IPGP 10-K & 10-Q changes, risk factors and insider trading

The factors described below are the principal risks that could materially adversely affect our operating results and financial condition. Other factors may exist that we do not consider significant based on information that is currently available. In addition, new risks may emerge at any time and we cannot predict those risks or estimate the extent to which they may affect us. You should carefully consider these factors, as well as the other information contained in this Annual Report on Form 10-K, when evaluating an investment in our securities.

Current and future conditions in the economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the materials processing, medical procedures and advanced applications markets in which we participate. Because all components of our budgeting and forecasting are dependent upon estimates of growth or contraction in the markets and applications we serve and demand for our products, the prevailing economic uncertainties render estimates of future income and expenditures very difficult to make. A significant portion of our sales are to customers in China, which accounted for 25%,29%, 28%25% and 34%28% of net sales in 2024,2025, 20232024 and 2022,2023, 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. In addition, the newU.S. presidential administration has articulatedimplemented new tariff policies that it may impose substantial new orsubstantially increased tariffs on foreign imports into the U.S. Other countries have responded with increased tariffs on U.S. goods. Additional tariffs will be considered and may be adopted by the U.S. government from time to time. New tariffs may have the effect of increasing our costs, reducing our sales, as well as slowing general economic activity. Adverse changes have occurred and may occur in the future as a result of declining or flat global or regional economic conditions, fluctuations in currency and commodity prices, wavering confidence, capital expenditure reductions, unemployment, declines in stock markets, contraction of credit availability, declines in real estate values, or other factors affecting economic conditions generally. These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, increase the risk of loss on investments, or increase costs associated with manufacturing and distributing products. An economic downturn could have a material adverse effect on our business, financial condition and results of operations.

We operate in industries that are characterized by significant price and technological competition. We compete with makers of fiber lasers, solid-state lasers, direct diode lasers, high power CO2, YAG and disc lasers. These include public and private companies such as Coherent, Inc., JPT Opto-Electronics Co. Ltd., 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. 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 pricesprices. toCertain compete withof our products.major global competitors are expanding their manufacturing, research and development, and sales capabilities in China, which may increase competitive pricing pressure, accelerate product innovation cycles, and strengthen their local customer relationships in that market. 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. 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 also compete in the materials processing, advanced and medical applications markets with end users that produce their own solid-state and gas lasers as well as with manufacturers of non-laser methods and tools, such as traditional non-laser welding, cutting dies mechanical cutters and plasma cutters in the materials processing market and other energy-based devices in the medical market.

•successfully develop new product lines, such as the handheld welder, UV, visible and ultrafast fiber laserslines with competitive features that extend our product line;

ToWe maintainhave added manufacturing capacity at our competitive position and to meet anticipated demand for our products, we invest significantlyfacilities in the expansionUnited ofStates, ourGermany, manufacturingItaly and operationsPoland. throughout the world and may do so in the future. Recent expansionsExpansion of capacity werewas required to offset the loss of capacity at ourthe factories we operated in Russia and Belarus due to sanctions. In connection with theseexpansion projects, we may incur cost overruns, construction delays, project cancellations, labor difficultiescancellations or regulatory issues which could cause our capital expenditures to be higher than what we currently anticipate, possibly by a material amount, which would in turn adversely impact our operating results. Moreover,If our sales do not increase or if our revenue decreases from current levels, we may experiencehave highersignificant costsexcess duemanufacturing to yield loss, production inefficiencies, equipment problemscapacity and lowerunder-absorption of our fixed costs, which has adversely impacted and could adversely affect our gross margins untiland any operational issues associated with the opening of new manufacturing facilities are resolved.profitability.

Also, weWe purchase certain raw materials used to manufacture our products and other components, such as semiconductor wafer substrates, diode packages, modulators, micro-optics, bulk optics and high power beam delivery products, from single or limited-source suppliers. We typically purchase our components and materials through purchase orders or agreed-upon terms and conditions and we do not have guaranteed supply arrangements with many of these suppliers. These suppliers are relatively small private companies that may discontinue their operations at any time and may be particularly susceptible to prevailing economic conditions. Some of our suppliers are also our competitors. Some of our suppliers may not be able to meet demand from our becauserequirements ofdue to global demand for their components. As a result, we have experienced and may in the future experience longer lead times or delays in fulfillment of our orders. Furthermore, other than our current suppliers, there are a limited number of entities from whom we could obtain these supplies. We do not anticipate that we would be able to purchase these components or raw materials that we require in a short period of time or at the same cost from other sources in commercial quantities or that have our required performance specifications. Any interruption or delay in the supply of any of these components or materials, or the inability to obtain these components and materials from alternate sources at acceptable prices and within a reasonable amount of time, could adversely affect our business. If our suppliers face financial or other difficulties, if our suppliers do not maintain sufficient inventory on hand or if there are significant changes in demand for the components and materials we obtain from them, they could limit the availability of these components and materials to us, which in turn could adversely affect our business.

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. KG filed two different patent lawsuits in two different Unified Patent Courts located in Germany against IPG Laser GmbH & Co. KG, our German subsidiary, alleging infringement of two patents granted by the European Patent Office by our adjustable mode beam lasers.

There can be no assurance that we will be able to dispose ofresolve any claims or other allegations made or asserted against us without them having a material impact on our results of operations. Even if we ultimately are successful on the merits of any such litigation or re-examination, legal and administrative proceedings related to intellectual property are typically expensive and time-consuming, generate negative publicity and divert financial and managerial resources. Some litigants may have greater financial resources than we have and may be able to sustain the costs of complex intellectual property litigation more easily than we can. The UPC, in which we currently have two pending litigations, is a relatively new patent court in Europe, and its procedures, jurisprudence and available remedies continue to evolve, creating additional uncertainty regarding patent interpretation, the application of prior European patent precedents, and the timing, scope, and outcome of proceedings.

