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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 001-33155
ipgp-20200930_g1.jpg
IPG PHOTONICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
04-3444218
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)
50 Old Webster Road,
Oxford, Massachusetts
01540
(Address of principal executive offices)
(Zip code)
(508373-1100
(Registrant’s telephone number, including area code)
__________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.0001 per shareIPGPNasdaq Global Select Market
As of November 2, 2020, there were 53,300,660 shares of the registrant's common stock outstanding.



TABLE OF CONTENTS
 
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Table of Contents
PART I—FINANCIAL INFORMATION
ITEM 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,December 31,
20202019
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents$763,920 $680,070 
Short-term investments537,696 502,546 
Accounts receivable, net240,352 238,479 
Inventories370,344 380,790 
Prepaid income taxes60,436 38,873 
Prepaid expenses and other current assets58,905 55,876 
Total current assets2,031,653 1,896,634 
Deferred income taxes, net38,616 31,395 
Goodwill37,731 82,092 
Intangible assets, net64,999 74,271 
Property, plant and equipment, net576,398 600,852 
Other assets45,535 45,192 
Total assets$2,794,932 $2,730,436 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt$3,792 $3,740 
Accounts payable37,375 27,329 
Accrued expenses and other current liabilities156,472 149,782 
Income taxes payable3,806 11,053 
Total current liabilities201,445 191,904 
Deferred income taxes and other long-term liabilities87,296 98,121 
Long-term debt, net of current portion35,117 37,968 
Total liabilities323,858 327,993 
Commitments and contingencies (Note 12)
IPG Photonics Corporation equity:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 55,278,428 and 53,244,416 shares issued and outstanding, respectively, at September 30, 2020; 54,743,227 and 53,010,875 shares issued and outstanding, respectively, at December 31, 2019.
6 5 
Treasury stock, at cost, 2,034,012 and 1,732,352 shares held at September 30, 2020 and December 31, 2019, respectively.
(303,614)(265,730)
Additional paid-in capital828,796 785,636 
Retained earnings2,138,852 2,028,734 
Accumulated other comprehensive loss(193,827)(146,919)
Total IPG Photonics Corporation equity2,470,213 2,401,726 
Non-controlling interests861 717 
Total equity2,471,074 2,402,443 
Total liabilities and equity$2,794,932 $2,730,436 
See notes to condensed consolidated financial statements.
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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands, except per share data)
Net sales$318,441 $329,138 $864,094 $1,007,954 
Cost of sales165,649 176,280 471,977 525,948 
Gross profit152,792 152,858 392,117 482,006 
Operating expenses:
Sales and marketing17,332 18,969 53,341 58,907 
Research and development31,710 32,160 95,132 99,528 
General and administrative29,038 26,776 82,561 82,526 
Goodwill impairment44,589  44,589  
Impairment of long-lived assets and other restructuring charges12  1,177  
(Gain) loss on foreign exchange(11,302)808 (18,101)7,495 
Total operating expenses111,379 78,713 258,699 248,456 
Operating income41,413 74,145 133,418 233,550 
Other income, net:
Interest income, net1,168 3,734 6,097 11,737 
Other income (expense), net(59)(520)581 129 
Total other income1,109 3,214 6,678 11,866 
Income before provision for income taxes 42,522 77,359 140,096 245,416 
Provision for income taxes6,992 20,232 29,434 60,852 
Net income35,530 57,127 110,662 184,564 
Less: net (loss) income attributable to non-controlling interests (74)(126)429 (120)
Net income attributable to IPG Photonics Corporation$35,604 $57,253 $110,233 $184,684 
Net income attributable to IPG Photonics Corporation per share:
Basic$0.67 $1.08 $2.07 $3.48 
Diluted$0.66 $1.07 $2.05 $3.43 
Weighted average shares outstanding:
Basic53,098 52,928 53,136 53,073 
Diluted53,664 53,622 53,691 53,864 
See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In thousands)
Net income$35,530 $57,127 $110,662 $184,564 
Other comprehensive income, net of tax:
Translation adjustments(8,562)(30,371)(46,445)(11,413)
Adjustment for net gain realized and included in net income(232) (232) 
Unrealized (loss) gain on derivatives(551)3 (516)(2)
Total other comprehensive loss(9,345)(30,368)(47,193)(11,415)
Comprehensive income26,185 26,759 63,469 173,149 
Comprehensive (loss) income attributable to non-controlling interests(93)(165)144 (138)
Comprehensive income attributable to IPG Photonics Corporation$26,278 $26,924 $63,325 $173,287 
See notes to condensed consolidated financial statements.

