technology systems.
Our level of sales will depend on our ability to generate sales of fiber lasers in new and developing markets including applications for lasers where they have not been used previously and in applications in which other lasers, such as CO 2 and YAG lasers, have been used.
Our level of sales will depend on our ability to generate sales of fiber lasers in new and developing markets including applications for lasers where they have not been used previously and in applications that use other lasers, such as CO 2 and YAG lasers.
These investments, as well as any cash deposited in bank accounts, are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by unusual events, such as the COVID-19 pandemic, the Eurozone crisis and the U.S. debt ceiling crisis, which affected various sectors of the financial markets and led to global credit and liquidity issues.
These investments, as well as any cash deposited in bank accounts, are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by unusual events, such as the U.S. debt ceiling crisis, which affected various sectors of the financial markets and led to global credit and liquidity issues.
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.
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.
There can be no assurance that, in the future, we will be able to dispose of any claims or other allegations made or asserted against us without them having a material impact on our results of operations.
There can be no assurance that we will be able to dispose of any claims or other allegations made or asserted against us without them having a material impact on our results of operations.
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.
A significant portion of our sales are to customers in China, which accounted for 25%, 28% and 34% of net sales in 2024, 2023 and 2022, 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.
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.
An economic downturn could have a material adverse effect on our business, financial condition and results of operations. 13 Table of Contents 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. Approximately 90% of our revenues in 2023 were from customers in the materials processing market.
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 88% of our revenues in 2024 were from customers in the materials processing market.
Our gross profit, in absolute dollars and as a percentage of net sales, is impacted by our sales volume, the corresponding absorption of fixed manufacturing overhead expenses and manufacturing yields.
Our gross profit, in absolute dollars and as 15 Table of Contents a percentage of net sales, is impacted by our sales volume, the corresponding absorption of fixed manufacturing overhead expenses and manufacturing yields.
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.
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.
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.
Our security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise.
Risks Relating to Industry Dynamics and Competition The markets for our products are highly competitive and currently subject to significant price and technological competition, and if we are unable to compete successfully, it could result in reduced sales, reduced gross margins or the loss of market share.
Risks Relating to Industry Dynamics and Competition The markets for our products are highly competitive and currently subject to significant price and technological competition, and if we are unable to compete successfully, it could result in reduced sales, reduced gross margins or the loss of market share. We operate in industries that are characterized by significant price and technological competition.
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.
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.
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.
Gapontsev, together with his affiliates and associates, ceases to beneficially own an 22 Table of Contents 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.
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.
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. In December 2024, affiliates of Trumpf SE & Co.
Risks Relating to Intellectual Property, Litigation, Information Systems and Regulations In the past, we were subject to litigation alleging that we infringed third-party intellectual property rights. Intellectual property claims could result in costly litigation and harm our business. There has been significant litigation involving intellectual property rights in many technology-based industries, including our own.
Risks Relating to Intellectual Property, Litigation, Information Systems and Regulations We are subject to litigation alleging that we infringe third-party intellectual property rights. Intellectual property claims could result in costly litigation and harm our business. There has been significant litigation involving intellectual property rights in many technology-based industries, including our own.
As of December 31, 2023, we had approximately $515 million of cash and cash equivalents and $663 million in short-term investments. See Note 3, "Fair Value Measurements" in the Notes to Consolidated Financial Statements in Part IV, Annual Report for further information about our cash equivalents and short-term investments.
As of December 31, 2024, we had approximately $620 million of cash and cash equivalents and $310 million in short-term investments. See Note 3, "Fair Value Measurements" in the Notes to Consolidated Financial Statements in Part IV, Annual Report for further information about our cash equivalents and short-term investments.
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.
We are evaluating these requirements and taking measures to ensure compliance with all applicable privacy and data protection-related laws and regulations. Because there is limited 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.
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.
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.
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.
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.
These factors make it difficult for us to accurately predict our operating results. In addition, our ability to accurately predict our operating results is complicated by the fact that many of our products have long sales cycles, some lasting as long as twelve months or more.
In addition, our ability to accurately predict our operating results is complicated by the fact that many of our products have long sales cycles, some lasting as long as twelve months or more.
While the Company has a trade compliance program, there is a risk that IPG may not be able to comply due to the number, complexity and fast-changing nature of sanctions being added in response to the Russia-Ukraine conflict.
While the Company has a trade compliance program, there is a risk that IPG may not be able to comply due to the number, complexity and fast-changing nature of sanctions.
As a result, the value and liquidity of our cash, cash equivalents and marketable securities may fluctuate substantially. Therefore, although we have not realized any significant losses on our cash, cash equivalents and marketable securities, future fluctuations in their value could result in a significant realized loss.
Therefore, although we have not realized any significant losses on our cash, cash equivalents and marketable securities, future fluctuations in their value could result in a significant realized loss.
("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.
("IPFD"), together with trusts created by the late founder of the Company, Dr. Valentin P. Gapontsev, beneficially own approximately 37% of our common stock. Dr. Scherbakov, our former CEO and current director, is the sole managing director of IPFD. Trustees of the trusts include an executive officer of the Company, a third-party corporate trustee, and Dr. Scherbakov. Dr.
A significant part of our business involves the export and import of components and products among many countries, including the U.S., Germany and China. We also export and import a limited number of components and products in Russia and Belarus.
A significant part of our business involves the export and import of components and products among many countries, including the U.S., Germany and China.
Although the board engages in executive succession planning, our inability to effectively and immediately transition knowledge or responsibilities to successors in the event of an unexpected absence or departure could harm our business and disrupt our operations.
Our future success is substantially dependent on the continued service and performance of our executive officers. Although the board engages in executive succession planning, our inability to effectively and immediately transition knowledge or responsibilities to successors in the event of an unexpected absence or departure could harm our business and disrupt our operations.
Trade Controls and governmental responses to the conflict may require us to take certain actions, including increasing costs and abandoning operations or writing-down asset values, or respond to nationalization or expropriation of assets abroad, adversely affect prevailing market prices of our common stock, have a reputational impact, or otherwise have a material adverse impact on us, our business and financial results.