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.revenues, or could decrease our revenues or profits or increase our costs. Plaintiffs in intellectual property cases often seek, and sometimes obtain, injunctive relief. Intellectual property litigation commenced against usus, including the Trumpf litigation, could force us to take actions that could be harmful to our business, including the following:

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. As a result, we may incur liabilities in connection with lawsuits against our customers. 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. Adverse judgments and court remedies in the Trumpf litigation or similar proceedings could also increase indemnification claims from OEM customers or prompt follow‑on assertions by other patent holders.

If we or our third-party vendors fail to comply with FDA regulations or similar legal requirements in foreign jurisdictions relating to the manufacturing,design, labelingmanufacture, labeling, marketing, distribution or marketingpost-market surveillance of our products or any component part, we may be subject to fines, injunctionsinjunctions, andproduct penalties,recalls, penalties or other enforcement actions, and our ability to commercially distribute and sell our products may be negatively impacted.

We nowdesign, makemanufacture and commercialize fiber laser systems and related accessories targeted atfor specific medical applications. InThrough addition,IPG Medical Corporation, we are the legal manufacturer of certain of these products and hold FDA clearances for their marketing and sale in the United States. As the legal manufacturer, we are responsible for regulatory obligations across the product lifecycle, including establishment registration and device listing, compliance with applicable pre- and post-market requirements, submission of medical device reports for certain malfunctions and adverse events, and initiating corrections or recalls where necessary. We have distribution partners that market and distribute certain of these products on our behalf. We also continue to sell our commercial fiber and diode laser modules, subassemblies and systems to OEMs that incorporate them into their medical products. WithAs respecta tomedical suchdevice products,manufacturer, somewe and certain of our manufacturing facilities, andas thewell manufacturing facilities of any of our third-party component manufacturers oras 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”) regulationsrequirements regarding the reporting of certain malfunctions and adverse events potentially associated with our products. 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. 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, MDR or other applicable regulatory requirements, the investigator may document their observations on a Form FDA 483 thatwhich ismay be issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain or describe any corrective actions taken inor responseplanned to address the inspectional observations. The FDA will typically review the facility’s written response and may re-inspect or otherwise follow-up to determine the facility’s compliance with the QSRQSR, MDR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. On November 4, 2025, the FDA issued an inspectional observation on Form FDA 483 at the conclusion of an on-site Electronic Product Radiation Control inspection at IPG Medical Corporation (“IPGM”). IPGM submitted a written response to the FDA on November 14, 2025 addressing the inspectional observation. A FDA Form 483 is not a final agency determination. IPGM has received no further communication from the FDA regarding this matter, and there is no specific date or deadline by which the FDA is required to respond or make a determination. We cannot predict the timing or outcome of the FDA’s review, and there can be no assurance that the matter will be resolved without additional inquiry, corrective actions, or enforcement measures that could adversely affect our business.

FDA enforcement actions, which include the FDA's issuance of a Warning Letter, seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension or delay of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations for products servicing the medical industry or a recall of such products. AdverseEnforcement inspectionsactions could also delay FDA clearance or approval of our products for use in the medical industry.

The United States, Germany, the European Union, China, Japan, South Korea and many other foreign governments impose tariffs and duties on the import of products, including some of those which we sell. 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. On February 20, 2026, the U.S. Supreme Court rendered a decision invalidating tariffs imposed under the International Emergency Economic Powers Act. This decision introduces uncertainty regarding potential refund processes and future trade policy actions.

Sales of a substantial number of shares of our common stock by our existing stockholders (including the trusts established by our late founder, Dr. GapontsevGapontsev, and IPFD) in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities or other securities convertible into or exchangeable for equity securities, regardless of whether there is any relationship between such sales and the performance of our business.

Provisions of our certificate of incorporation and by-laws, including certain provisions that will take effect when the founder of the Company, the late Dr. 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. The existence of these provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

•compliance with domestic and foreign laws and regulations, unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes,taxes including transfer pricing, tariffs, quotas, export controls, export licenses, trade sanctions and other trade barriers, and any corresponding retaliatory actions by affected countries, including China and Russia;

•potentially adverse tax and transfer pricing consequences;

We are subject to risks of doing business in Belarus, whichwhere our Belarusian subsidiary historically provided mechanical parts to our German subsidiary and former Russian subsidiarysubsidiary, and whichbut does not currently provide parts to our affiliatescurrent subsidiaries outside of Belarus. We are also subject to risks of doing business in China, as approximately 25%29% of our sales in 20242025 were to Chinese customers. The results of our operations, business prospects and facilities in China and Belarus are subject to the economic and political environment there and global geopolitical conditions. The future economic direction of these emerging market countries remains largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory and political developments. 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. 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, 2024,2025, we had $4.7$1.5 million cash in Belarus. Such disruptions could negatively affect our ability to provide critical components to affiliates or produce finished goods for customers, which could increase our costs, require capital expenditures and harm our results of operations and financial condition. 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. 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.

We conduct our business and incur costs in the local currency of most countries in which we operate. In 20242025 our net sales outside the United States represented a substantial majority of our total sales. We incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from the currency in which it operates or holds assets or liabilities in currencies different than their functional currency. Changes in exchange rates can also affect our results of operations when the value of sales and expenses of foreign subsidiaries are translated to U.S. dollars. We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations. Further, given the volatility of exchange rates, we may not be able to effectively manage our currency risks, and any volatility in currency exchange rates may increase the price of our products in local currency to our foreign customers or increase the manufacturing cost of our products, which may have an adverse effect on our financial condition, cash flows and profitability. We incurred a foreign exchange loss of $9.4 million in 2025 and a loss of $5.5 million in 2024 and a gain of $1.4 million in 2023.2024.

