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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-21 · 154 added, 215 removed, 309 unchanged (54% of the section changed)

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Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 21, 2024.

We develop, manufacture and sell high-performance fiber lasers, fiber amplifiers and diode lasers that are used for diverse applications, primarily in materials processing.

We also manufacture and sell complementary products used with our

lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers.

In addition, we offer laser-based and non-laser based systems for certain markets and applications.

Our portfolio of laser solutions is used in materials processing, medical procedures, advanced applications and communications.

We develop, manufacture and sell high-performance fiber lasers, fiber amplifiers, diode lasers and laser-based systems that are used for diverse applications, primarily in materials processing, medical and advanced applications.

We also manufacture and sell complementary products used with our lasers including optical delivery cables, fiber couplers, beam switches, optical processing heads, in-line sensors and chillers.

We sell our products globally to original equipment manufacturers ("OEMs"), system integrators and end users.

We market our products internationally, primarily through our direct sales force.

We market our products internationally, primarily through our

direct sales force.

Our major manufacturing facilities are located in the United States and Germany.

As a result of the Russia-Ukraine conflict and related sanctions, our ability to ship and receive components from our Russian operations, has been significantly curtailed.

We have and will continue to expand our manufacturing operations in Germany and the United States, and have added manufacturing capacity in Poland and expanded capacity in Italy to replace capacity in Russia.

In response to the risks from the Russia-Ukraine conflict and related sanctions, we have ceased new investment in our Belarusian operations and expanded our manufacturing operations in Germany, the United States and Italy, and have added manufacturing capacity in Poland to meet the demand for our products and our sales and support needs.

We have sales and service offices and applications laboratories worldwide.

We are vertically integrated such that we design and manufacture most of the key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers, amplifiers and complementary products.

Our vertically integrated operations allow us to reduce manufacturing costs, control quality, rapidly develop and integrate advanced products and protect our proprietary technology.

Description of Our Net Sales, Costs and Expenses

We derive net sales primarily from the sale of fiber lasers, diode lasers, laser and non-laser based systems, amplifiers and complementary products.

We sell our products to OEMs that supply materials processing laser systems, communications systems, medical laser systems and other laser systems to end users.

With the sale of our communications transmission product lines in August 2022, we no longer intend to target communications as a principal market.

We derive net sales primarily from the sale of fiber lasers, fiber amplifiers, diode lasers, laser and non-laser based systems and complementary products.

We sell our products to OEMs that supply materials processing laser systems, medical laser systems and other laser systems to end users.

We also sell our laser products and laser and non-laser based systems to end users.

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Sales and marketing.

Our sales and marketing expense consists primarily of costs related to compensation, trade shows, professional and technical conferences, travel, facilities, depreciation of equipment used for demonstration purposes and other marketing costs.

Our sales and marketing expense consists primarily of costs related to compensation, trade shows, professional and technical conferences, travel, facilities, amortization of intangible assets identified from acquisitions, depreciation of equipment used for demonstration purposes and other marketing costs.

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.

General and administrative.

Our general and administrative expense consists primarily of compensation and associated costs for executive management, finance, legal, human resources, information technology and other administrative personnel, outside legal and professional fees, insurance premiums and fees, allocated facilities costs and other corporate expenses such as charges and benefits related to the change in allowance for doubtful debt.

Our general and administrative expense consists primarily of compensation and associated costs for executive management, finance, legal, human resources, information technology and other administrative personnel, outside legal and professional fees, insurance premiums and fees, allocated facilities costs, depreciation of facilities and other corporate expenses such as charges and benefits related to the change in allowance for credit losses.

Factors and Trends That Affect Our Operations and Financial Results

In reading our financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our financial performance.

Russia-Ukraine Conflict.

The Russia-Ukraine conflict and the sanctions imposed in response to this crisis have significantly curtailed our ability to use our manufacturing operations in Russia to supply other IPG operations outside of Russia.

The conflict and the risk of additional sanctions has also increased the levels of uncertainty and risks facing the Company due to our manufacturing operations in Belarus.

Since the start of the conflict, we have been executing on plans to reduce our reliance on our Russia and Belarus operations by adding capacity in other countries, increasing inventories worldwide and qualifying third-party suppliers.

Since 2022, we began hiring and training additional employees, expanding capacity for increased production, and running additional shifts in the U.S.

and Germany and adding additional manufacturing capacity in Italy and Poland.

We believe the contingency measures outlined above that we have already put in place substantially mitigate the effects of the recent sanctions on our ability to supply finished products to customers.

If we have not fully mitigated the effect of these and other trade restrictions, or if new sanctions are adopted, our ability to supply finished products to customers could be impacted.

Although we believe our contingency plans mitigate the risk of our ability to supply customers with finished product, these plans require additional investments in facilities outside of Russia and Belarus in the near term as well as additional ongoing operating costs, primarily associated with the higher cost of labor outside of Russia and Belarus.

While we have sufficient financial resources to make these investments and expenditures, our gross margins and financial results have been and will be adversely impacted by increased operating costs associated with these transitions.

Over time, we intend to mitigate some of these increases by producing components in countries with lower labor costs than the United States and Germany, with ongoing product expense reduction initiatives, higher productivity from automation, improved yields and product specifications.

We are also continuing to review our operations in Russia and Belarus.

We evaluated the recoverability of certain assets located in Russia during the fourth quarter of 2022 and incurred impairment charges that reduced the value of fixed assets, inventory and other current assets.

We also incurred restructuring charges in 2022 and 2023.

