ipgp-20220630

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

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

For the transition period from to .

Commission File Number 001-33155

IPG PHOTONICS CORPORATION

(Exact name of registrant as specified in its charter)


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

50 Old Webster Road, Oxford, Massachusetts			01540
(Address of principal executive offices)			(Zip code)

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

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


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

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

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

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

Large Accelerated Filer

☑

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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

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

As of August 2, 2022, there were 50,207,950 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS



Part I. Financial Information			1
Item 1. Unaudited Interim Financial Statements			1
Condensed Consolidated Balance Sheets: June 30 , 2022 and December 31, 2021			1
Condensed Consolidated Statements of Income: Three and Six Months Ended June 30 , 2022 and 2021			2
Condensed Consolidated Statements of Comprehensive Income: Three and Six Months Ended June 30 , 2022 and 2021			3
Condensed Consolidated Statements of Cash Flows: Six Months Ended June 30 , 2022 and 2021			4
Condensed Consolidated Statements of Equity: Three a nd Six Months Ended June 30 , 2022 and 2021			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			28
Part II. Other Information			29
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 3. Defaults Upon Senior Securities			29
Item 4. Mine Safety Disclosures			30
Item 5. Other Information			30
Item 6. Exhibits			30
Signatures			31

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PART I—FINANCIAL INFORMATION

ITEM 1. UNAUDITED INTERIM FINANCIAL STATEMENTS

IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
	2022		2021
	(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	771,788	$	709,105
Short-term investments	462,865		805,400
Accounts receivable, net	246,877		262,121
Inventories	556,747		460,747
Prepaid income taxes	52,912		36,990
Prepaid expenses and other current assets	79,662		73,320

Total current assets	2,170,851		2,347,683
Deferred income taxes, net	60,563		47,761
Goodwill	39,285		38,609
Intangible assets, net	46,866		52,678
Property, plant and equipment, net	680,321		635,302
Other assets	50,883		48,507
Total assets	$	3,048,769	$	3,170,540
LIABILITIES AND EQUITY
Current liabilities:


Current portion of long-term debt	$	32,225	$	18,126
Accounts payable	57,276		55,839
Accrued expenses and other current liabilities	210,813		230,826

Income taxes payable	15,588		8,642
Total current liabilities	315,902		313,433
Other long-term liabilities and deferred income taxes	92,516		93,855
Long-term debt, net of current portion	—		16,031
Total liabilities	408,418		423,319

Commitments and contingencies (Note 11)
IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,967,254 and 50,206,255 shares issued and outstanding, respectively, at June 30, 2022; 55,788,246 and 53,010,265 shares issued and outstanding, respectively, at December 31, 2021.	6		6
Treasury stock, at cost, 5,760,999 and 2,777,981 shares held at June 30, 2022 and December 31, 2021, respectively.	(750,109)		(438,503)
Additional paid-in capital	930,950		908,423
Retained earnings	2,593,147		2,466,607
Accumulated other comprehensive loss	(134,778)		(189,951)
Total IPG Photonics Corporation equity	2,639,216		2,746,582
Non-controlling interests	1,135		639
Total equity	2,640,351		2,747,221
Total liabilities and equity	$	3,048,769	$	3,170,540

See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands, except per share data)
Net sales	$	377,023	$	371,658	$	747,002	$	717,243
Cost of sales	204,679		191,130		402,837		372,724
Gross profit	172,344		180,528		344,165		344,519
Operating expenses:
Sales and marketing	19,010		19,193		39,384		38,076
Research and development	30,608		35,191		64,058		68,530
General and administrative	33,411		31,066		64,075		61,158


Loss (gain) on foreign exchange	17,640		2,826		11,830		(4,339)
Total operating expenses	100,669		88,276		179,347		163,425
Operating income	71,675		92,252		164,818		181,094
Other income (expense), net:
Interest income (expense), net	1,177		(407)		1,107		(902)
Other income, net	618		28		382		281
Total other income (expense)	1,795		(379)		1,489		(621)
Income before provision for income taxes	73,470		91,873		166,307		180,473
Provision for income taxes	16,139		22,196		39,348		42,574
Net income	57,331		69,677		126,959		137,899
Less: net income (loss) attributable to non-controlling interests	363		(123)		419		(28)
Net income attributable to IPG Photonics Corporation common stockholders	$	56,968	$	69,800	$	126,540	$	137,927
Net income attributable to IPG Photonics Corporation per common share:
Basic	$	1.10	$	1.31	$	2.42	$	2.58
Diluted	$	1.10	$	1.29	$	2.41	$	2.55
Weighted average common shares outstanding:
Basic	51,687		53,472		52,111		53,548
Diluted	51,795		53,999		52,311		54,145

See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


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

Unrealized gain on derivatives	119		51		332		119


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

See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2022		2021
	(In thousands)
Cash flows from operating activities:
Net income	$	126,959	$	137,899
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	47,104		47,976
Deferred income taxes	(11,204)		(1,856)
Stock-based compensation	20,439		18,678


Unrealized loss (gain) on foreign currency transactions	12,584		(1,728)
Other	3,760		3,571
Provisions for inventory, warranty and bad debt	38,644		32,654
Changes in assets and liabilities that provided (used) cash, net of acquisitions:
Accounts receivable	1,560		12,525
Inventories	(99,233)		(61,220)
Prepaid expenses and other assets	4,922		(2,187)
Accounts payable	3,131		24,879
Accrued expenses and other liabilities	(35,842)		595
Income and other taxes payable	(17,663)		(8,596)