We occasionally borrow under our existing credit facilities to fund operations, including working capital investments. Our major credit line in the United States expires in April 2025.2030. Uncertainty or disruptions in financial markets may negatively impact our ability to access additional financing or to refinance our existing credit facilities or existing debt arrangements on favorable terms or at all, which could negatively affect our ability to fund current and future expansion as well as future acquisitions and development. These disruptions may include turmoil in the financial services industry, unprecedented volatility in the markets where our outstanding securities trade, changes in reference rates for interest such as the discontinuation of LIBOR in 2023 and general economic downturns in the areas where we do business. If we are unable to access funds at competitive rates, or if our short-term or long-term borrowing costs increase, our ability to finance our operations, meet our short-term obligations and implement our operating strategy could be adversely affected. We also may in the future be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business.

Our short-term and long-term investment portfolioportfolios and certain cash balances could experience a decline in market value or otherwise become illiquid, which could materially and adversely affect our financial results.

As of December 31, 2024,2025, we had approximately $620$404 million of cash and cash equivalentsequivalents, and $310$436 million in short-term investments and $77 million in long-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 equivalentsequivalents, short-term investments and short-termlong-term investments. We currently do not use derivative financial instruments to adjust our investment portfolio risk or income profile. 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. For example, in March 2023, certain US banks were closed and the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. While we were not directly impacted by these closures and did not have any deposits with these banks, there can be no assurance that our current or future banks will not face similar risks, and that we would be able to recover in full our deposits in the event of similar closures. We regularly maintain cash balances that are not insured or are in excess of the FDIC’s insurance limit. 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.

Cost of sales. Our cost of sales consists primarily of the cost of raw materials and components, direct labor expenses and manufacturing overhead. We are vertically integrated and currently manufacture all critical components for our products as well asand assemble finished products. We believe our vertical integration allows us to increase efficiencies, leverage our scale and lower our cost of sales. Cost of sales also includes personnel costs and overhead related to our manufacturing, engineering and service operations, related occupancy and equipment costs, shipping costs and reserves for inventory obsolescence and for warranty obligations. Inventories are written off and charged to cost of sales when identified as excess or obsolete.

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, facilities costs and depreciation of equipment and facilities that have an alternative future use used for research and development purposes. Costs related to product development are recorded as research and development expenses in the period in which they are incurred.

Sale of our Russian Operations. On August 29, 2024, we completed the sale of our Russian subsidiary, Scientific and Technical Association “IRE-Polus”, pursuant to a share purchase agreement with a purchaser entity associated with Softline Projects LLC and existing management of IRE-Polus for $51.1 million. We recorded a loss on divestiture of $197.7 million for the quarter ended September 30, 2024, which was included in Net loss (gain) from divestiture and sale of assets in our Consolidated Statements of Operations. The loss included $59.3 million related to the carrying value of net assets of our Russian subsidiary that was in excess of net proceeds received on the sale. Included in the net assets sold was cash and cash equivalents of $74.0 million. Also included in the loss was $135.3 million related to the cumulative translation adjustment component of other comprehensive loss that was previously included in stockholders' equity of our Consolidated Balance Sheets. As a result of the Russia-Ukraine conflict and related sanctions, our ability to ship and receive components from our Russian operations was significantly curtailed. In response, we expanded our manufacturing capacity in Germany, the United States and Italy, and added new manufacturing capacity in Poland which effectively offset our inability to utilize the Russian operations.

Belarusian Operations. We manufacture laser cabinets and other mechanical components in Belarus. In response to the Russia-Ukraine conflict, the EU issued additional sanctions impacting commerce with Belarus on June 29, 2024, which restricted the supply of laser cabinets and other mechanical components from our factory in Belarus to our Germany operations after October 2, 2024. As a result of the sanctions and their impact on our Belarus operations, we completed an impairment analysis of our Belarus assets during the third quarter of 2024 and recorded $26.6 million of impairment of long-lived assetassets in our Consolidated Statements of Operations. At December 31, 2024,2025, the remaining value of the long-lived assets in Belarus was $3.8$4.4 million, net working capital deficit excluding cash was immaterial$0.8 million and cash on hand was $4.7$1.5 million. The net asset value of our Belarus subsidiary has been reduced by $18.6$17.4 million due to the cumulative translation effect of the Belarusian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. 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.

Net sales. Net sales increased by 3% in 2025, decreased by 24% in 2024, and decreased by 10% in 2023 and decreased 2% in 2022.2023. Our growth rates are subject to several factors, many of which are not under our control.

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

We invested $98.5$78.8 million, $110.5$98.5 million and $110.1$110.5 million in capital expenditures in 2024,2025, 20232024 and 2022,2023, respectively. Most of this investment relates to the expansion of our manufacturing capacity and, to a lesser extent, research and development and sales-related facilities. We received $28.6$0.9 million, $31.2$28.6 million and $26.9$31.2 million in proceeds from the sale of property, plant and equipment in 2024,2025, 20232024 and 2022,2023, respectively.

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

We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess. Any provision for such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for slow-moving, obsolete or excess inventory and other inventory related charges totaling $30.1 million, $82.5 million,million and $45.5 million and $128.0 million in 2024,2025, 20232024 and 2022,2023, respectively. Inventory provisions of $29.5 million in 2024 were attributed to items previously considered safety stock and items that became technologically obsolete. Inventory provision and related charges of $74.1 million in 2022 were attributable to Russian operations.