Trade Controls and other governmental responses to political escalations may require us to take certain actions, including increasing costs and abandoning operations or writing-down asset values, or respond to nationalization or expropriation of assets abroad, adversely affect prevailing market prices of our common stock, have a reputational impact, or otherwise have a material adverse impact on us, our business and financial results. 17 Table of Contents We may experience lower than expected manufacturing yields, which would adversely affect our gross margins.
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.
Sanctions imposed by or on countries in which we have operations or do business has and could disrupt our supply of critical components, including among our manufacturing facilities in the U.S., Germany, Italy, Poland, and Belarus, and has caused us to shift all work occurring in Belarus to other countries.
To maintain our competitive position and to meet anticipated demand for our products, we invest significantly in the expansion of our manufacturing and operations throughout the world and may do so in the future.
To maintain our competitive position and to meet anticipated demand for our products, we invest significantly in the expansion of our manufacturing and operations throughout the world and may do so in the future. Recent expansions of capacity were required to offset the loss of capacity at our factories in Russia and Belarus due to sanctions.
We may experience lower than expected manufacturing yields, which would adversely affect our gross margins. The manufacture of semiconductor diodes and the packaging of them is a highly complex process. Manufacturers often encounter difficulties in achieving acceptable product yields from diode and packaging operations.
The manufacture of semiconductor diodes and the packaging of them is a highly complex process. Manufacturers often encounter difficulties in achieving acceptable product yields from diode and packaging operations. We have from time to time experienced lower than anticipated manufacturing yields for our diodes and packaged diodes.
Further, Russia and Belarus adopted rules that impose conditions on sale of assets by U.S. and western companies and decreasing the values of assets realized, as well as payments to owners of entities there.
Further, Belarus adopted rules that impose conditions on sale of assets by U.S. and western companies that could decrease the value of assets, as well as limit payments to sellers.
In addition, sanctions targeting the banking sector have impacted the transfer of cash to and from Russia to fund operations or repatriate surplus liquidity. At December 31, 2023, we had $76.4 million of cash and cash equivalents in Russia and $5.5 million cash in Belarus.
In addition, sanctions targeting the banking sector have and may impact the transfer of cash to and from countries in which we operate, including our ability to fund operations or repatriate surplus liquidity. At December 31, 2024, we had $4.7 million cash in Belarus.
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.
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.
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.
Approximately 75% of our approximately 4,740 employees as of December 31, 2024 were employed in our manufacturing operations. We may not adjust these fixed costs quickly enough or sufficiently to adapt to rapidly changing market conditions.
These significant ownership interests could delay, prevent or cause a change in control of the Company and might affect the market price of our common stock.
IPFD and the trusts may vote their shares of our common stock in ways that other stockholders may consider would be adverse to the interests of the other stockholders. These significant ownership interests could delay, prevent or cause a change in control of the Company and might affect the market price of our common stock.
The unavailability or loss of one or more of these key employees or our failure to attract other highly skilled personnel necessary to compete successfully could harm our business and results of operations. Our future success is substantially dependent on the continued service and performance of our executive officers.
We are highly dependent on the significant experience and specialized expertise of our senior management and scientific staff. The unavailability or loss of one or more of these key employees or our failure to attract other highly skilled personnel necessary to compete successfully could harm our business and results of operations.
Because of these factors, we have experienced and we may experience in the future material adverse fluctuations in our operating results on a quarterly or annual basis if the ASPs of our products continue to decline.
Because of these factors, we have experienced and we may experience in the future material adverse fluctuations in our operating results on a quarterly or annual basis if the ASPs of our products continue to decline. 14 Table of Contents Our ability to maintain or increase sales depends upon our ability to develop new products, penetrate new applications and end markets for fiber lasers and maintain or increase our market share in existing applications.
Our inability to protect our intellectual property and proprietary technologies could result in the unauthorized use of our technologies by third parties, hurt our competitive position and adversely affect our operating results.
Any such lawsuits, whether or not they have merit, could be time-consuming to defend, damage our reputation or result in substantial and unanticipated costs. Our inability to protect our intellectual property and proprietary technologies could result in the unauthorized use of our technologies by third parties, hurt our competitive position and adversely affect our operating 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.
We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual 25 Table of Contents results.
These include public and private companies 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.
We compete with makers of fiber lasers, solid-state lasers, direct diode lasers, high power CO 2, YAG and disc lasers. These include public and private companies 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.
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.
In 2024, long-lived asset impairments related to our Belarusian operations were $26.6 million. 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.
Scherbakov, as managing director of IPFD, have significant influence on the outcome of matters requiring stockholder approval, including election of our directors, stockholder proposals and approval of significant corporate transactions. IPFD and the trusts may vote their shares of our common stock in ways that other stockholders may consider would be adverse to the interests of the other stockholders.
Scherbakov, as managing director of IPFD, and the other trustees have significant influence on the outcome of matters requiring stockholder approval, including election of our directors, stockholder proposals and approval of significant corporate transactions.
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.
The results of our operations, business prospects and facilities in China and Belarus are subject to the economic and political 24 Table of Contents environment there and global geopolitical conditions.
In addition, intellectual property lawsuits can be brought by third parties against OEMs and end users that incorporate our products into their systems or processes. In some cases, we indemnify OEMs against third-party infringement claims relating to our products and we often make representations affirming, among other things, that our products do not infringe the intellectual property rights of others.
In some cases, we indemnify OEMs against third-party infringement claims relating to 18 Table of Contents our products and we often make representations affirming, among other things, that our products do not infringe the intellectual property rights of others. As a result, we may incur liabilities in connection with lawsuits against our 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. 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.
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.
Several of these are larger and have substantially greater financial, managerial and technical resources, more extensive distribution and service networks, greater sales and marketing capacity, and larger installed customer bases than we do. Many of our fiber laser competitors are increasing the output powers, improving the quality of their fiber lasers and decreasing prices to compete with our products.