As of December 31, 2023, we have substantially completed the restructuring program in Russia and recovered the majority of the remaining restructuring charges accrual.

Refer to Note 6 "Restructuring" in the notes to the consolidated financial statements for further information.

Sales to third-parties in Russia were approximately 3% of our revenue for the years ended December 31, 2023 and 2022.

Our Russian subsidiary has historically supplied certain finished goods for our Chinese market.

Sanctions have limited our ability to provide components to Russia for the completion of finished lasers.

Although our Russian operation has an amount of safety stock, we are also producing more finished lasers for China at other IPG locations.

The total value of product shipped to the Chinese market from Russia was approximately $15.8 million and $61.5 million for the years ended December 31, 2023 and 2022, respectively.

At December 31, 2023, we had working capital excluding cash and cash equivalents of $23.6 million in Russia of which $20.2 million is inventory.

We had $76.4 million of cash and cash equivalents in Russia.

The net asset value of our Russian subsidiary was $103.9 million.

The net value of assets in Russia was reduced by a $138.5 million other comprehensive loss related to the cumulative translation of the Russian ruble into U.S.

Depending upon the outcome of our review of our Russian operations, we may incur additional asset impairment charges and the other comprehensive loss that is currently in the equity section of our consolidated balance sheets may be charged to our consolidated statements of income.

We continue to manufacture laser cabinets and other mechanical components in Belarus.

Trade sanctions have not significantly affected our ability to supply these items from Belarus to other manufacturing locations.

The value of the long-lived assets in Belarus was $31.8 million at December 31, 2023, and we had working capital excluding cash of $4.4 million in Belarus of which $4.5 million is inventory.

In addition, we had $5.5 million cash in Belarus.

If additional sanctions are imposed on Belarus or Belarus places restrictions on our operations there, it could trigger an asset impairment evaluation and may result in impairment charges in the future.

Our Board of Directors has been monitoring and continues to assess and monitor risks to our business associated with the Russia-Ukraine conflict and our Russian and Belarus operations.

Our Directors request and receive management reports from management regarding our Russian and Belarus operations, contingency planning and execution, and impacts on our business at its quarterly and special meetings.

Global demand trends have been impacted by the COVID-19 pandemic While business conditions generally improved from the severe contraction experienced in 2020, it is difficult to predict whether conditions could change if there are additional restrictions imposed as a result of a resurgence in COVID-19 infections.

To date, we have been able to accommodate these challenges to our business operations and continue to meet customer demand.

If guidelines or mandates from relevant

authorities becomes more restrictive due to a resurgence of COVID-19 in a particular region, the effect on our operations could be more significant.

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 asset in our Consolidated Statements of Operations.

At December 31, 2024, the remaining value of the long-lived assets in Belarus was $3.8 million, net working capital excluding cash was immaterial and cash was $4.7 million.

The net asset value of our Belarus subsidiary has been reduced by $18.6 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.

We continue to review our operations in Belarus including potential strategic alternatives.

We have qualified third party vendors to supply components previously supplied from Belarus and have begun purchasing from them.

Our Board of Directors monitors and continues to assess risks associated with our Belarusian operations.

Supply Chain .

We and our customers are experiencing improvements in lead times and availability of components purchased from third party suppliers;

including many electronic components as compared to those experienced during the COVID-19 pandemic.

We, our customers and our suppliers continue to face some constraints related to supply chain and logistics, including availability of capacity, materials, warehouse space, sea containers and higher freight rates.

While supply chain and logistics constraints moderated in 2023, they have not yet fully returned to pre-pandemic conditions.

Supply chain constraints have not significantly affected our business but they have moderately increased our freight costs, caused us to carry higher levels of safety stock for certain inventory items, and increased the cost of certain electronic components.

We received substantial shipments in 2023 of electronic components ordered during the occurrence of shortages from the COVID-19 pandemic.

We are implementing changes to our logistics process to address increased freight costs.

Our annual revenue growth rates have varied from year to year.

Net sales decreased by 10% in 2023, decreased by 2% in 2022 and increased 22% in 2021.

Our growth rates are subject to several factors, many of which are not in our control.

These include:

• Macroeconomic conditions including changes in foreign exchange rates compared to the U.S.

• Competition;

• Our ability to develop new products and new applications for existing or new products;

• Geopolitical conditions in our end markets;

• Pandemic, plagues, wars, conflicts, natural disasters or other shocks affecting global trade.

We are experiencing declines for sales in cutting applications.

OEM’s that manufacture cutting machines were some of the earliest adopters of fiber lasers and this market is now mature so growth trends are more subject to general economic factors affecting capital equipment purchases.

In addition, we are experiencing significant price competition in China for lasers sold in this application and we have lost market share in China to competitors as a result.

The declines in revenue that we are experiencing in cutting are significantly, but not completely, offset by growth in sales of lasers in other applications and new products.

Lasers used for welding applications are growing generally and for electric vehicle and battery manufacturing in particular.

Lasers used for foil cutting related to battery manufacturing are another area of growth.

We are also experiencing growth in new or emerging products such as LightWELD and laser based systems, lasers used for medical procedures and lasers with short pulse durations and at mid infrared and visible wavelengths.

Lasers used for applications such as cleaning and ablation, additive manufacturing, solar cell manufacturing and annealing have become a more significant component of our total sales.

While these products and applications are growing, they are only partially offsetting the decline in cutting and sales trends for any one product or application may vary from quarter to quarter or year.

We experienced supply chain issues related to the Covid epidemic and related to sanctions that affected the flow of goods to and from our factories in Russia and Belarus.