As noted above, during the year ended December 31, 2024, we completed an impairment analysis of the assets located in Belarus as a result of new EU sanctions that limited our ability to supply laser cabinets and other mechanical components from that facility. Based on this analysis, we recorded a $26.6 million impairment of long-lived assets included in Impairment of long-lived assets in our Consolidated Statements of Operations. AfterAt impairment,December 31, 2025, the remaining carrying value of the long-lived assets in Belarus is $3.8$4.4 million.

Foreign exchange. Because we are a U.S.-based company doing business globally, we have both translational and transactional exposure to fluctuations in foreign currency exchange rates. Changes in the relative exchange rate between the U.S. dollar and the foreign currencies in which our subsidiaries operate directly affects our sales, costs and earnings. Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the euro, the RussianChinese ruble,yuan, and the Chinese yuan and Japanese yen have had and could have an additional significant impact on our sales, costs and earnings. Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products.

Income taxes. On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The impact of the Pillar Two Framework on our income tax provision in 2024 and 2025 was not material. We are continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries.

Inventory. We maintain a reserve for excess or obsolete inventory items. The reserve is based upon a review of inventory materials on hand, which we compare with historic usage, estimated future usage and age. In addition, we review the inventory and compare recorded costs with estimates of current market value. Write-downs are recorded to reduce the carrying value to the net realizable value with respect to any part with costs in excess of current market value. 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. In the third quarter of 2024, we recorded $29.5 million of additional inventory provision that was attributed to items previously considered safety stock and items that became technologically obsolete.

Judgments and Uncertainties: Estimating demand and currentnet marketrealizable valuesvalue is inherently difficult, particularly given that we make highly specialized components and products. We determine the valuation of excess and obsolete inventory by making our best estimate considering the current quantities of inventory on hand and our forecast of the need for this inventory to support future sales of our products. We often have limited information on which to base our forecasts. If future sales differ from these forecasts, the valuation of excess and obsolete inventory may change and additional inventory provisions may be required.

Sensitivity of Estimate to Change: Because of our vertical integration, a significant or sudden decrease in sales could result in a significant change in the estimates of excess or obsolete inventory valuation. 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 2025, we recorded an inventory provision of $30.1 million to reflect changes in our estimates of future usage and recoverability of inventory items. In 2024, we recorded inventory provision of $29.5 million for items previously considered safety stock and items that became technologically obsolete. In 2023, as sales decreased from prior year, 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.

Long-lived Asset Impairment. Long-lived assets including definite-lived intangible assets are depreciated or amortized on a straight-line basis over the estimated useful life. We review these assets for impairment when conditions exist that indicate the carrying amount of the assets may not be recoverable. Such conditions could include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. 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. We recorded long-lived asset impairment chargecharges of $27.0 million, $1.2 million, and $79.9$1.2 million in 2024, 20232024 and 2022,2023, respectively. Impairment charges in 2022 and 2024 primarily related to the impairment of our Russian and Belarus long-lived assets, respectively,assets as a result of new sanctions that impacted our business there. The 2023 impairment related to the right‑of‑use asset for a leased building associated with our Submarine Network Division that was previously divested. There was no impairment during the year ended December 31, 2025.

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. The decision to establish a valuation allowance or reverse it is based on management’s judgmentjudgment, basedwhich onconsiders the weight of available evidenceevidence, including forecasts of future taxable income and the future reversal of existing taxable temporary differences.

Sensitivity of Estimate to Change: We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves recorded are based on a determination of tax benefits claimed in our tax filings and whether these positions are more likely than not to be realized following the resolution of any potential tax audits related to the tax benefit, assuming that the matter in question will be reviewed by the tax authorities. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. As of December 31, 2024,2025, we had $13.9$15.1 million of unrecognized tax benefits, excluding interest and penalties, recorded in other long-term liabilities and deferred income taxes on our Consolidated Balance Sheets. This tax liability increased by $0.2 million for tax positions taken in the current year offsetand by reductions of $3.4$1.4 million for changes in prior period positions.

Net sales. Net sales decreasedincreased by $310.3$26.7 million, or 24.1%,2.7%, to $1,003.8 million in 2025 from $977.1 million in 2024 from $1,287.4 million in 2023.2024. The table below sets forth sales by application:

Cost of sales and gross margin. Cost of sales decreased by $106.7$16.7 million, or 14.3%,2.6%, to $622.3 million in 2025 from $639.0 million in 2024 from $745.7 million in 2023.2024. Our gross margin decreasedincreased to 38.0% in 2025 from 34.6% in 20242024. fromThe 42.1%prior inyear 2023.costs Grossof marginsales decreased mainly due to increased provisions for excess and obsolete inventory, specificallyincluded additional inventory provisions of $29.5 million attributed to items previously considered safety stock and items that became technologically obsolete. InAdditionally, additionthe toincrease provisions for inventory reserves,in gross margin declinedwas due to a decrease in unabsorbed manufacturing costs of $20.9 million, partially offset by an increase in unabsorbedcost manufacturingof costs,products sold of $4.3 million, primarily as a result of higher product costs due to product and geographic mix, and import duties driven by tariffs, partially offset by a decrease in cost of product sold fromlower inventory and shipping costs and tariffs, as a percentage of sales.provisions. Expenses related to provisions for excess or obsolete inventory and other valuation adjustments increaseddecreased by $37.0$52.4 million to $30.1 million, or 3.0% of sales, for the year ended December 31, 2025, as compared to $82.5 million, or 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, 2023.2024.