Ltd., as well as other smaller competitors. Several of these are larger and have substantially greater financial, managerial and technical resources, more extensive distribution and service networks, greater sales and marketing capacity, and larger installed customer bases than we do.
Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, prevailing interest rates, financial results, economic risk, political risk, sovereign risk or other factors. Also, our investments may be negatively affected by events that impact the banks or depositories that hold our investments.
At December 31, 2024, 70% of our cash, cash equivalents and marketable securities were in the United States and 30% were outside the United States. Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, prevailing interest rates, financial results, economic risk, political risk, sovereign risk or other factors.
Should the United States, the European Union or Russia implement new or broad-based Trade Controls directed at each other or China, our production and/or deliveries as well as results of operations and/or financial condition could be affected.
Should the United States or the European Union implement targeted or broad-based Trade Controls, our production and/or deliveries as well as results of operations and/or financial condition could be affected. In addition, Trade Controls and their implementation are fluid and may change due to diplomatic and political considerations outside of our control.
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.
This occurs during the production of new designs and the installation and start-up of new process technologies and new equipment. 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 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.
We are subject to risks of doing business in Belarus, which historically provided mechanical parts to our German subsidiary and former Russian subsidiary and which does not currently provide parts to our affiliates outside of Belarus. We are also subject to risks of doing business in China, as approximately 25% of our sales in 2024 were to Chinese customers.
Removed
For example, our sales decreased by 25% in the materials processing market in 2009 as a result of the global economic recession, our material processing sales declined 10% in the second half of 2018 and 11% in the 2019 fiscal year, in part due to decreased capital equipment demand stemming from adverse changes to U.S.-China relations, including rounds of tariff increases and retaliations and declined 12% in the 2020 fiscal year, in part due to decreased capital equipment demand attributed to the COVID-19 pandemic.
Added
In addition, the new presidential administration has articulated that it may impose substantial new or increased tariffs on foreign imports into the U.S.
Removed
The industries in which we operate are characterized by significant price and technological competition. We compete with makers of fiber lasers, solid-state lasers, direct diode lasers, high power CO 2, YAG and disc lasers.
Added
Many of our fiber laser competitors are increasing the output powers, improving the quality of their fiber lasers and decreasing prices to compete with our products. Many of our competitors in Asia are beginning to export their fiber lasers and fiber laser-based systems to non-Asia markets, which may impact our pricing and sales in such markets.
Removed
Our ability to maintain or increase sales depends upon our ability to develop new products, penetrate new applications and end markets for fiber lasers and maintain or increase our market share in existing applications.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeAs part of the above processes, we engage with consultants to review our cybersecurity program to help identify areas for continued focus, improvement, and compliance.
Biggest changeAs part of the above processes, we engage with consultants to review our cybersecurity program to help identify areas for continued focus, improvement, and compliance. We have adopted cybersecurity control principles based on the National Institute of Standards and Technology Cybersecurity Framework (NIST), the Center for Internet Security (CIS) and ISO 27001.
The full Board receives an update on the Company’s risks, risk management process and the risk trends related to cybersecurity at least annually, which includes a review of key performance indicators, recent threats and the Company’s management of such threats. The Audit Committee specifically assists the Board in its oversight of risks related to cybersecurity.
The full Board receives an update on the Company’s risks, risk management process and the risk trends related to cybersecurity at least annually, which includes a 27 Table of Contents review of key performance indicators, recent threats and the Company’s management of such threats. The Audit Committee specifically assists the Board in its oversight of risks related to cybersecurity.
Although risks from cybersecurity incidents and threats have to date not materially impacted us, our business strategy, results of operations or financial condition, we have from time to time and will continue to experience threats to and security 28 Table of Contents incidents related to our and our third party vendors’ data and systems.
Although risks from cybersecurity incidents and threats have to date not materially impacted us, our business strategy, results of operations or financial condition, we have from time to time and will continue to experience threats to and security incidents related to our and our third party vendors’ data and systems. For more information, please see “Item 1A, Risk Factors.”
Removed
For more information, please see “Item 1A, Risk Factors.”
Added
Further, our cybersecurity controls are designed to comply with applicable laws concerning protection of private information, including the EU General Data Protection Regulation (GDPR), Brazil’s Lei General de Proteção de Dados Pessoais (LGPD) and the California Consumer Privacy Act of 2018 (CCPA).

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES 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.
Biggest changePROPERTIES Our significant facilities at December 31, 2024 include the following: Location Owned or Leased Lease Expiration Approximate Size (sq. ft.) Primary Activity Burbach, Germany Owned 581,600 Optical fiber, components, final assembly, complete device manufacturing, R&D, administration Oxford, Massachusetts Owned 550,300 Diodes, components, complete device manufacturing, R&D, administration Minsk, Belarus Owned 410,900 Manufacturing Marlborough, Massachusetts Owned 402,800 Components, manufacturing, applications, sales, R&D, administration Davenport, Iowa Owned 99,300 Systems integration, sales, administration Davenport, Iowa Leased January 2026 9,600 Systems integration, sales, administration Our corporate headquarters is in Marlborough, Massachusetts.
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.
As of December 31, 2024, we occupied more than 2.8 million square feet of facilities worldwide. Of this we own 2.4 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 have substantially reduced our reliance on our Russian operations, and have ceased new investments in our Russian and Belarus operations. We have and will continue to expand our manufacturing operations in Germany and the United States, and have added manufacturing capacity in Italy and Poland to meet the demand for our products and our sales and support needs.
We have ceased new investments in our Belarusian operations. We have and will continue to expand our manufacturing operations in Germany and the United States, in part to replace the lost capacity at our factories in Russia and Belarus due to sanctions, to meet the demand for our products and our sales and support needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIntellectual property claims could result in costly litigation and harm our business " and " Risk Factors — 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."
Biggest change" and " Risk Factors — 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." In December 2024, affiliates of Trumpf SE & Co.
" Risk Factors — In the past, we were subject to litigation alleging that we infringed third-party intellectual property rights.
" Risk Factors — We are subject to litigation alleging that we infringe third-party intellectual property rights. Intellectual property claims could result in costly litigation and harm our business.