These issues caused us to maintain higher levels of inventory in order to minimize the risk of disruption in production.

While these supply chain issues are no longer having a significant impact on our operations, we have experienced increases in our provisions for excess and obsolete inventory as a result of higher inventory levels.

In 2024, we recorded additional inventory provisions of $29.5 million attributed to items previously considered safety stock and items that became technologically obsolete.

Net sales decreased by 24% in 2024, decreased by 10% in 2023 and decreased 2% in 2022.

Our growth rates are subject to several factors, many of which are not under our control.

Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for materials processing, which includes general manufacturing, automotive including electric vehicles ("EV"), other transportation, aerospace, heavy industry, consumer, semiconductor and electronics.

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For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of materials processing equipment and will be subject to the broader fluctuations of capital equipment spending.

In response to inflation, some global central banks have adopted less accommodating monetary policy and have increased benchmark interest rates in several major global economies in 2023.

The increase in interest rates is intended to dampen demand that could lead to regional or global recession that may reduce demand for our products.

In addition, an increase in interest rates would increase the cost of equipment financed with leases or debt.

If inflation starts to moderate in 2024, global central banks may adopt more accommodating monetary policy and reduce benchmark interest rates.

In recent years, our net sales and margins have been negatively impacted by tariffs and trade policy.

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The average selling prices of our products generally decrease as the products mature.

These decreases result from factors such as increased competition, decreased manufacturing costs and increases in unit volumes.

We may also reduce selling prices

in order to penetrate new markets and applications.

These decreases result from factors such as increased competition, decreased manufacturing costs and increased unit volumes.

We may also reduce selling prices in order to penetrate new markets and applications.

Furthermore, we may negotiate discounted selling prices from time to time with certain customers that place high unit-volume orders.

The secular shift to fiber laser technology in large materials processing applications, such as welding and cutting applications, had a positive effect on our sales trends in the past such that our sales trends were often better than other capital equipment manufacturers in both positive and negative economic cycles.

As the secular shift to fiber laser technology matures in such applications, our sales trends are more susceptible to economic cycles, which can broadly affect the demand for capital equipment including machine tools and industrial lasers, and competition from other fiber laser manufacturers.

As the secular shift to fiber laser technology matures in such applications, our sales trends are more susceptible to economic cycles, which can broadly affect the demand for capital

equipment including machine tools and industrial lasers, and competition from other fiber laser manufacturers.

Additionally, as our technology matures, we become subject to more competition which can affect sales trends.

Gross margin.

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• Our gross margin can be significantly affected by product mix.

Within each of our product categories, the gross margin is generally higher for devices with greater average power.

Within each of our product categories, the gross margin is generally higher for devices with greater average power, higher technical complexity or demanding performance parameters.

These higher power products often have better performance, more difficult specifications to attain and fewer competing products in the marketplace;

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In general, lower selling prices to high unit volume customers reduce gross margin although this may be partially offset by improved absorption of fixed overhead costs associated with larger product volumes, which drive economies of scale;

• Gross margin on systems can be lower than gross margin for our laser and amplifier sources, depending on configuration, volume and competitive forces, among other factors;

• Gross margin on systems can be lower than gross margin for our lasers and sub-systems, depending on the configuration, volume and competitive forces, among other factors;

• Persistent inflation leading to increases in average manufacturing salaries as well as an increase in the purchase price of components including, but not limited to, electronic components and metal parts could negatively impact gross margin if we are not able to pass those increases on to customers by increasing the selling price of our products;

• Changes in relative exchange rates between currencies we receive when selling our products and currencies we use to pay our manufacturing expenses;

• Our gross margin from products on new manufacturing lines can be lower due to production inefficiencies and high scrap costs.

• Our gross margin from products on new manufacturing lines can be lower due to production inefficiencies, lower yields and high scrap costs.

We expect that some new technologies, products and systems will have returns above our cost of capital but may have gross margins below our corporate average.

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In addition, our fixed costs increase as we expand our capacity.

If we expand capacity faster than is required by sales levels, gross margins could be negatively affected.

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

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.

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For example, we recorded provisions for slow-moving, obsolete or excess inventory and other inventory related charges totaling $82.5 million, $45.5 million and $128.0 million in 2024, 2023 and 2022, respectively.

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.

Selling and general and administrative expenses.

In the past, the Company has invested in selling and general and administrative costs in order to support continued growth in the Company.

In the past, we invested in selling and general and administrative costs in order to support continued growth in the Company.

As the secular shift to fiber laser technology matures, our sales growth becomes more susceptible to the cyclical trends typical of capital equipment manufacturers.

Accordingly, our future management of and investments in selling and general and administrative expenses will also be influenced by these trends, although we may still invest in selling or general and administrative functions to support certain initiatives even in economic down cycles.

Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter due to acquisitions, litigation and project related consulting expenses.

Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter based primarily upon the level of acquisitions, litigation and project related consulting expenses.

Research and development expenses.

In 2023 and 2022 our research and development expenses decreased primarily due to a reduction of expenses associated with our telecommunications transceiver business, which was sold in August 2022.

Going forward, we plan to continue to invest in research and development to improve our existing components and products and develop new components, products, systems and applications technology.

We plan to continue to invest in research and development to improve our existing components and products and develop new components, products, systems and applications technology.

We believe that these investments will sustain our position as a leader in the fiber laser industry and will support development of new products that can address new markets and growth opportunities.

The amount of research and development expense we incur may vary from period to period.