Sales and marketing expense. Sales and marketing expense increased by $3.9$8.3 million, or 4.6%,9.3%, to $97.9 million in 2025 from $89.6 million in 2024 from $85.7 million in 2023.2024. This change was primarily a result of an increase of $3.5$5.8 million in personnel and related costscosts, reflecting higher performance-based compensation associated with improved financials results. In addition, the increase in sales and $2.3marketing expense was also due to an increase of $3.2 million in premisesamortization expense, primarily related to cleanLASER, and an increase of $0.5 million in trade fairs and exhibits expense, partially offset by $2.2a decrease of $1.2 million in lower depreciation and amortizationpremises expense. As a percentage of sales, sales and marketing expense was 9.2%9.7% and 6.7%9.2% of sales in 20242025 and 2023,2024, respectively.

Research and development expense. Research and development expense increased by $11.1$7.6 million, or 11.2%,6.9%, to $117.4 million in 2025 from $109.8 million in 2024 from $98.7 million in 2023.2024. This change was primarily a result of an increase of $8.3$5.5 million in personnel and related costs, reflecting higher performance-based compensation associated with improved financials results. In addition, the increase in research and development expense was also due to an increase of $5.8$3.3 million in premisesconsultant fees, and an increase of $1.4 million in materials expense, partially offset by a decrease of $3.6$0.9 million in materialspremises andexpense, a decrease of $0.7 million in lease expense, a decrease of $0.6 million in other R&D expense.expenses, and an increase of $0.4 million in grant income. As a percentage of sales, research and development expense increased to 11.7% in 2025 from 11.2% in 2024 from 7.7% in 2023.2024. We expect to continue to investinvesting in research and development efforts forto support new product initiatives and continuingenhancements products.to existing products, including those targeted for medical, micromachining, and advanced applications.

General and administrative expense. General and administrative expense decreasedincreased by $1.4$18.8 million, or 1.1%,15.1%, to $143.1 million in 2025 from $124.3 million in 2024 from $125.7 million in 2023.2024. This change was primarily a result of aan decreaseincrease of $3.8$14.5 million in personnel and related costs, reflecting higher performance-based compensation associated with improved financial results and increased compensation expense from the addition of new leadership positions. In addition, the increase in general and administrative expense was also due to an increase of $6.9 million in acquisition and integration charges, an increase of $1.2 million in information systems expense, an increase of $0.6 million in accounting expense, and an increase of $0.5 million in travel expense, partially offset by ana increasedecrease of $1.4 million in other G&A expense, a decrease of $1.2 million in bad debt expense, a decrease of $1.0 million in legal,premises $0.8expense, milliona indecrease information systems, andof $0.6 million in accountinginsurance expense.expense, a decrease of $0.6 million in legal expense, and a decrease of $0.6 million in consultant fees. As a percentage of sales, general and administrative expense increased to 14.3% in 2025 from 12.7% in 2024 from 9.8% in 2023.2024.

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 20242025 would have been $15.6$8.1 million higher,lower, gross margin would have been $9.2$1.5 million higherlower and sales and marketing, research and development and general and administrative expenses would have been $3.8$2.7 million higher.lower. These estimates assume constant exchange rates between fiscal year 20242025 and fiscal year 20232024 and are calculated using the average exchange rates for the twelve-month period ended December 31, 20232024 for the respective currencies, which were US$1=Euroeuro 0.92, US$1=Japanese yen 141,151, and US$1=Chinese yuan 7.08 and US$1=Russian ruble 85.7.19.

Net loss (gain) from divestiture and sale of assets. We incurred a net loss of $190.2 million in 2024 as compared to no loss or gain in 2023.2025. The loss primarily related to a loss of $197.7 million upon the divestiture of our Russian operations, partially offset by a gain on sale of assets of $7.5 million related to the sales of a building and land in the U.S. and a building in the U.K.

Loss (gain) on foreign exchange. We incurred a foreign exchange loss of $5.5$9.4 million in 20242025 as compared to a gainloss of $1.4$5.5 million in 2023.2024. The lossesloss in 20242025 was primarily attributabledriven by unfavorable foreign currency movements relative to the U.S. dollar, including appreciation of the euro, depreciation of the Chinese yuan andat Koreancertain won,points partially offset byduring the gainyear fromand depreciation of the Euro,Indian asrupee. comparedThese tomovements impacted the U.S.remeasurement dollar.and settlement of foreign currency-denominated monetary assets and liabilities.

Interest income, net. Interest income, net was $29.9 million in 2025 compared to $45.5 million in 2024 compared to $41.7 million in 2023.2024. The change in interest income, net,net was drivenprimarily bydue anto increasea reduction in yields onaverage cash equivalents and shortinvestment termbalances, investmentslower asweighted a result of higher marketaverage interest rates across our investment portfolio and geographic mix in the current period as compared to the prior year rates.year.