Added
KG (“Trumpf”) filed patent lawsuits in two different Unified Patent Courts located in Germany against IPG Laser GmbH & Co. KG alleging infringement of two patents granted by the European Patent Office by our adjustable mode beam (AMB) lasers. Our AMB lasers are used in the welding of electric vehicle batteries as well as structural welding.
Added
The matter is still in its early stages and we intend to defend it vigorously.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
Biggest changeThe above graph represents and compares the value, through December 31, 2024, of a hypothetical investment of $100 made at the closing price on December 31, 2019 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.
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.
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, 2024 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.
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.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is quoted on the Nasdaq Global Select Market under the symbol "IPGP." As of February 18, 2025, there were 42,548,561 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.
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
Share repurchases under these 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.
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.
Issuer Purchases of Equity Securities The following table shows repurchases of our common stock in the fiscal quarter ended December 31, 2024: Date Total Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1, 2024 — October 31, 2024 651,392 $ 75.68 651,392 $ 57,487 November 1, 2024 — November 30, 2024 91,234 83.14 90,020 50,000 December 1, 2024 — December 31, 2024 — — — 50,000 Total 742,626 $ 76.60 741,412 $ 50,000 (1) Total number of shares (or units) purchased includes shares repurchased as part of publicly announced plans or programs and "withhold to cover" tax liabilities upon vesting of restricted stock awards.
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 stock price performance shown in this graph is not necessarily indicative of, and not is intended to suggest, future stock price performance.
(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.
For the fourth quarter of 2024, a total of 1,214 shares were withheld to cover at an average price of $81.45. (2) On February 13, 2024, we announced that our Board of Directors authorized the purchase of up to $300 million of IPG common stock (the "February 2024 authorization"), exclusive of any fees, commissions or other expenses.
Removed
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is quoted on the Nasdaq Global Select Market under the symbol "IPGP".
Added
Base Period 5-Year Cumulative Total Return 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 IPG Photonics Corporation $ 100.00 $ 154.42 $ 118.78 $ 65.33 $ 74.90 $ 50.18 Russell 3000 Index $ 100.00 $ 118.82 $ 147.35 $ 117.17 $ 145.24 $ 177.40 S&P Composite 1500 - Electronic Equipment, Instruments & Components Index $ 100.00 $ 123.86 $ 160.00 $ 125.15 $ 150.70 $ 175.92 29 Table of Contents Dividends We do not anticipate paying cash dividends in the foreseeable future.
Removed
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.
Added
We repurchased 741,412 shares in the fourth quarter of 2024 under the February 2024 authorization. ITEM 6. RESERVED
Removed
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.

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, 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.
Biggest changeThe table below sets forth sales by application: Year Ended December 31, 2024 2023 Change (In thousands, except for percentages) Sales by Application % of Total % of Total Materials Processing $ 857,336 87.7 % $ 1,152,804 89.5 % $ (295,468) (25.6) % Other Applications 119,798 12.3 % 134,635 10.5 % (14,837) (11.0) % Total $ 977,134 100.0 % $ 1,287,439 100.0 % $ (310,305) (24.1) % 37 Table of Contents The table below sets forth sales by type of product and other revenue: Year Ended December 31, 2024 2023 Change (In thousands, except for percentages) Sales by Product % of Total % of Total High Power Continuous Wave ("CW") Lasers $ 332,743 34.1 % $ 524,981 40.8 % $ (192,238) (36.6) % Medium Power CW Lasers 63,685 6.5 % 71,672 5.6 % (7,987) (11.1) % Pulsed Lasers 146,759 15.0 % 185,581 14.4 % (38,822) (20.9) % Quasi-Continuous Wave ("QCW") Lasers 48,016 4.9 % 48,648 3.8 % (632) (1.3) % Laser and Non-Laser Systems 139,145 14.3 % 161,177 12.5 % (22,032) (13.7) % Other Revenue including Other Lasers, Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 246,786 25.2 % 295,380 22.9 % (48,594) (16.5) % Total $ 977,134 100.0 % $ 1,287,439 100.0 % $ (310,305) (24.1) % Materials Processing Sales for materials processing applications decreased primarily due to lower sales of high power CW lasers, pulsed lasers, and other laser products and services. • High power CW laser sales decreased due to lower sales for cutting and welding applications, and were primarily impacted by softer industrial demand and a decrease in e-mobility investments.
Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, Chinese yuan and the Japanese yen have had and could have an additional significant impact on our sales, costs and earnings.
Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, the Chinese yuan and Japanese yen have had and could have an additional significant impact on our sales, costs and earnings.
The cash used in investing activities in 2023 primarily related to $158.9 million of net cash used for purchases of short-term investments, and $110.5 million of cash used for property, plant and equipment, partially offset by $31.2 million of proceeds from the sale of property, plant and equipment.
The cash used in investing activities in 2023 primarily related to $158.9 million of net cash used for purchases of short-term investments, and $110.5 million of proceeds from the sale of property, plant and equipment, partially offset by $31.2 million of proceeds from the sale of property, plant and equipment.
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.
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 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. Sensitivity of Estimate to Change: Undiscounted cash flow and fair value are sensitive to changes in underlying assumptions, estimates, and market factors.
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 flows and fair value are sensitive to changes in underlying assumptions, estimates, and market factors.
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.
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, 2024.
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.
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 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
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.
As of December 31, 2024, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
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.
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 lasers and sub-systems, depending on the configuration, volume and competitive forces, among other factors; • Persistent inflation leading to increases in average manufacturing salaries as well as an increase in the purchase price of components including, but not limited to, electronic components and metal parts could negatively impact gross margin if we are not able to pass those increases on to customers by increasing the selling price of our products; • Changes in relative exchange rates between currencies we receive when selling our products and currencies we use to pay our manufacturing expenses; and finally, • Our gross margin from products on new manufacturing lines can be lower due to production inefficiencies, lower yields and high scrap costs.
If we experience a decline in sales that reduces absorption of our fixed costs, or if we have production issues, our gross margins will be negatively affected. We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess.