As part of the telecommunications transmission product line divestiture mentioned above, we will no longer be incurring research and development expenses attributed to the development of telecommunications transmission products.

Goodwill and long-lived assets impairments .

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Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units, differences in the estimated product acceptance rates, or market prices below the carrying value of long-lived assets evaluated for sale could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets.

We are evaluating the sale of certain U.S.-based assets, including land and building.

If the estimated sales value of any of these assets is below carrying value, then we may need to record an asset impairment charge when they are classified as held-for-sale.

We have long-lived assets in Belarus with a carrying value of $31.8 million.

If sanctions increase or if the geopolitical situation changes such that we can no longer use Belarus as a source of supply for our laser cabinets and other mechanical components, we may need to evaluate those assets for impairment, which may result in impairment charges.

As noted above, we recorded $26.6 million impairment of long-lived assets included in Impairment of long-lived assets in our Consolidated Statements of Operations.

After impairment, the remaining carrying value of the long-lived assets in Belarus is $3.8 million.

Our valuation methodology for assessing impairment requires management to make significant judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance at many points during the analysis.

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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.

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., Germany, Russia, and Belarus) also affects our costs and earnings.

Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, Chinese yuan and the Japanese yen have had and could have an additional significant impact on our sales, costs and earnings.

Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S.

and Germany) also affects our costs and earnings.

Certain currencies experiencing significant exchange rate fluctuations like the euro, the Russian ruble, 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.

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Income taxes.

The Organization for Economic Cooperation & Development (OECD) has proposed a two-pillared plan for a revised international tax system.

Pillar 1 proposes to reallocate taxing rights among the jurisdictions in which in-scope multinational corporations operate.

Based on the current guidance, we do not meet the revenue threshold for Pillar 1 and thus

do not expect any tax impact from implementation.

Pillar 2 proposes to assess a 15% minimum tax on the earnings of in-scope multinational corporations on a country-by-country basis.

Numerous countries have indicated their intent to adopt the proposal and are drafting legislation to implement the Pillar 2 model rules with a subset of the rules becoming effective January 1, 2024, and the remaining rules becoming effective January 1, 2025, or in later periods.

The OECD continues to release additional guidance on the two-pillar framework and it is uncertain if these proposals will be enacted into law in the U.S.

or other countries in which we operate.

We are continuing to evaluate the impact of the proposed and enacted legislative changes as new information becomes available.

It is possible that such proposals as adopted by countries may adversely affect our provision for income taxes.

Based on the current drafts of the Pillar 2 proposals, we do not anticipate this will have a material impact on our tax provision or effective tax rate in 2024.

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 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.

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Net sales derived from our five largest customers as a percentage of our annual net sales were 13%, 13% and 15% in 2024, 2023 and 2022, respectively.

One of our customers accounted for 14% of our net accounts receivable as of both December 31, 2023 and 2022.

We seek to add new customers and to expand our relationships with existing customers.

One of our customers accounted for 12% and 14% of our net accounts receivable as of December 31, 2024 and 2023, respectively.

We seek to add new customers and to

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 fiber lasers or amplifiers.

If any of our significant customers were to substantially reduce their purchases from us, our results would be adversely affected.

We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our products.

If any of our significant customers substantially reduced their purchases from us, our results would be adversely affected.

Critical Accounting Policies and Estimates

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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:

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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.

We recorded provisions for slow-moving, obsolete or excess inventory, and inventory related charges totaling $45.5 million, $128.0 million and $34.3 million in 2023, 2022 and 2021, respectively.

Because our calculation of slow-moving, excess or obsolete inventory is based on historical and estimated future use of inventory items, the calculation is affected by sales trends.

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 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.

In 2022, we recorded inventory provision and related charges of $74.1 million as a

result of the review of the inventory in Russia.

For the rest of our operations, as safety stock increased excess and obsolete inventory reserves increased during 2022.

In 2021, as sales increased due to recovery from the impact of the Covid-19 pandemic and other factors, our provisions for slow-moving, excess and obsolete inventory reserves decreased.

Long-lived Asset Impairment Long-lived assets including definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life.

Long-lived Asset Impairment.

Long-lived assets including definite-lived intangible assets are 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.

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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.

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 charge of $27.0 million, $1.2 million, and $79.9 million in 2024, 2023 and 2022, respectively.

Impairment charges in 2022 and 2024 primarily related to the impairment of our Russian and Belarus long-lived assets, respectively, as a result of new sanctions that impacted our business there.

Judgments and Uncertainties:

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Estimating undiscounted operating cash flow used to determine if there is indication of impairment of a long-lived asset requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions.

Fair value estimates performed to determine impairment charge amounts.

The fair values are subject to underlying changes in estimates and market conditions.

Fair value estimates performed to determine impairment charge amounts are subject to underlying changes in estimates and market conditions.

Assumptions used in long-lived asset impairment are made at a point in time and require significant judgment;

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Sensitivity of Estimate to Change:

Undiscounted cash flow and fair value are sensitive to changes in underlying assumptions, estimates, and market factors.

Undiscounted cash flows and fair value are sensitive to changes in underlying assumptions, estimates, and market factors.

We recorded long-lived asset impairment charge of $1.2 million, $79.9 million, and nil in 2023, 2022 and 2021, respectively.

In the fourth quarter of 2022, we performed a review of the estimated fair value of the long-lived assets in Russia in light of new sanctions and recorded long-lived asset impairment of $79.0 million as a result of that review.

Income Taxes and Deferred Taxes .

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Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.