Net cash provided by operating activities	95,161		203,190
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment	(59,903)		(54,344)

Proceeds from sales of property, plant and equipment	645		258
Purchases of short-term investments	(583,828)		(1,014,033)
Proceeds from short-term investments	925,657		785,023
Acquisitions of businesses, net of cash acquired	(2,000)		—
Other	(350)		(547)
Net cash provided by (used in) investing activities	280,221		(283,643)
Cash flows from financing activities:





Principal payments on long-term borrowings	(1,932)		(1,896)
Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards	2,088		10,567


Purchase of treasury stock, at cost	(311,606)		(41,731)
Payment of purchase price holdback from business combination	—		(2,624)
Net cash used in financing activities	(311,450)		(35,684)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	(1,249)		(8,217)
Net increase (decrease) in cash, cash equivalents and restricted cash	62,683		(124,354)
Cash, cash equivalents and restricted cash — Beginning of period	709,105		878,553
Cash and cash equivalents — End of period	$	771,788	$	754,199
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,600	$	1,388
Cash paid for income taxes	$	61,715	$	41,809
Non-cash transactions:
Demonstration units transferred from inventory to other assets	$	2,204	$	2,704
Inventory transferred to machinery and equipment	$	1,764	$	1,353
Changes in accounts payable related to property, plant and equipment	$	92	$	416
Leased assets obtained in exchange for new operating lease liabilities	$	5,697	$	1,258

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

See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY


	Three Months Ended June 30,
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Non- controlling Interest		Total Stockholders' Equity
(In thousands, except share data)	Shares	Amount		Shares	Amount
Balance, April 1, 2022	52,542,466	$	6	(3,379,096)	$	(517,260)	$	917,693	$	2,536,179	$	(229,369)	$	1,000	$	2,708,249
Exercise of stock options and vesting of RSUs and PSUs	16,515	—		—	—		478		—		—		—		478
Common stock issued under employee stock purchase plan	29,177	—		—	—		2,334		—		—		—		2,334
Purchased common stock	(2,381,903)	—		(2,381,903)	(232,849)		—		—		—		—		(232,849)
Stock-based compensation	—	—		—	—		10,445		—		—		—		10,445


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

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

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

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

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

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


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

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

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


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

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

See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared by IPG Photonics Corporation, or "IPG", "its" or the "Company". Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The condensed consolidated financial statements include the Company's accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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

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

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


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

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

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IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

Total components of accumulated other comprehensive loss were as follows:


	Foreign currency translation adjustments		Unrealized gain (loss) on derivatives, net of tax		Total
Balance, April 1, 2022	$	(229,398)	$	29	$	(229,369)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other	94,472		—		94,472
Unrealized gain on derivatives, net of tax expense of $37	—		119		119
Total other comprehensive income (loss)	94,472		119		94,591
Balance, June 30, 2022	$	(134,926)	$	148	$	(134,778)

Balance, April 1, 2021	$	(177,863)	$	(394)	$	(178,257)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other	18,799		—		18,799
Unrealized gain on derivatives, net of tax expense of $15	—		51		51
Total other comprehensive income (loss)	18,799		51		18,850
Balance, June 30, 2021	$	(159,064)	$	(343)	$	(159,407)

	Foreign currency translation adjustments		Unrealized gain (loss) on derivatives, net of tax		Total
Balance, January 1, 2022	$	(189,767)	$	(184)	$	(189,951)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other	54,841		—		54,841
Unrealized gain on derivatives, net of tax expense of $103	—		332		332
Total other comprehensive (loss) income	54,841		332		55,173
Balance, June 30, 2022	$	(134,926)	$	148	$	(134,778)

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

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Sales by Application
Materials processing	$	343,357	$	345,653	$	682,320	$	662,894
Other applications	33,666		26,005		64,682		54,349
Total	$	377,023	$	371,658	$	747,002	$	717,243




Sales by Product
High Power Continuous Wave ("CW") Lasers	$	162,997	$	189,744	$	330,688	$	360,226
Medium Power CW Lasers	18,923		18,177		42,591		34,059
Pulsed Lasers	69,852		61,773		136,784		117,168
Quasi-Continuous Wave ("QCW") Lasers	14,079		15,525		26,859		29,191
Laser and Non-Laser Systems	38,443		29,597		73,040		56,713
Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue	72,729		56,842		137,040		119,886
Total	$	377,023	$	371,658	$	747,002	$	717,243


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Sales by Geography
North America	$	88,151	$	66,134	$	165,376	$	139,518
Europe:
Germany	22,792		21,748		50,209		48,008
Other including Eastern Europe/CIS	75,407		74,339		155,407		132,932
Asia and Australia:
China	137,380		159,075		267,128		298,908
Japan	14,741		10,322		27,627		21,199
Other	33,695		37,654		72,370		70,764
Rest of World	4,857		2,386		8,885		5,914
Total	$	377,023	$	371,658	$	747,002	$	717,243




Timing of Revenue Recognition
Goods and services transferred at a point in time	$	363,255	$	357,345	$	718,670	$	689,877
Goods and services transferred over time	13,768		14,313		28,332		27,366
Total	$	377,023	$	371,658	$	747,002	$	717,243

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

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

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IPG PHOTONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except share and per share data)

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

The following table reflects the changes in the Company's contract assets and liabilities for the six months ended June 30, 2022 and 2021:

June 30,

December 31,