If we experience a decline in sales that reduces absorption of our fixed costs, or if we have production issues, our gross margins will be negatively affected. 33 Table of Contents We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess.
While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from year to year. Net sales derived from our five largest customers as a percentage of our annual net sales were 13%, 15% and 19% in 2023, 2022 and 2021, respectively.
While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from year to year. Net sales derived from our five largest customers as a percentage of our annual net sales were 13%, 13% and 15% in 2024, 2023 and 2022, respectively.
Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S., Germany, Russia, and Belarus) also affects our costs and earnings.
Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings.
Discrete adjustments in 2023 resulted in a $5.7 million decrease in tax expense, which includes (i) $4.3 million decrease in the valuation allowance primarily due to current year profits in our Russian subsidiary and (ii) $3.5 million related to a decrease in uncertain tax positions and the results of tax audits.
Discrete adjustments in 2023 resulted in a $5.7 million decrease in tax expense, which includes (i) $4.3 million decrease in the valuation allowance primarily due to current year profits in our Russian subsidiary and 39 Table of Contents (ii) $3.5 million related to a decrease in uncertain tax positions and the results of tax audits.
Selling and general and administrative expenses. In the past, the Company has invested in selling and general and administrative costs in order to support continued growth in the Company. As the secular shift to fiber laser technology matures, our sales growth becomes more susceptible to the cyclical trends typical of capital equipment manufacturers.
In the past, we invested in selling and general and administrative costs in order to support continued growth in the Company. As the secular shift to fiber laser technology matures, our sales growth becomes more susceptible to the cyclical trends typical of capital equipment manufacturers.
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 following table details our line-of-credit facilities as of December 31, 2024: Description Total Facility/ Note Interest Rate Maturity Security U.S.
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.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 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, 2023 filed with the SEC on February 21, 2024.
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 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 88% of our revenues in 2024 were from customers using our products for materials processing.
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.
At December 31, 2024, there were no amounts drawn on this line, however, there were $2.1 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.
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.
These decreases result from factors such as increased competition, decreased manufacturing costs and increased unit volumes. We may also reduce selling prices in order to penetrate new markets and applications. Furthermore, we may negotiate discounted selling prices from time to time with certain customers that place high unit-volume orders.
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.
We invested $98.5 million, $110.5 million and $110.1 million in capital expenditures in 2024, 2023 and 2022, 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 received $31.2 million, $26.9 million and $1.4 million in proceeds from the sale of property, plant and equipment in 2023, 2022 and 2021, respectively. 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.
We received $28.6 million, $31.2 million and $26.9 million in proceeds from the sale of property, plant and equipment in 2024, 2023 and 2022, respectively. 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.
As the secular shift to fiber laser technology matures in such applications, our sales trends are more susceptible to economic cycles, which can broadly affect the demand for capital equipment including machine tools and industrial lasers, and competition from other fiber laser manufacturers. Gross margin.
As the secular shift to fiber laser technology matures in such applications, our sales trends are more susceptible to economic cycles, which can broadly affect the demand for capital 32 Table of Contents equipment including machine tools and industrial lasers, and competition from other fiber laser manufacturers.
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.
The change in interest income, net, was driven by an increase in yields on cash equivalents and short term investments as a result of higher market interest rates as compared to prior year rates. Provision for income taxes.
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.
Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter based primarily upon the level of acquisitions, litigation and project related consulting expenses. Research and development expenses.
We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our fiber lasers or amplifiers. If any of our significant customers were to substantially reduce their purchases from us, our results would be adversely affected.
We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our products. If any of our significant customers substantially reduced their purchases from us, our results would be adversely affected.
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.
Gross margins generally improve when the opposite occurs. If both sales and inventory decrease in the same period, the decline in gross margin may be greater if we cannot reduce fixed costs or choose not to reduce fixed costs to match the decrease in the level of production.
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.
Short-term investments at December 31, 2024 consist of liquid investments including commercial paper, corporate bonds, U.S. 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.
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.
Overview We develop, manufacture and sell high-performance fiber lasers, fiber amplifiers, diode lasers and laser-based systems that are used for diverse applications, primarily in materials processing, medical and advanced applications. 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.
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.
See Note 12, "Financing Arrangements" in the notes to the consolidated financial statements for further information about our facilities. The following table summarizes our material cash commitments at December 31, 2024 and the effect such commitments are expected to have on our liquidity and cash flows in future periods.
One of our customers accounted for 14% of our net accounts receivable as of both December 31, 2023 and 2022. We seek to add new customers and to expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change.
One of our customers accounted for 12% and 14% of our net accounts receivable as of December 31, 2024 and 2023, respectively. We seek to add new customers and to 34 Table of Contents expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change.
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.
Revolving Line of Credit (1) $75.0 million SOFR plus 0.9% to 1.6%, depending on our performance April 2025 Unsecured Euro Credit Facility (Germany) (2) Euro 5.0 million ($5.2 million) €STR rate plus 0.97% December 2028 Unsecured, guaranteed by parent company Euro Facility (3) Euro 1.5 million ($1.6 million) 4.3% September 2025 Common pool of assets of Italian subsidiary (1) This facility is available to certain foreign subsidiaries in their respective local currencies.
Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth including any ongoing impact of the COVID-19 pandemic on certain global or regional economies, global or regional recessions, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products.
Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the market acceptance of our current and future products.
These benefits were partly offset by an increase in tax expense for $1.8 million for equity-based compensation deductions reflected in book income in excess of the deductions allowed for tax purposes.
These benefits were partly offset by an increase in tax expense of $1.8 million for equity-based compensation deductions reflected in book income in excess of the deductions allowed for tax purposes. Net (loss) income attributed to IPG Photonics Corporation.
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.
At December 31, 2024, there were no amounts drawn on this line, however, there were $1.5 million of guarantees issued against the line which reduces total availability. (3) At December 31, 2024, there were no drawings.
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.
Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. As of December 31, 2024, we had $13.9 million of unrecognized tax benefits, excluding interest and penalties, recorded in other long-term liabilities and deferred income taxes on our Consolidated Balance Sheets.