As of December 31, 2023, we had $17.2 million of unrecognized tax benefits, excluding interest and penalties, recorded in other long-term liabilities and deferred income taxes.

As of December 31, 2024, we had $13.9 million of unrecognized tax benefits, excluding interest and penalties, recorded in other long-term liabilities and deferred income taxes on our Consolidated Balance Sheets.

This tax liability increased by $0.2 million for tax positions taken in the current year offset by reductions of $3.4 million for changes in prior period positions.

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General and administrative 124,313 12.7 125,749 9.7 131,253 9.2

Gain on divestiture and sale of asset — — (31,846) (2.2) — —

Net loss (gain) from divestitures and sale of assets 190,201 19.5 — — (31,846) (2.2)

Impairment of long-lived assets 27,006 2.7 1,237 0.1 79,949 5.6

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— — (288) — 9,697 0.7

(Gain) loss on foreign exchange

(1,356) (0.1) 4,103 0.3 (15,120) (1.0)

Loss (gain) on foreign exchange 5,524 0.6 (1,356) (0.1) 4,103 0.3

Total operating expenses 546,409 55.9 309,725 24.1 385,913 27.0

Operating income 231,973 18.0 169,500 11.8 367,883 25.2

Interest income (expense), net 41,735 3.2 12,620 0.9 (1,839) (0.1)

Operating (loss) income (208,254) (21.3) 231,973 18.0 169,500 11.8

Interest income, net 45,467 4.7 41,735 3.2 12,620 0.9

Other income, net 899 0.1 1,167 0.1 1,231 0.1

Income before provision for income taxes 274,875 21.3 183,351 12.8 366,481 25.1

(Loss) income before provision for income taxes (161,888) (16.5) 274,875 21.3 183,351 12.8

Provision for income taxes 19,638 2.0 55,997 4.3 72,589 5.1

Net income 218,878 17.0 110,762 7.7 277,866 19.0

net income (loss) attributable to non-controlling interest — — 853 0.1 (550) —

Net income attributable to IPG Photonics Corporation common stockholders $ 218,878 17.0 % $ 109,909 7.6 % $ 278,416 19.0 %

Net income attributable to IPG Photonics Corporation per common share:

Net (loss) income (181,526) (18.5) 218,878 17.0 110,762 7.7

net income attributable to non-controlling interest — — — — 853 0.1

Net (loss) income attributable to IPG Photonics Corporation common stockholders $ (181,526) (18.5) % $ 218,878 17.0 % $ 109,909 7.6 %

Net (loss) income attributable to IPG Photonics Corporation per common share:

Basic $ (4.09) $ 4.64 $ 2.17

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Laser and Non-Laser Systems 139,145 14.3 % 161,177 12.5 % (22,032) (13.7) %

Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 295,380 22.9 % 284,374 19.9 % 11,006 3.9 %

Other Revenue including Other Lasers, Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue

246,786 25.2 % 295,380 22.9 % (48,594) (16.5) %

$ 977,134 100.0 % $ 1,287,439 100.0 % $ (310,305) (24.1) %

Materials Processing

Sales for materials processing applications decreased due to lower sales of high power lasers, medium power lasers, pulsed lasers, and QCW lasers, partially offset by higher sales of laser and non-laser systems and other laser products.

• The decrease in high power CW laser sales was due to lower sales for cutting applications as a result of soft industrial demand in China and Europe and increased competition in China.

• The decrease in medium power CW laser sales related to a decrease in demand for cutting applications, partially offset by an increase in additive manufacturing applications.

• Pulsed laser sales, including high power pulsed lasers, decreased due to decreases in e-mobility foil cutting applications, marking and engraving applications and solar cell manufacturing applications, partially offset by growth in sales for cleaning and ablation applications.

• QCW laser sales decreased due to lower demand in fine processing for consumer electronics applications.

• Laser and non-laser systems sales benefited from higher demand for LightWELD.

• Other revenue for materials processing increased due to higher sales of accessories and parts and service.

Sales for materials processing applications decreased primarily due to lower sales of high power CW lasers, pulsed lasers, and other laser products and services.

• High power CW laser sales decreased due to lower sales for cutting and welding applications, and were primarily impacted by softer industrial demand and a decrease in e-mobility investments.

Pulsed laser sales decreased due to lower demand in foil cutting and micro-machining applications.

Other Applications

Sales from other applications decreased mainly due to decreased sales for communications products as a result of the business divestiture in the third quarter of 2022, partially offset by increased demand for lasers used in medical procedures and advanced applications.

Sales from other applications decreased primarily due to decreased demand for lasers used in medical procedures.

Our net sales were derived from customers in the following geographic regions:

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Cost of sales decreased by $106.7 million, or 14.3%, to $639.0 million in 2024 from $745.7 million in 2023.

Our gross margin increased to 42.1% in 2023 from 38.9% in 2022.

Gross margin increased compared to the prior year primarily because we did not record any additional inventory provisions and other charges related to our Russian operations, which were $74.1 million and reduced gross margin by 5.2% in 2022.

This improvement to gross margin was partially offset by an increase in cost of product sold.

As we expand production capacity in the U.S., Germany, Italy and Poland to replace dependency on our Russian and Belarus operations, we incurred higher manufacturing costs as a percentage of sales due to higher compensation costs, lower yields and manufacturing inefficiencies and higher scrap expense as we ramped up manufacturing capacity in existing and new locations.

Expenses related to provisions for excess or obsolete inventory and other valuation adjustments decreased by $82.5 million to $45.5 million, or 3.5% of sales, for the year ended December 31, 2023, as compared to $128.0 million, or 9.0% of sales, for the year ended December 31, 2022.