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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
20202019
(In thousands)
Cash flows from operating activities:
Net income$110,662 $184,564 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization71,188 72,531 
Deferred income taxes(10,122)(4,214)
Stock-based compensation26,394 25,571 
Goodwill impairment44,589  
Impairment of long-lived assets671  
Unrealized (gain) loss on foreign currency transactions(21,759)7,033 
Other6,823 854 
Provisions for inventory, warranty and bad debt42,559 38,748 
Changes in assets and liabilities that provided (used) cash, net of acquisitions:
Accounts receivable2,308 (7,562)
Inventories(34,213)(51,032)
Prepaid expenses and other assets(2,065)11,087 
Accounts payable8,819 (8,137)
Accrued expenses and other liabilities(17,492)(26,113)
Income and other taxes payable(28,345)(49,748)
Net cash provided by operating activities200,017 193,582 
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment(61,871)(107,540)
Proceeds from sales of property, plant and equipment689 348 
Purchases of short-term and long-term investments(732,729)(557,674)
Proceeds from short-term investments697,816 568,501 
Acquisitions of businesses, net of cash acquired (15,115)
Other17 243 
Net cash used in investing activities(96,078)(111,237)
Cash flows from financing activities:
Proceeds from line-of-credit facilities 15 
Payments on line-of-credit facilities (15)
Principal payments on long-term borrowings(2,798)(2,747)
Proceeds from issuance of common stock under employee stock option and purchase plans less payments for taxes related to net share settlement of equity awards16,767 1,644 
Purchase of treasury stock, at cost(37,884)(25,921)
Payment of purchase price holdback from business combination(1,650) 
Net cash used in financing activities(25,565)(27,024)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash4,692 (16,561)
Net increase in cash, cash equivalents and restricted cash83,066 38,760 
Cash, cash equivalents and restricted cash — Beginning of period682,984 544,358 
Cash, cash equivalents and restricted cash — End of period$766,050 $583,118 
Supplemental disclosure of cash flow information:
Cash paid for interest$1,650 $1,655 
Cash paid for income taxes$65,895 $97,172 
Non-cash transactions:
Demonstration units transferred from inventory to other assets$6,724 $8,892 
Inventory transferred to machinery and equipment$2,362 $8,250 
Changes in accounts payable related to property, plant and equipment$1,248 $2,721 
Leased assets obtained in exchange for new operating lease liabilities$2,764 $11,944 
See Note 4 for reconciliation of cash, cash equivalents and restricted cash between the condensed consolidated balance sheets and condensed consolidated statements of cash flows.
See notes to condensed consolidated financial statements.
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IPG PHOTONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended September 30,
Common StockTreasury StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeNon-
controlling Interest
Total Stockholders' Equity
(In thousands, except share data)SharesAmountSharesAmount
Balance, July 1, 201953,182,910 $5 (1,446,470)$(227,282)$761,936 $1,975,931 $(143,943)$714 $2,367,361 
Exercise of stock options and vesting of RSU's and PSU's33,553 — — — 1,676 — — — 1,676 
Purchased common stock(180,620)— (180,620)(23,637)— — — — (23,637)
Stock-based compensation— — — — 8,540 — — — 8,540 
Net income— — — — — 57,253 — (126)57,127 
Foreign currency translation adjustments— — — — — — (30,371)(39)(30,410)
Unrealized gain on derivatives, net of tax— — — — — — 3 — 3 
Balance, September 30, 201953,035,843 $5 (1,627,090)$(250,919)$772,152 $2,033,184 $(174,311)$549 $2,380,660 
Balance, July 1, 202053,182,148 $6 (1,972,540)$(293,960)$811,559 $2,103,248 $(184,501)$954 $2,437,306 