Provision for income taxes. Provision for income taxes was $14.0 million in 2025 compared to $19.6 million in 2024 compared to $56.0 million in 2023,2024, representing an effective tax rate of 31.0% in 2025 and (12.1)% in 2024 and 20.4% in 2023.2024. The decrease in tax expense was due primarily to a reduction in taxable income. In 2025, discrete items resulted in a $6.0 million increase in tax primarily due to equity-based compensation deductions reflected in book income in excess of deductions allowed for tax purposes. In 2024 we had tax expense on a loss before income due to the effect of discrete items. Total discrete adjustments in 2024 increased tax expense by $46.0 million. Discrete items include an increase in tax expense of $43.2 million related to the loss on divestiture of Russian operations that had no tax benefit. Other discrete items for 2024 included a $3.2 million benefit related to a decrease in uncertain tax positions and the results of tax audits. This benefit was offset by an increase in tax expense of $5.4 million for equity-based compensation deductions reflected in book income in excess of the deductions allowed for tax purposes. 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. 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 income (loss). Net income (loss) income attributed to IPG Photonics Corporation. Net (loss) income attributable to IPG Photonics Corporation decreasedincreased by $400.4$212.6 million to a net income of $31.1 million in 2025 from a net loss of $181.5 million in 20242024. from a netNet income of $218.9 million in 2023. Net (loss attributable to IPG Photonics Corporation) as a percentage of our net sales decreasedincreased by 35.6%21.6% to 3.1% in 2025 from (18.618.5)% in 2024 from 17.0% in 2023 due to the factors described above.

We believe that our existing cash and cash equivalents, short-termshort and long-term investments, our cash flows from operations and our existing lines of credit provide us with the financial flexibility to meet our liquidity and capital needs. We expect to continue making investments in capital expenditures, assessevaluate acquisition opportunities, repurchase shares of our stock in accordance with our repurchase program, carry out research and development and investmentinvest in resources to strengthen our organization. The extent and timing of such expenditures may vary from period to period. Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions,sanctions and tariffs, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our currentproducts. In the near term, we will incur capital expenditures related to the expansion of capacity outside of Russia and future products.Belarus.

(31) At December 31, 2024,2025, there were no drawings.drawings Thisand facilityno renewsguarantees annually.issued.

OurAt largestDecember 31, 2025, our committed credit line is with Bank of America N.A. in the amount of $75.0$200 million,million. whichUnder isthe notcredit syndicated.agreement, Wewe are required to meet certain financial covenantscovenants, associatedwhich with our U.S. revolving line of credit. These covenants,are tested quarterly,quarterly and include an interest coverage ratio and a fundednet debt to earnings before interest, taxes, depreciation and amortization ("EBITDA")leverage ratio. The interest coverage covenant requires that we maintain a trailing twelve-month ratio of consolidated EBITDA to consolidated interest expense on all obligations that is at least 3.0:1.0. times. The fundednet debt to EBITDAleverage covenant requires thatwe maintain a trailing twelve-month ratio, which is the sum of all indebtedness for borrowed money on a consolidated basis bebasis, less than three times our trailing twelve months EBITDA. Funded debt is decreased by our cash and available marketable securities not classified as long-term investments in the U.S. in excess of $50 million up to a maximum of $500 million.million, to consolidated EBITDA that is less than 3.0 times. We were in compliance with all suchthe financial covenants as of and for the three months ended December 31, 2024.2025.

The following table summarizes our material cash commitments at December 31, 20242025 and the effect such commitments are expected to have on our liquidity and cash flows in future periods. We intend to use our existing cash, cash equivalents and short term investments as well as cash generated from operations as sources of funds for these material commitments.

Operating activities. Net cash provided by operating activities decreased by $48.1$172.6 million to $75.3 million in 2025 from $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,expenses partially offset byand an increase in cash providedused by working capital. Our largest working capital items are inventory and accounts receivable. Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other current liabilities are not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure. Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items. The decrease in cash flow from operating activities in 20242025 primarily resulted from:

Belarusian Operations. We manufacture laser cabinets and other mechanical components in Belarus. In response to the Russia-Ukraine conflict, the EU issued additional sanctions impacting commerce with Belarus on June 29, 2024, which restricted the supply of laser cabinets and other mechanical components from our factory in Belarus to our Germany operations after October 2, 2024. As a resultBecause of the sanctions and their impact on our Belarusian operations,sanctions, we completed an impairment analysis of our Belarus assets during the third quarter of 2024 and recorded $26.6 million of impairment of long-lived asset in our Condensed Consolidated Statements of Operations. At March 31, 2026, the remaining value of the long-lived assets in Belarus was $4.3 million. The net working capital deficit excluding cash was $0.7 million and cash on hand was $0.6 million. The net asset value of our Belarus subsidiary has been reduced by $17.4 million due to the cumulative translation effect of the Belarusian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. We may incur additional asset impairment charges related to the Belarusian operations and the other comprehensive loss that is currently in the equity section of our Condensed Consolidated Balance Sheets could be charged to our Condensed Consolidated Statements of Operations.

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for industrial manufacturing, which includes general industrial manufacturing, automotive including electric vehicles ("EV"), otherbattery transportation,energy storage systems ("BESS"), aerospace, heavy industry, but also may include consumer, semiconductor and electronics. Approximately 86%85% of our revenues for the first quarterhalf of 2026, and 84% for the full fiscal year of 2025 were in Industrial Solutions and used in industrial applications, mostly for materials processing. Although applications within Industrial Solutions are broad, the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns. For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of industrial equipment and will be subject to the broader fluctuations of capital equipment spending.

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

We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess. Any provision for such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for slow-moving, obsolete or excess inventory totaling $4.9$5.7 million and $9.5$7.8 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively and $10.6 million and $17.3 million for the six months ended June 30, 2026 and 2025, respectively.

Selling andSelling, general and administrative expenses. In the past, we invested in selling andselling, general and administrative costs in order to support continued growth in the Company. As the secular shift to fiber laser technology matures, our sales growth becomes more susceptible to the cyclical trends typical of capital equipment manufacturers. Accordingly, our future management of and investments in selling andselling, general and administrative expenses will also be influenced by these trends, although we may still invest in selling or general and administrative functions to support certain initiatives even in economic down cycles. Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter based primarily upon the level of acquisitions, litigation and project-related consulting expenses. Additionally, selling andselling, general and administrative expenses will also be influenced by accruals for variable compensation and performance stock unit expense both of which are dependent upon our performance relative to preestablished targets.