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.
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 based on a probability-weighted average of valuations using the discounted cash flow method under the income approach.
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.
Net cash provided by investing activities was $208.7 million in 2024 as compared to cash used in investing activities of $237.6 million in 2023.
We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually.
The amount of research and development expense we incur may vary from period to period. Goodwill and long-lived assets impairments . We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually.
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.
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 2022.
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.
The losses in 2024 was primarily attributable to depreciation of the Chinese yuan and Korean won, partially offset by the gain from depreciation of the Euro, as compared to the U.S. dollar. Interest income, net. Interest income, net was $45.5 million in 2024 compared to $41.7 million in 2023.
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.
Expenses related to provisions for excess or obsolete inventory and other valuation adjustments increased by $37.0 million to $82.5 million, or 38 Table of Contents 8.4% of sales, for the year ended December 31, 2024, as compared to $45.5 million, or 3.5% of sales, for the year ended December 31, 2023. Sales and marketing expense.
In 2023, as sales decreased the inventory provision related to slow-moving, excess or obsolete inventory increased. In 2022, we recorded inventory provision and related charges of $74.1 million as a result of the review of the inventory in Russia. For the rest of our operations, as safety stock increased excess and obsolete inventory reserves increased during 2022.
In 2023, as sales decreased the inventory provision related to slow-moving, excess or obsolete inventory increased. In 2022, we recorded inventory provision and related charges of $74.1 million as a 35 Table of Contents result of the review of the inventory in Russia.
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.
See Note 17, "Income Taxes" to the consolidated financial statements. The following table presents cash flow activities: As of December 31, 2024 2023 (In thousands) Cash provided by operating activities $ 247,896 $ 295,986 Cash provided by (used in) investing activities 208,732 (237,554) Cash used in financing activities (339,621) (236,380) Operating activities.
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.
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 $82.5 million, $45.5 million and $128.0 million in 2024, 2023 and 2022, respectively.
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.
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 2024 would have been $15.6 million higher, gross margin would have been $9.2 million higher and sales and marketing, research and development and general and administrative expenses would have been $3.8 million higher.
Our total gross margin in any period can be significantly affected by a number of factors, including net sales, production volumes, competitive factors, product mix, and by other factors such as changes in foreign exchange rates relative to the U.S. dollar. Many of these factors are not under our control.
Additionally, as our technology matures, we become subject to more competition which can affect sales trends. Gross margin. Our total gross margin in any period can be significantly affected by a number of factors, including net sales, production volumes, competitive factors, product mix, and by other factors such as changes in foreign exchange rates relative to the U.S. dollar.
The interest coverage covenant requires that we maintain a trailing twelve-month ratio of EBITDA to interest on all obligations that is at least 3.0:1.0. The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis be less than three times our trailing twelve months EBITDA.
The funded debt to EBITDA covenant requires that the sum of all indebtedness for borrowed money on a consolidated basis be less than three times our trailing twelve months EBITDA.
The following are examples of factors affecting gross margin: • As our products mature, we can experience additional competition, which tends to decrease average selling prices and affects gross margin; • Our gross margin can be significantly affected by product mix. Within each of our product categories, the gross margin is generally higher for devices with greater average power.
Many of these factors are not under our control. The following are examples of factors affecting gross margin: • As our products mature, we can experience additional competition, which tends to decrease average selling prices and affects gross margin; • Our gross margin can be significantly affected by product mix.
New tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments.
In recent years, our net sales and margins have been negatively impacted by tariffs and trade policy. New tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments.
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.
This tax liability increased by $0.2 million for tax positions taken in the current year offset by reductions of $3.4 million for changes in prior period positions. 36 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, 2024 2023 2022 (In thousands, except percentages and per share data) Net sales $ 977,134 100.0 % $ 1,287,439 100.0 % $ 1,429,547 100.0 % Cost of sales 638,979 65.4 745,741 57.9 874,134 61.1 Gross profit 338,155 34.6 541,698 42.1 555,413 38.9 Operating expenses: Sales and marketing 89,582 9.2 85,679 6.7 76,643 5.3 Research and development 109,783 11.2 98,704 7.7 116,114 8.1 General and administrative 124,313 12.7 125,749 9.7 131,253 9.2 Net loss (gain) from divestitures and sale of assets 190,201 19.5 — — (31,846) (2.2) Impairment of long-lived assets 27,006 2.7 1,237 0.1 79,949 5.6 Restructuring charges (recoveries), net — — (288) — 9,697 0.7 Loss (gain) on foreign exchange 5,524 0.6 (1,356) (0.1) 4,103 0.3 Total operating expenses 546,409 55.9 309,725 24.1 385,913 27.0 Operating (loss) income (208,254) (21.3) 231,973 18.0 169,500 11.8 Interest income, net 45,467 4.7 41,735 3.2 12,620 0.9 Other income, net 899 0.1 1,167 0.1 1,231 0.1 (Loss) income before provision for income taxes (161,888) (16.5) 274,875 21.3 183,351 12.8 Provision for income taxes 19,638 2.0 55,997 4.3 72,589 5.1 Net (loss) income (181,526) (18.5) 218,878 17.0 110,762 7.7 Less: net income attributable to non-controlling interest — — — — 853 0.1 Net (loss) income attributable to IPG Photonics Corporation common stockholders $ (181,526) (18.5) % $ 218,878 17.0 % $ 109,909 7.6 % Net (loss) income attributable to IPG Photonics Corporation per common share: Basic $ (4.09) $ 4.64 $ 2.17 Diluted $ (4.09) $ 4.63 $ 2.16 Weighted average common shares outstanding: Basic 44,336 47,154 50,761 Diluted 44,336 47,320 50,925 Comparison of Year Ended December 31, 2024 to Year Ended December 31, 2023 Net sales.
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.
We expect to continue to invest in research and development efforts for new and continuing products. General and administrative expense. General and administrative expense decreased by $1.4 million, or 1.1%, to $124.3 million in 2024 from $125.7 million in 2023.