Exercise of stock options and vesting of RSU's and PSU's123,740 — — — 8,497 — — — 8,497 
Purchased common stock(61,472)— (61,472)(9,654)— — — — (9,654)
Stock-based compensation— — — — 8,740 — — — 8,740 
Net income— — — — — 35,604 — (74)35,530 
Foreign currency translation adjustments— — — — — — (8,543)(19)(8,562)
Unrealized loss on derivatives, net of tax— — — — — — (551)— (551)
Adjustment for net gain realized and included in net income— — — — — — (232)— (232)
Balance, September 30, 202053,244,416 $6 (2,034,012)$(303,614)$828,796 $2,138,852 $(193,827)$861 $2,471,074 
Nine Months Ended September 30,
Common StockTreasury StockAdditional Paid In CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeNon-
controlling Interest
Total Stockholders' Equity
(In thousands, except share data)SharesAmountSharesAmount
Balance, January 1, 201952,941,607 $5 (1,430,094)$(224,998)$744,937 $1,848,500 $(162,896)$687 $2,206,235 
Exercise of stock options and vesting of RSU's and PSU's259,749 — — — (2,321)— — — (2,321)
Common stock issued under employee stock purchase plan31,483 — — — 3,965 — — — 3,965 
Purchased common stock(196,996)— (196,996)(25,921)— — — — (25,921)
Stock-based compensation— — — — 25,571 — — — 25,571 
Net income— — — — — 184,684 — (120)184,564 
Foreign currency translation adjustments— — — — — — (11,413)(18)(11,431)
Unrealized loss on derivatives, net of tax— — — — — — (2)— (2)
Balance, September 30, 201953,035,843 $5 (1,627,090)$(250,919)$772,152 $2,033,184 $(174,311)$549 $2,380,660 
Balance, January 1, 202053,010,875 $5 (1,732,352)$(265,730)$785,636 $2,028,734 $(146,919)$717 $2,402,443 
Exercise of stock options and vesting of RSU's and PSU's514,717 1 — — 14,216 — — — 14,217 
Common stock issued under employee stock purchase plan20,484 — — — 2,550 — — — 2,550 
Purchased common stock(301,660)— (301,660)(37,884)— — — — (37,884)
Stock-based compensation— — — — 26,394 — — — 26,394 
Recently adopted accounting standards— — — — — (115)— — (115)
Net income— — — — — 110,233 — 429 110,662 
Foreign currency translation adjustments— — — — — — (46,160)(285)(46,445)
Unrealized loss on derivatives, net of tax— — — — — — (516)— (516)
Adjustment for net gain realized and included in net income— — — — — — (232)— (232)
Balance, September 30, 202053,244,416 $6 (2,034,012)$(303,614)$828,796 $2,138,852 $(193,827)$861 $2,471,074 
See notes to condensed consolidated financial statements.
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared by IPG Photonics Corporation, or "IPG", "its" or the "Company". Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The condensed consolidated financial statements include the Company's accounts and those of its subsidiaries. All intercompany balances have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of the Company's management, the financial information for the interim periods presented reflects all adjustments necessary for a fair presentation of the Company's financial position, results of operations and cash flows. The results reported in these condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year.
Accounts Receivable and Allowance for Doubtful Accounts — The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected. The allowance is based upon an estimate of expected credit losses over the life of outstanding receivables. The estimate involves an assessment of customer creditworthiness, historical payment experience, an assumption of future expected credit losses, and the age of outstanding receivables.
Activity related to the allowance for doubtful accounts was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Balance, beginning of period$1,999 $2,528 $2,547 $1,799 
Provision for bad debts, net of recoveries143 (27)(206)767 
Uncollectable accounts written off(1)(3)(72)(91)
Foreign currency translation(80)(56)(208)(33)
Balance, end of period$2,061 $2,442 $2,061 $2,442 

2. RECENT ACCOUNTING PRONOUNCEMENTS
Adopted Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which adds an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance for its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity by decreasing the number of credit impairment models that entities use to account for debt instruments. The Company adopted ASU 2016-03, along with its subsequent clarifications, as of January 1, 2020. The cumulative effect of the changes made to the Company's condensed consolidated January 1, 2020 balance sheet for the adoption of ASU 2016-13 was as follows:
Balance atAdoption ofBalance at
December 31, 2019ASU 2016-13January 1, 2020
Balance Sheet
Accounts receivable, net$238,479 $(148)$238,331 
Deferred income taxes, net31,395 33 31,428 
Retained earnings2,028,734 (115)2,028,619 
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Sales are derived from products for different applications: fiber lasers, diode lasers, diodes and systems for materials processing, fiber lasers and amplifiers for advanced applications, fiber amplifiers and transceivers for communications applications, and fiber lasers for medical applications.
The following tables represent a disaggregation of revenue from contracts with customers:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Sales by Application
Materials processing$290,028 $306,260 $779,810 $952,936 
Other applications28,413 22,878 84,284 55,018 
Total$318,441 $329,138 $864,094 $1,007,954 

Sales by Product
 High Power Continuous Wave ("CW") Lasers $184,387 $184,924 $461,181 $577,354 
 Medium Power CW Lasers 11,756 11,891 33,701 42,904 
 Pulsed Lasers 34,975 33,850 109,391 106,100 
 Quasi-Continuous Wave ("QCW") Lasers 15,079 12,479 38,660 42,612 
 Laser and Non-Laser Systems 20,841 32,929 64,417 104,943 
 Other Revenue including Amplifiers, Service, Parts, Accessories and Change in Deferred Revenue 51,403 53,065 156,744 134,041 
Total$318,441 $329,138 $864,094 $1,007,954 

Sales by Geography
North America$52,732 $71,000 $173,972 $199,947 
Europe:
Germany16,163 17,204 51,208 59,487 
Other including Eastern Europe/CIS54,907 62,196 158,686 192,527 
Asia and Australia:
China148,049 121,290 361,864 399,246 
Japan12,884 21,859 41,241 54,879 
Other31,227 28,877 70,924 89,544 
Rest of World2,479 6,712 6,199 12,324 
Total$318,441 $329,138 $864,094 $1,007,954 

Timing of Revenue Recognition
Goods and services transferred at a point in time$308,474 $310,324 $824,069 $944,454 
Goods and services transferred over time9,967 18,814 40,025 63,500 
Total$318,441 $329,138 $864,094 $1,007,954 
One of the Company's customers accounted for 35% and 24% of the Company's net accounts receivable as of September 30, 2020 and December 31, 2019, respectively.
The Company enters into contracts to sell lasers and spare parts, for which revenue is generally recognized upon shipment or delivery, depending on the terms of the contract. The Company also provides installation services and extended warranties. The Company frequently receives consideration from a customer prior to transferring goods to the customer under the terms of a sales contract. The Company records customer deposits related to these prepayments, which represent a contract liability. The Company also records deferred revenue related to installation services when consideration is received before the services have
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IPG PHOTONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share data)
been performed. The Company recognizes customer deposits and deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria are met. The Company bills customers for extended warranties upon entering into the agreement with the customer, resulting in deferred revenue. The timing of customer payments on contracts for the sale of customized robotic systems generally differs from the timing of revenue recognized, resulting in contract assets and liabilities. Contract assets are included within prepaid expense and other current assets on the condensed consolidated balance sheets. Contract liabilities are included within accrued expenses and other current liabilities on the condensed consolidated balance sheets.
The following table reflects the changes in the Company's contract assets and liabilities for the nine months ended September 30, 2020 and 2019:
September 30,December 31, September 30,December 31,
20202019Change20192018Change
Contract assets
Contract assets$6,771 $9,645 $(2,874)$10,606 $10,102 $504 
Contract liabilities
Contract liabilities - current57,034 59,531 (2,497)49,358 52,606 (3,248)
Contract liabilities - long-term2,121 1,820 301 1,677 1,413 264 
During the three months ended September 30, 2020 and 2019 the Company recognized revenue of $10,179 and $4,534, respectively, that was included in contract liabilities at the beginning of each period. During the nine months ended September 30, 2020 and 2019, the Company recognized revenue of $41,622 and $40,786, respectively, that was included in contract liabilities at the beginning of each period.
The Company has elected the practical expedient in ASC 606-10-50-14, whereby the performance obligations for contracts with an original expected duration of one year or less are not disclosed. The following table represents the Company's remaining performance obligations from contracts that are recognized over time as of September 30, 2020:
Remaining Performance Obligations
2020 (a)
2021202220232024ThereafterTotal
Revenue expected to be recognized for extended warranty agreements$1,439 $2,724 $874 $566 $265 $56 $5,924 
Revenue to be earned over time from contracts to sell robotic systems10,934 16,941     27,875 
Total$12,373