Our gross margin decreased to 34.6% in 2024 from 42.1% in 2023.

Gross margin decreased mainly due to increased provisions for excess and obsolete inventory, specifically additional inventory provisions of $29.5 million attributed to items previously considered safety stock and items that became technologically obsolete.

In addition to provisions for inventory reserves, gross margin declined due to an increase in unabsorbed manufacturing costs, partially offset by a decrease in cost of product sold from inventory and shipping costs and tariffs, as a percentage of sales.

Expenses related to provisions for excess or obsolete inventory and other valuation adjustments increased by $37.0 million 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.

Sales and marketing expense.

Sales and marketing expense increased by $3.9 million, or 4.6%, to $89.6 million in 2024 from $85.7 million in 2023.

This change was primarily a result of an increase of $7.0 million in personnel and related costs, driven by an increase in sales and marketing department headcount.

This change was primarily a result of an increase of $3.5 million in personnel and related costs and $2.3 million in premises expense, partially offset by $2.2 million in lower depreciation and amortization expense.

As a percentage of sales, sales and marketing expense was 9.2% and 6.7% of sales in 2024 and 2023, respectively.

Research and development expense.

Research and development expense decreased by $17.4 million, or 15.0%, to $98.7 million in 2023 from $116.1 million in 2022.

This change was primarily a result of a decrease of $5.1 million in personnel and related costs, a decrease of $5.6 million in depreciation and amortization expenses, and a decrease of $2.0 million in materials and other R&D expense.

The decreases were primarily a result of the divestiture of telecommunications transmission product line in August 2022, and the impairment of fixed assets related to our Russian operation in 2022.

As a percentage of sales, research and development expense decreased to 7.7% in 2023 from 8.1% in 2022.

We expect to continue to invest in research and development efforts for our continuing products and increase expenses in whole dollars.

Research and development expense increased by $11.1 million, or 11.2%, to $109.8 million in 2024 from $98.7 million in 2023.

This change was primarily a result of an increase of $8.3 million in personnel and related costs, an increase of $5.8 million in premises expense, partially offset by a decrease of $3.6 million in materials and other R&D expense.

As a percentage of sales, research and development expense increased to 11.2% in 2024 from 7.7% in 2023.

We expect to continue to invest in research and development efforts for new and continuing products.

General and administrative expense.

General and administrative expense decreased by $1.4 million, or 1.1%, to $124.3 million in 2024 from $125.7 million in 2023.

This change was primarily a result of a decrease of $3.9 million in depreciation expense as a result of disposing our corporate aircraft and impairing our Russia long-lived assets in 2022, and a decrease of $2.1 million in consultants, partially offset by an increase of $3.7 million in personnel and related costs.

This change was primarily a result of a decrease of $3.8 million in personnel and related costs, partially offset by an increase of $1.0 million in legal, $0.8 million in information systems, and $0.6 million in accounting expense.

As a percentage of sales, general and administrative expense increased to 12.7% in 2024 from 9.8% in 2023.

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These estimates assume constant exchange rates between fiscal year 2024 and fiscal year 2023 and are calculated using the average exchange rates for the twelve-month period ended December 31, 2023 for the respective currencies, which were US$1=Euro 0.92, US$1=Japanese yen 141, US$1=Chinese yuan 7.08 and US$1=Russian ruble 85.

Net loss (gain) from divestiture and sale of assets.

We incurred a net loss of $190.2 million in 2024 as compared to no loss or gain in 2023.

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.

Impairment of long-lived assets.

We recorded a non-cash long-lived asset impairment charge of $27.0 million in 2024 as compared to $1.2 million in 2023.

The impairment of long-lived assets in 2023 was related to the right-of-use asset ("ROU" asset) for a leased building associated with our Submarine Network Division business that was previously divested.

The impairment of long-lived assets in 2024 was primarily related to an impairment of the assets in Belarus of $26.6 million as a result of new EU sanctions that will limit our ability to supply laser cabinets and other mechanical components from our factory in Belarus.

The impairment of long-lived assets in 2023 was related to the right-of-use ("ROU") asset for a leased building associated with our Submarine Network Division business that was previously divested.

Attempts to sublease the space have been unsuccessful.

As of December 31, 2023, the ROU asset related to this lease has been reduced to zero.

The long-lived asset impairment in 2022 was related to Russian operations.

Restructuring charges (recoveries), net We recorded a net restructuring recovery of $0.3 million in 2023 as compared to a restructuring charge of $9.7 million in 2022.

In 2023, we substantially completed the restructuring program at our Russian subsidiary.

As a result, we released $1.7 million that had been accrued in relation to restructuring expenses.

The restructuring charges in 2022 are primarily related to restructuring costs in Russia.

In addition, some restructuring charges related to the closure of our office in Lebanon which had supported the communications transmission business which we divested in the third quarter of 2022.

(Gain) loss on foreign exchange.

We incurred a foreign exchange gain of $1.4 million in 2023 as compared to a loss of $4.1 million in 2022.

The gain in 2023 was primarily attributable to depreciation of the Russian ruble, partially offset by losses from appreciation of the Euro and depreciation of the Chinese yuan as compared to the U.S.

Restructuring charges (recoveries), net.

We recorded no restructuring charges nor recoveries in 2024 as compared to a net restructuring gain of $0.3 million in 2023 primarily related to the completion of our restructuring program at our Russian subsidiary.

Loss (gain) on foreign exchange.