GoodwillImpairment and long-lived assets impairments.charges. We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units, differences in the estimated product acceptance rates, or market prices below the carrying value of long-lived assets evaluated for sale could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets.

Foreign exchange. Because we are a U.S.-based company doing business globally, we have both translational and transactional exposure to fluctuations in foreign currency exchange rates. Changes in the relative exchange rate between the U.S. dollar and the foreign currencies in which our subsidiaries operate directly affects our sales, costs and earnings. Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the euro, the Chinese yuan and Japanese yen have had and could have an additional significant impact on our sales, costs and earnings. For the quarter ended MarchJune 31,30, 2026, the foreign exchange gain was primarily attributable to the depreciation and appreciation of the Euro and Chinese yuan, respectively, as compared to the U.S. dollar, partially offset by the depreciation of the Indian rupee, as compared to the U.S. dollar. Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products.

Income taxes. On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The U.S. has withdrawn support for Pillar Two and proposed a “side-by-side” solution under which U.S.-parented groups may be exempt from certain provisions of Pillar Two, subject to international agreement and local implementation. The impact of the Pillar Two Framework on our income tax provisions for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively, was not material. We are continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries.

Major customers. While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from period to period. Net sales derived from our five largest customers as a percentage of our net sales was 20%19% for the threesix months ended MarchJune 31,30, 2026, and 16% and 13% for the full years ended December 31, 2025 and 2024, respectively. One of ourthe Company's customers accounted for 12% and 11% of ourthe Company's net accounts receivable asat ofJune March 31,30, 2026 and December 31, 2025, respectively. We seek to add new customers and to expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change. We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our products. If any of our significant customers substantially reduced their purchases from us, our results would be adversely affected.

Results of Operations for the Three Months Ended MarchJune 31,30, 2026 Compared to the Three Months Ended MarchJune 31,30, 2025

Net sales. Net sales increased by $37.7$27.9 million, or 16.6%,11.1%, to $265.5$278.6 million for the three months ended MarchJune 31,30, 2026 from $227.8$250.7 million for the three months ended MarchJune 31,30, 2025.

Industrial Solutions sales accounted for 85.7%85.1% of total revenue and increased 21.0%15.7% year over year, as a result of higher sales in cutting, welding, cleaning and marking, service and parts, and additive manufacturing, partially offset by lower sales in additivecutting, manufacturing,and custom applications, drilling and cladding.applications. Advanced Solutions sales decreased 4.7%9.4% year over yearyear, driven by lower sales in micromachiningmicromachining, medical procedures, and advanced applications, partially offset by higher sales due to increased demand of laser equipment used in medical procedures.applications.

Cost of sales and gross margin. Cost of sales increased by $28.0$9.0 million, or 20.3%,5.7%, to $166.0$166.1 million for the three months ended MarchJune 31,30, 2026 from $138.0$157.1 million for the three months ended MarchJune 31,30, 20252025, duerepresenting to59.6% theof net revenue in 2026 vs. 62.7% of revenue in 2025, resulting in a gross margin of 40.4% in 2026 vs. 37.3% in 2025. The increase in costgross margin was mainly driven by a decrease in product costs as a percentage of sales beingas higherwell thanas a $4.7 million benefit of tariff refunds recognized in the growthquarter, inpartially revenue.offset The primary reason for the increase in cost of sales was due toby an increase in costunabsorbed manufacturing costs as a percentage of products sold of $22.5 million and an increase of $4.7 million in tariffs.sales.

ResearchSales and developmentmarketing expense. ResearchSales and developmentmarketing expense increaseddecreased by $5.0$1.8 million, or 17.7%,7.0%, to $33.3$23.8 million for the three months ended MarchJune 31,30, 2026,2026 comparedfrom to $28.3$25.6 million for the three months ended MarchJune 31,30, 2025. This change was primarily the result of ana increasedecrease of $3.8$1.0 million in personnel and related expenses, ana increasedecrease of $0.7$0.6 million in leaseamortization expense, and ana increasedecrease of $0.5$0.3 million in consultanttrade fees.fairs and exhibits expense. As a percentage of sales, researchsales and developmentmarketing expense increaseddecreased to 12.5%8.5% from 12.4%10.2% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

GeneralResearch and administrativedevelopment expense. GeneralResearch and administrativedevelopment expense increased by $3.3$1.1 million, or 10.1%,3.7%, to $36.1$31.0 million for the three months ended MarchJune 31,30, 20262026, fromcompared $32.8to $29.9 million for the three months ended MarchJune 31,30, 2025. TheThis change was primarily the result of an increase of $2.5$1.5 million in personnel and related expenses,expenses anas increasethe ofCompany $0.7continues millionto invest in informationnew systemsproduct expense,development, plus increases in patent fees and another increase of $0.5 million in legal expensecosts, partially offset by an increase ofin $0.6grant millionincome of gain$1.8 on sale of fixed assets and a decrease of $0.5 million of bad debt expense.million. As a percentage of sales, generalresearch and administrativedevelopment expense wasdecreased 13.6%to and11.1% 14.4%from 11.9% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Settlement of litigation matters. During the three months ended MarchJune 31,30, 2026, we recorded $13.5a benefit of $0.2 million ofin legalconnection with the settlement chargesof related tothe patent litigation with affiliates of Trumpf SE & Co. KG ("Trumpf")., attributable to favorable foreign currency impacts associated with the settlement of the matter. The chargebenefit was recorded in operating expenses and reflects an agreed-upon settlement for past damages associated with sales of certain adjustable mode beam ("AMB") laser products.expenses. There were no settlement charges recorded during the three months ended MarchJune 31,30, 2025.