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.
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.
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 may incur additional asset impairment charges related to the Belarus operations and the other comprehensive loss that is currently in the equity section of our Consolidated Balance Sheets could be charged to our Consolidated Statements of Operations. We continue to review our operations in Belarus including potential strategic alternatives.
Payments Due in Total Less Than 1 Year (In thousands) Operating lease obligations $ 20,996 $ 5,224 Purchase obligations 27,404 22,008 Total (1) $ 48,400 $ 27,232 (1) Excludes obligations related to ASC 740, reserves for uncertain tax positions, because we are unable to provide a reasonable estimate of the timing of future payments relating to the remainder of these obligations.
Payments Due in Total Less Than 1 Year (In thousands) Operating lease obligations $ 19,925 $ 5,515 Purchase obligations 71,238 69,576 Total (1) $ 91,163 $ 75,091 (1) Excludes obligations related to ASC 740, reserves for uncertain tax positions, because we are unable to provide a reasonable estimate of the timing of future payments relating to the remainder of these obligations.
The cash used in financing activities in 2022 was primarily related to the purchase of $499.5 million of treasury stock, $18.1 million of principal payments on our long-term borrowings, the purchase of non-controlling interests of $2.5 million related to the divestiture of the telecommunications transmission product lines; partially offset by net proceeds of $5.6 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 2024 was primarily related to the purchase of $343.8 million of treasury stock, partially offset by net proceeds of $4.2 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.
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.
Provision for income taxes was $19.6 million in 2024 compared to $56.0 million in 2023, representing an effective tax rate of (12.1)% in 2024 and 20.4% in 2023. The decrease in tax expense was due primarily to a reduction in taxable income. In 2024 we had tax expense on a loss before income due to the effect of discrete items.
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.
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.
In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products. Income taxes. The Organization for Economic Cooperation & Development (OECD) has proposed a two-pillared plan for a revised international tax system.
In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products. Income taxes.
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.
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.
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.
Net loss attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 35.6% to (18.6)% in 2024 from 17.0% in 2023 due to the factors described above.
We expect to continue making investments in capital expenditures, to assess acquisition opportunities and to repurchase shares of our stock in accordance with our repurchase program. The extent and timing of such expenditures may vary from period to period.
We expect to continue making investments in capital expenditures, assess acquisition opportunities, carry out research and development and investment in resources to strengthen our organization. The extent and timing of such expenditures may vary from period to period.
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.
These estimates assume constant exchange rates between fiscal year 2024 and fiscal year 2023 and are calculated using the average exchange rates for the twelve-month period ended December 31, 2023 for the respective currencies, which were US$1=Euro 0.92, US$1=Japanese yen 141, US$1=Chinese yuan 7.08 and US$1=Russian ruble 85. Net loss (gain) from divestiture and sale of assets.
We recorded a non-cash long-lived asset impairment charge of $1.2 million in 2023 as compared to $79.9 million in 2022. The impairment of long-lived assets in 2023 was related to the right-of-use asset ("ROU" asset) for a leased building associated with our Submarine Network Division business that was previously divested. Attempts to sublease the space have been unsuccessful.
The impairment of long-lived assets in 2023 was related to the right-of-use ("ROU") asset for a leased building associated with our Submarine Network Division business that was previously divested. Attempts to sublease the space have been unsuccessful. As of December 31, 2023, the ROU asset related to this lease has been reduced to zero. Restructuring charges (recoveries), net.
Our general and administrative expense consists primarily of compensation and associated costs for executive management, finance, legal, human resources, information technology and other administrative personnel, outside legal and professional fees, insurance premiums and fees, allocated facilities costs and other corporate expenses such as charges and benefits related to the change in allowance for doubtful debt. 32 Table of Contents Factors and Trends That Affect Our Operations and Financial Results In reading our financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our financial performance.
Our general and administrative expense consists primarily of compensation and associated costs for executive management, finance, legal, human resources, information technology and other administrative personnel, outside legal and professional fees, insurance premiums and fees, allocated facilities costs, depreciation of facilities and other corporate expenses such as charges and benefits related to the change in allowance for credit losses.
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.
As a percentage of sales, sales and marketing expense was 9.2% and 6.7% of sales in 2024 and 2023, respectively. Research and development expense. Research and development expense increased by $11.1 million, or 11.2%, to $109.8 million in 2024 from $98.7 million in 2023.
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.
Cost of sales and gross margin. Cost of sales decreased by $106.7 million, or 14.3%, to $639.0 million in 2024 from $745.7 million in 2023. Our gross margin decreased to 34.6% in 2024 from 42.1% in 2023.
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.
Sales and marketing expense increased by $3.9 million, or 4.6%, to $89.6 million in 2024 from $85.7 million in 2023. This change was primarily a result of an increase of $3.5 million in personnel and related costs and $2.3 million in premises expense, partially offset by $2.2 million in lower depreciation and amortization expense.
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.
This facility renews annually. 40 Table of Contents 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.
Research and development. Our research and development expense consists primarily of compensation, development expenses related to the design of our products and certain components, the cost of materials and components to build prototype devices for testing and facilities costs. Costs related to product development are recorded as research and development expenses in the period in which they are incurred.
Our research and development expense consists primarily of compensation, development expenses related to the design of our products and certain components, the cost of materials and components to build prototype devices for testing, facilities costs and depreciation of equipment and facilities that have an alternative future use used for research and development purposes.
We recorded provisions for slow-moving, obsolete or excess inventory, and inventory related charges totaling $45.5 million, $128.0 million and $34.3 million in 2023, 2022 and 2021, respectively. Because our calculation of slow-moving, excess or obsolete inventory is based on historical and estimated future use of inventory items, the calculation is affected by sales trends.
Because our calculation of slow-moving, excess or obsolete inventory is based on historical and estimated future use of inventory items, the calculation is affected by sales trends. In 2024, we recorded inventory provision of $29.5 million for items previously considered safety stock and items that became technologically obsolete.