We incurred a foreign exchange loss of $5.5 million in 2024 as compared to a gain of $1.4 million in 2023.

The losses in 2024 was primarily attributable to depreciation of the Chinese yuan and Korean won, partially offset by the gain from depreciation of the Euro, as compared to the U.S.

Interest income, net.

Interest income, net was $45.5 million in 2024 compared to $41.7 million in 2023.

The change in interest income, net, was driven by an increase in yields on cash equivalents and short term investments that resulted in higher market interest rates as compared to prior year rates.

The change in interest income, net, was driven by an increase in yields on cash equivalents and short term investments as a result of higher market interest rates as compared to prior year rates.

Provision for income taxes.

Provision for income taxes was $19.6 million in 2024 compared to $56.0 million in 2023, representing an effective tax rate of (12.1)% in 2024 and 20.4% in 2023.

The decrease in tax expense was due primarily to discrete items.

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 for $1.8 million for equity-based compensation deductions reflected in book income in excess of the deductions allowed for tax purposes.

Discrete adjustments in 2022 resulted in a $23.2 million increase in tax expense, which includes (i) $35.8 million increase in the valuation allowance primarily related to deferred tax assets in our Russian subsidiary which were provided in conjunction with the restructuring and other charges discussed above and (ii) $2.7 million for equity-based compensation deductions reflected in book income in excess of the deductions allowed for tax purposes.

These detriments were partly offset by (i) $10.1 million for the acceptance of amended returns related to incentives offered for capital investment;

(ii) $3.9 million related to a reversal of tax reserves primarily due to the expiry of the statute of limitations for the year in which the reserve was established.

Net income attributed to IPG Photonics Corporation.

Net income attributable to IPG Photonics Corporation increased by $109.0 million to $218.9 million in 2023 from $109.9 million in 2022.

Net income attributable to IPG Photonics Corporation as a percentage of our net sales increased by 9.4% to 17.0% in 2023 from 7.6% in 2022 due to the factors described above.

The decrease in tax expense was due primarily to a reduction in taxable income.

In 2024 we had tax expense on a loss before income due to the effect of discrete items.

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 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.

(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 (loss) income attributed to IPG Photonics Corporation.

Net (loss) income attributable to IPG Photonics Corporation decreased by $400.4 million to a net loss of $181.5 million in 2024 from a net income of $218.9 million in 2023.

Net loss attributable to IPG Photonics Corporation as a percentage of our net sales decreased by 35.6% to (18.6)% in 2024 from 17.0% in 2023 due to the factors described above.

Liquidity and Capital Resources

We believe that our existing cash and cash equivalents, short-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, to assess acquisition opportunities and to repurchase shares of our stock in accordance with our repurchase program.

We expect to continue making investments in capital expenditures, assess acquisition opportunities, carry out research and development and investment in resources to strengthen our organization.

The extent and timing of such expenditures may vary from period to period.

Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth including any ongoing impact of the COVID-19 pandemic on certain global or regional economies, global or regional recessions, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products.

Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the market acceptance of our current and future products.

As of December 31, 2024, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Included in cash and cash equivalents are $76.4 million of cash and cash equivalents located in Russia, and $5.5 million of cash and cash equivalents located in Belarus, as of December 31, 2023.

Cash and cash equivalents in Russia are subject to capital controls that prevent repatriation by dividend or distribution of capital.

There are currently no restrictions on our ability to use cash and cash equivalents in Russia for operating purposes including converting cash to foreign currency for the payment of goods received from vendors outside of Russia.

The Russian operations are self-funding.

Approximately 6% of our consolidated working capital including cash, cash equivalents and short-term investments is located in Russia.

We are making no new investments in Russia.

The following table presents our principal sources of liquidity:

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Working capital (excluding cash and cash equivalents and short-term investments) 295,784 522,312

Short-term investments at December 31, 2023 consist of liquid investments including U.S.

Treasury and agency obligations, corporate bonds, commercial paper, and term deposits with original maturities of greater than three months but less than one year.

Included in cash and cash equivalents is $4.7 million of cash located in Belarus, as of December 31, 2024.

Short-term investments at December 31, 2024 consist of liquid investments including commercial paper, corporate bonds, U.S.

Treasury and agency obligations, and term deposits with original maturities of greater than three months but less than one year.

See Note 3, "Fair Value Measurements" in the notes to the consolidated financial statements for further information about our short-term investments.

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Revolving Line of Credit (1)

$75.0 million BSBY plus 0.8% to 1.2%, depending on our performance April 2025 Unsecured

$75.0 million SOFR plus 0.9% to 1.6%, depending on our performance April 2025 Unsecured

Euro Credit Facility (Germany) (2)

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Euro 1.5 million

($1.7 million) Euribor plus 1.25% June 2024 Common pool of assets of Italian subsidiary

($1.6 million) 4.3% September 2025 Common pool of assets of Italian subsidiary

(1) This facility is available to certain foreign subsidiaries in their respective local currencies.

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We were in compliance with all such financial covenants as of and for the three months ended December 31, 2024.

See Note 11, "Financing Arrangements" in the notes to the consolidated financial statements for further information about our facilities and term debt.

See Note 12, "Financing Arrangements" in the notes to the consolidated financial statements for further information about our facilities.

The following table summarizes our material cash commitments at December 31, 2024 and the effect such commitments are expected to have on our liquidity and cash flows in future periods.

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Cash provided by operating activities $ 247,896 $ 295,986

Cash (used in) provided by investing activities

(237,554) 296,952

Cash provided by (used in) investing activities 208,732 (237,554)

Cash used in financing activities (339,621) (236,380)

Operating activities.