Effect of exchange rates on net sales, gross profit and operating expenses. If exchange rates relative to the U.S. dollar had been the same as the comparable quarter one year ago, which were on average euro 0.95,0.88, Japanese yen 153144 and Chinese yuan 7.27,7.23, respectively, we estimate that net sales for the three months ended MarchJune 31,30, 2026 would have been $9.0$4.9 million lower, gross profit would have been $3.3$2.3 million lowerlower, and total sales and marketing, research and development, and general and administrative expenses and other operating expenses would have been $3.2$1.6 million lower.

Gain on foreign exchange. We incurred a foreign exchange transaction gain of $0.2$0.8 million for the three months ended MarchJune 31,30, 2026 as compared to a $2.4$3.1 million loss for the three months ended MarchJune 31,30, 2025. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Indian, and Chinese subsidiariessubsidiary havehas certain net liabilities denominated in U.S. dollars. The foreign exchange gain for the three months ended MarchJune 31,30, 2026 was primarily attributable to the depreciation and appreciation of the EuroChinese yuan and Chinese yuan, respectively, as compared to the U.S. dollar, partially offset by the depreciation of the Indian rupee,Euro as compared to the U.S. dollar.

Interest income, net. Interest income, net was $6.9$7.1 million for the three months ended MarchJune 31,30, 2026 as compared to $7.4$8.0 million for the three months ended MarchJune 31,30, 2025. The change in interest income, net was primarily due to lower weighted average interest rates across our investment portfolio in the current period as compared to the prior year.

Provision for income taxes. The provision for income taxes was aan benefitexpense of $0.6$7.3 million and an expense of $6.9$1.7 million, for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The effective tax rate was (55.4)%58.2% for the three months ended MarchJune 31,30, 2026. This compares to the effective tax rate for the three months ended MarchJune 31,30, 2025 of 64.6%.20.1%. The increase in income tax benefittaxes for the three months ended MarchJune 31,30, 2026 vs. June 30, 2025 was primarily due to aan discrete tax benefit related to equity-based compensation. In addition, a decreaseincrease of income before provision for income taxestaxes, inexcluding theimpairment three months ended March 31, 2026 as compared to March 31, 2025 also lead to the decrease in tax expense. Other discrete itemscharges for the three months ended MarchJune 30, 2026 didas notcompared haveto athe significantthree impactmonths onended ourJune tax30, rate.2025.

NetThe income.discrete Nettax incomedetriment decreasedwas by $2.2 million to a net income of $1.6$0.3 million for the three months ended MarchJune 31,30, 2026 as compared to a netdiscrete incometax detriment of $3.8$0.3 million for the three months ended MarchJune 31,30, 2025 due to the factors described above.2025.

As of MarchJune 31,30, 2026, 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.

Short-term investments at MarchJune 31,30, 2026 consist of liquid investments including corporate bonds, commercial paper, U.S. Treasury and agency obligations and term deposits with original maturities of greater than three months but less than one year. See Note 4, "Fair Value Measurements" in the notes to the Condensed Consolidated Financial Statements for further information about our short-term investments.

The following table details our Credit Facilities as of MarchJune 31,30, 2026:

(1) At MarchJune 31,30, 2026, there were no drawings and no guarantees issued.

(2) Other lines of credit available to certain foreign subsidiaries in U.S. dollars and their respective local currencies. At MarchJune 31,30, 2026, there werewas no$0.3 amountsmillion drawn on these lines; however,and there were $1.8$2.0 million of guarantees issued against the lines which reduced total availability.

(3) The facilities are available to certain foreign subsidiaries in their respective local currencies. At MarchJune 31,30, 2026, there were no amounts drawn on these lines; however, there were $1.8$1.6 million of guarantees issued against the lines which reduced total availability.

(4) At MarchJune 31,30, 2026, there were no drawings and no guarantees issued.

(5) The facility does not have a stated maturity date. The interest rate in effect as of MarchJune 31,30, 2026 is fixed through September 2026. After that date, the interest rate may be renegotiated and availability may be terminated in accordance with the terms of the facility.

At MarchJune 31,30, 2026, our committed credit line is with Bank of America N.A. in the amount of $200.0 million. Under the credit agreement, we are required to meet certain financial covenants, which are tested quarterly and include an interest coverage ratio and a net leverage ratio. The interest coverage covenant requires we maintain a trailing twelve-month ratio of consolidated EBITDA to consolidated interest expense on all obligations that is at least 3.0 times. The net leverage covenant requires we maintain a trailing twelve-month ratio, which is the sum of all indebtedness for borrowed money on a consolidated basis, less 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, to consolidated EBITDA that is less than 3.0 times. We were in compliance with the financial covenants as of MarchJune 31,30, 2026.

Operating activities. Net cash usedprovided inby operating activities increased by $18.9$21.1 million to an outflowinflow of $5.5$32.3 million for the threesix months ended MarchJune 31,30, 2026 vs. an inflow of $13.4$11.2 million for the threesix months ended MarchJune 31,30, 2025, primarily due to an increase in cash incentive bonus payments as well as the impact of increases in working capital and a decrease in cash provided by net income after adding back non-cash expenses.expenses and reductions in accounts receivable, partially offset by an increase in cash bonus payments made in the first quarter of 2026 based on improved financial performance, cash paid for the Trumpf legal settlement, and an increase in inventory levels. Our largest working capital items typically are inventory and accounts receivable. Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other current liabilities are typically not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure. Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items.