Net sales decreased by $142.1 million, or 9.9%, to $1,287.4 million in 2023 from $1,429.5 million in 2022.
Net sales decreased by $310.3 million, or 24.1%, to $977.1 million in 2024 from $1,287.4 million in 2023.
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.
In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than is required by sales growth, gross margins could be negatively affected. Gross margins generally decline if production volumes are lower as a result of a decrease in sales or a reduction in inventory because the absorption of fixed manufacturing costs will be reduced.
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.
We have sales and service offices and applications laboratories worldwide. We are vertically integrated such that we design and manufacture most of the key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers and complementary products.
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.
We recorded long-lived asset impairment charge of $27.0 million, $1.2 million, and $79.9 million in 2024, 2023 and 2022, respectively. Impairment charges in 2022 and 2024 primarily related to the impairment of our Russian and Belarus long-lived assets, respectively, as a result of new sanctions that impacted our business there.
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.
Net cash provided by operating activities decreased by $48.1 million to $247.9 million in 2024 from $296.0 million in 2023 primarily due to a decrease in net income after adding back non-cash expenses, partially offset by an increase in cash provided by working capital. Our largest working capital items are inventory and accounts receivable.
We are implementing changes to our logistics process to address increased freight costs. Net sales. Our annual revenue growth rates have varied from year to year. Net sales decreased by 10% in 2023, decreased by 2% in 2022 and increased 22% in 2021. Our growth rates are subject to several factors, many of which are not in our control.
Net sales decreased by 24% in 2024, decreased by 10% in 2023 and decreased 2% in 2022. Our growth rates are subject to several factors, many of which are not under our control.
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 sell our products to OEMs that supply materials processing laser systems, communications systems, medical laser systems and other laser systems to end users.
We sell our products to OEMs that supply materials processing laser systems, medical laser systems and other laser systems to end users. We also sell our laser products and laser and non-laser based systems to end users.
Our gross margin is therefore significantly affected by our sales volume and the corresponding utilization of capacity and absorption of fixed manufacturing overhead expenses. Sales and marketing. Our sales and marketing expense consists primarily of costs related to compensation, trade shows, professional and technical conferences, travel, facilities, depreciation of equipment used for demonstration purposes and other marketing costs.
Our gross margin is therefore significantly affected by our sales volume and the corresponding utilization of capacity and absorption of fixed manufacturing overhead expenses. Sales and marketing.
The timing and extent of any capital expenditures in and between periods can have a significant effect on our cash flow. If we obtain financing for certain projects, our cash expenditures would be reduced in the year of expenditure.
The timing and extent of any capital expenditures in and between periods can have a significant effect on our cash flow. Many of the capital expenditure projects that we undertake have long lead times and are difficult to cancel or defer to a later period.
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.
The following table presents our principal sources of liquidity: As of December 31, 2024 2023 (In thousands) Cash and cash equivalents $ 620,040 $ 514,674 Short-term investments 310,152 662,807 Unused credit lines and overdraft facilities 78,115 78,506 Working capital (excluding cash and cash equivalents and short-term investments) 295,784 522,312 Included in cash and cash equivalents is $4.7 million of cash located in Belarus, as of December 31, 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs 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.
Biggest changeAs our Chinese and South Korean subsidiaries have net U.S. dollar denominated liabilities, the depreciation of the Chinese yuan and South Korean won relative to the U.S. dollar contributed to most of the foreign exchange loss in 2024, partially offset by gain 42 Table of Contents on the depreciation of the Euro as our German subsidiary has net U.S. dollar denominated assets.
Our investments have limited exposure to market risk. We maintain a portfolio of cash, cash equivalents and short-term investments, consisting primarily of money market funds and term deposits, commercial paper, corporate bonds, U.S. government and agency securities and term deposits. None of these investments have a maturity date in excess of one year.
Our investments have limited exposure to market risk. We maintain a portfolio of cash, cash equivalents and short-term investments, consisting primarily of money market funds and term deposits, commercial paper, U.S. government and agency securities, term deposits, and corporate bonds. None of these investments have a maturity date in excess of one year.
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.
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 (Loss) Income.
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.
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, 2024.
Due to our international operations, a significant portion of our net sales, cost of sales and operating expenses are denominated in currencies other than the U.S. dollar, principally the Euro, the Russian ruble, and the Chinese yuan.
Due to our international operations, a significant portion of our net sales, cost of sales and operating expenses are denominated in currencies other than the U.S. dollar, principally the Euro and the Chinese yuan.
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 Chinese yuan applied to the net U.S. dollar liability balances as of December 31, 2024, would result in a foreign exchange loss of $0.4 million if the U.S. dollar appreciated and a $0.4 million foreign exchange gain if the U.S. dollar depreciated.
In 2023 we incurred a gain on foreign exchange transactions of $1.4 million as compared to a loss of $4.1 million in 2022.
In 2024 we incurred a loss on foreign exchange transactions of $5.5 million as compared to a gain of $1.4 million in 2023.
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, 2024, would result in a foreign exchange gain of $1.1 million if the U.S. dollar appreciated and a $1.2 million foreign exchange loss if the U.S. dollar depreciated.
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.
However, it is difficult to predict foreign currency movements accurately. At December 31, 2024, our material foreign currency exposure is net U.S. dollar denominated assets at subsidiaries where the Euro is the functional currency and U.S. dollar denominated liabilities where the Chinese yuan and the South Korean won is the functional currency.
Volatility between the U.S. dollar and the currencies to which we are exposed may be increased by the COVID-19 pandemic, sanctions on the Russian government and changes in central bank policy, primarily, related to interest rates.
Volatility between the U.S. dollar and the currencies to which we are exposed may be increased by changes in central bank policy, primarily related to interest rates.
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.
A 5% change in the relative exchange rate of the U.S. dollar to the South Korea won applied to the net U.S. dollar liability balances as of December 31, 2024, would result in a foreign exchange loss of $0.4 million if the U.S. dollar appreciated and a $0.5 million foreign exchange gain if the U.S. dollar depreciated.

Other IPGP 10-K year-over-year comparisons