Net cash provided by operating activities increased by $83.4 million to $296.0 million in 2023 from $212.6 million in 2022 primarily due to a decrease in cash used by working capital.

Net cash provided by operating activities decreased by $48.1 million to $247.9 million in 2024 from $296.0 million in 2023 primarily due to a decrease in net income after adding back non-cash expenses, partially offset by an increase in cash provided by working capital.

Our largest working capital items are inventory and accounts receivable.

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Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items.

The increase in cash flow from operating activities in 2023 primarily resulted from:

• an increase in cash provided by inventory as we moderated investment in safety stock related to supply chain disruptions for third party electronic parts and components internally manufactured by our factory in Russia;

• an increase in cash provided by other taxes payable driven by the timing of estimated tax payments made and refunds received from filing tax returns.

The increases in cash provided by operating activities were partially offset by:

• a decrease in cash provided by net income after adjusting for non-cash operating activities, mainly due to lower sales in 2023;

• an increase in cash used by accounts receivable, including an increase in days sales outstanding;

• an increase in cash used by prepaid expenses and other assets;

• an increase in cash used by accounts payable due to timing of payments.

The decrease in cash flow from operating activities in 2024 primarily resulted from:

• a decrease in cash provided by net income after adjusting for non-cash operating activities, mainly due to lower sales;

• an increase in cash used by income and other taxes payable due to the timing of estimated tax payments made and refunds received from filing tax returns, an installment due on the transition tax liability from the Tax Reform Act of 2017, and excise tax paid on our stock repurchase program.

The decrease in cash provided by operating activities were partially offset by:

• an increase in cash provided by accounts receivable due to the timing of collections and lower sales;

• an increase in cash provided by inventory as supply chain disruptions moderated requiring less investment in safety stock and due to a targeted plan to reduce inventory levels;

• an increase in cash provided by the timing of payments made for accounts payable and prepayments;

• a decrease in cash used by accrued expenses from lower payouts related to accrued compensation and bonuses.

Investing activities.

Net cash used in investing activities was $237.6 million in 2023 as compared to cash provided by investing activities of $297.0 million in 2022.

The cash used in investing activities in 2023 primarily related to $158.9 million of net cash used for purchases of short-term investments, and $110.5 million of cash used for property, plant and equipment, partially offset by $31.2 million of proceeds from the sale of property, plant and equipment.

The cash provided by investing activities in 2022 primarily related to $329.3 million of net proceeds from short-term investments, $52.9 million of proceeds received from the divestiture of the telecommunications transmission product lines, net of cash sold, and $26.9 million of proceeds from the sale of property, plant and equipment mainly from the sale of corporate aircraft;

partially offset by $110.1 million of cash used for property, plant and equipment.

In 2024, we expect to incur approximately $120.0 million to $130.0 million in capital expenditures net of asset divestitures.

Capital expenditures include investments in property, facilities and equipment to add capacity worldwide to support anticipated revenue growth, increase vertical integration, increase redundant manufacturing capacity for critical components and enhance research and development capabilities.

Net cash provided by investing activities was $208.7 million in 2024 as compared to cash used in investing activities of $237.6 million in 2023.

The cash provided by investing activities in 2024 primarily related to $370.3 million of net proceeds of short-term investments and $28.6 million of proceeds from the sale of property, plant and equipment, partially offset by $98.5 million of cash used for property, plant and equipment, $66.7 million of cash used for the acquisition of cleanLASER and $25.3 million of net cash outflow from the divestiture of our Russian operation.

The cash proceeds from the sale of our Russian operation were lower than the cash and cash equivalents on hand, resulting in a cash outflow from divestiture.

The cash used in investing activities in 2023 primarily related to $158.9 million of net cash used for purchases of short-term investments, and $110.5 million of proceeds from the sale of property, plant and equipment, partially offset by $31.2 million of proceeds from the sale of property, plant and equipment.

In 2025, we expect to incur approximately $105.0 million to $115.0 million in capital expenditures.

Capital expenditures include investments in property, facilities and equipment to replace capacity in Russia or increase redundant capacity for critical components and upgrade or replace equipment at other facilities that is beyond its useful life.

The timing and extent of any capital expenditures in and between periods can have a significant effect on our cash flow.

If we obtain financing for certain projects, our cash expenditures would be reduced in the year of expenditure.

Many of the capital expenditure projects that we undertake have long lead times

and are difficult to cancel or defer to a later period.

Many of the capital expenditure projects that we undertake have long lead times and are difficult to cancel or defer to a later period.

We intend to finance our capital expenditures with existing cash, cash equivalents and short term investments as well as with cash generated from operations.

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Net cash used in financing activities was $339.6 million and $236.4 million in 2024 and 2023, respectively.

The cash used in financing activities in 2024 was primarily related to the purchase of $343.8 million of treasury stock, partially offset by net proceeds of $4.2 million from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan.

The cash used in financing activities in 2023 was primarily related to the purchase of $223.5 million of treasury stock, $16.0 million of principal payments on our long-term borrowings;

partially offset by net proceeds of $3.1 million from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan.

The cash used in financing activities in 2022 was primarily related to the purchase of $499.5 million of treasury stock, $18.1 million of principal payments on our long-term borrowings, the purchase of non-controlling interests of $2.5 million related to the divestiture of the telecommunications transmission product lines;

partially offset by net proceeds of $5.6 million from the exercise of stock options net of amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units and shares issued under our employee stock purchase plan.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis