You should read the following discussion in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements." Overview We develop, manufacture and sell high-performance fiber lasers that are used for diverse end markets and applications, primarily in industrial manufacturing, medical, defense and other advanced applications. We also manufacture and sell complete laser-based systems for certain markets and applications. Additionally, we manufacture complementary products used with our lasers and laser-based systems, 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. Our manufacturing facilities are located in the United States, Germany, Italy, and Poland. We have sales and service offices and applications laboratories worldwide. We are vertically integrated such that we design and manufacture most of the key components used in our finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers and complementary products. Our vertically integrated operations allow us to reduce manufacturing costs, control quality, rapidly develop and integrate advanced products and protect our proprietary technology. 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. U.S. Government Tariffs. We continue to closely monitor changes in international trade relations and economic and monetary policies, including tariffs on imports into the U.S. from China, Germany and other countries, as well as retaliatory tariffs in affected countries, which could adversely impact the global economy and our operating results. On February 20, 2026, the U.S. Supreme Court held that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the President to impose tariffs. The decision did not affect tariffs imposed under Section 232, including tariffs on steel and aluminum. We subsequently applied for refunds of tariffs assessed under IEEPA in accordance with processes established by U.S. Customs. We account for IEEPA tariff refunds, and claims made under other tariff relief mechanisms, as recoveries of previously incurred tariff costs when such refunds are deemed probable of recovery. During the three and six months ended June 30, 2026, we recognized $4.7 million and $5.1 million, respectively, as a reduction of Cost of sales related to these programs. The benefit to gross margin from tariff recoveries for the three and six months ended June 30, 2026 was approximately 170 and 90 basis points, respectively. We will continue to evaluate developments and recognize additional recoveries when the applicable recognition criteria are met. Middle East Conflict. The ongoing conflict involving Iran and related instability in the Middle East has contributed to volatility in global transportation markets, including periodic increases in ocean freight, air cargo, fuel, insurance, and other shipping-related costs, as well as the potential for longer transit times on certain international routes. We continue to monitor these developments and work with logistics providers and suppliers to manage sourcing and distribution activities, including evaluating alternative routing and supply chain strategies where appropriate. Based on information currently available, we have not experienced material disruption to our operations and do not presently expect the related impact on freight and shipping costs to have a material effect on our business, results of operations, liquidity, or financial condition. However, the extent and duration of these conditions remain uncertain and could change in future periods. Belarusian Operations. 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. Because of sanctions, we completed an impairment analysis of our Belarus assets during the third quarter of 2024 and recorded $26.6 million of impairment of long-lived asset in our Condensed Consolidated Statements of Operations. During the second quarter of 2026, we entered into an agreement to sell our Belarusian operations and concluded that the related assets and liabilities of the business met the criteria to be classified as held for sale. Accordingly, the disposal group was 20 Table of Contents remeasured at the lower of carrying value or estimated fair value less costs to sell, resulting in an impairment charge of $17.6 million in the quarter, primarily attributed to the inclusion of cumulative currency translation adjustments in the carrying value of the subsidiary's net assets. Future changes in estimated fair value less costs to sell, foreign currency exchange rates, or other developments related to the planned disposition could result in additional charges or adjustments. Net sales. Our net sales have historically fluctuated from quarter to quarter. The increase or decrease in sales from a prior quarter can be affected by the timing of orders received from customers, the timing of shipments, the mix of OEM orders and one-time orders for products with large purchase prices, competitive pressures, acquisitions, economic and political conditions in a certain country or region and seasonal factors such as the purchasing patterns and levels of activity throughout the year in the regions where we operate. Net sales can be affected by the time taken to qualify our products for use in new applications in the end markets that we serve. Our sales cycle varies substantially, ranging from a period of a few weeks to as long as one year or more, but is typically several months. The adoption of our products by a new customer or qualification in a new application can lead to an increase in net sales for a period, which may then slow until we penetrate new markets or obtain new customers. Foreign exchange rates also affect our net sales, due to changes in the U.S. dollar value of sales made in foreign currencies. Our business depends substantially upon capital expenditures by end users, particularly by manufacturers using our products for industrial manufacturing, which includes general industrial manufacturing, automotive including electric vehicles ("EV"), battery energy storage systems ("BESS"), aerospace, heavy industry, but also may include consumer, semiconductor and electronics. Approximately 85% of our revenues for the first half of 2026, and 84% for the full fiscal year of 2025 were in Industrial Solutions and used in industrial applications, mostly for materials processing. Although applications within Industrial Solutions are broad, the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns. For the foreseeable future, our operations will continue to depend upon capital expenditures by end users of industrial equipment and will be subject to the broader fluctuations of capital equipment spending. In recent years, our net sales and margins have been negatively impacted by tariffs and trade policy. Tariffs and other changes in U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments. We are also susceptible to global or regional disruptions such as political instability, geopolitical conflicts, acts of terrorism, significant fluctuations in currency values, natural disasters and pandemics to the extent that they affect macroeconomic conditions, global supply chains or individual IPG locations. 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 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 industrial 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. Additionally, as our technology matures, we become subject to more competition which can affect sales trends. Gross margin. Our total gross margin in any period can be significantly affected by a number of factors, including net sales, production volumes, competitive factors, product mix, and by other factors such as changes in foreign exchange rates relative to the U.S. dollar, tariffs and shipping costs. Many of these factors are not under our control. The following are examples of factors affecting gross margin: •As our products mature, we can experience additional competition which tends to decrease average selling prices and affects gross margin; •Our gross margin can be significantly affected by product mix. Within each of our product categories, the gross margin is generally higher for devices with greater average power. These higher power products often have better performance, more difficult specifications to attain and fewer competing products in the marketplace; •Higher power lasers also use a greater number of optical components, improving absorption of fixed overhead costs and enabling economies of scale in manufacturing; •The gross margin for certain specialty products may be higher because there are fewer or sometimes no equivalent competing products; 21 Table of Contents •Customers that purchase devices in greater unit volumes generally are provided lower prices per device than customers that purchase fewer units. In general, lower selling prices to high unit volume customers reduce gross margin although this may be partially offset by improved absorption of fixed overhead costs associated with larger product volumes, which drive economies of scale; •Gross margin on systems can be lower than gross margin for our lasers and sub-systems, depending on the configuration, volume and competitive forces, among other factors; •Persistent inflation leading to increases in average manufacturing salaries as well as an increase in the purchase price of components including, but not limited to, electronic components and metal parts could negatively impact gross margin if we are not able to pass those increases on to customers by increasing the selling price of our products; •Tariffs and counter-tariffs added, increased, reduced or eliminated in any period; •Changes in relative exchange rates between currencies we receive when selling our products and currencies we use to pay our manufacturing expenses; and finally, •Our gross margin from products on new manufacturing lines can be lower due to production inefficiencies 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. If we are able to develop opportunities that are significant in size, competitively advantageous or leverage our existing technology base and leadership, our current gross margin levels may not be maintained. Instead, we aim to deliver industry-leading levels of gross margins by growing sales, by taking market share in existing markets, or by developing new applications and markets we address, by reducing the cost of our products and by optimizing the efficiency of our manufacturing operations. A high proportion of our costs is fixed so costs are generally difficult to adjust or may take time to adjust in response to changes in demand. In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than is required by sales growth, gross margins could be negatively affected. Gross margins generally decline if production volumes are lower as a result of a decrease in sales or a reduction in inventory because the absorption of fixed manufacturing costs will be reduced. Gross margins generally improve when the opposite occurs. If both sales and inventory decrease in the same period, the decline in gross margin may be greater if we are unable or choose not to reduce fixed costs to match the decrease in the level of production. If we experience a decline in sales that reduces absorption of our fixed costs, or if we have production issues, our gross margins will be negatively affected. We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess. Any provision for such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for slow-moving, obsolete or excess inventory totaling $5.7 million and $7.8 million for the three months ended June 30, 2026 and 2025, respectively and $10.6 million and $17.3 million for the six months ended June 30, 2026 and 2025, respectively. Selling, general and administrative expenses. In the past, we invested in selling, 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, general and administrative expenses will also be influenced by these trends, although we may still invest in selling or general and administrative functions to support certain initiatives even in economic down cycles. Certain general and administrative expenses are not related to the level of sales and may vary quarter to quarter based primarily upon the level of acquisitions, litigation and project-related consulting expenses. Additionally, selling, general and administrative expenses will also be influenced by accruals for variable compensation and performance stock unit expense both of which are dependent upon our performance relative to preestablished targets. Research and development expenses. 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. Impairment charges. We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units, differences in the estimated product acceptance 22 Table of Contents 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. 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 and future strategic use of our asset footprint. Also, the process of evaluating the potential impairment of goodwill is subjective. We operate in a highly competitive environment and projections of future operating results, asset usage and cash flows may vary significantly from actual results. If our analysis indicates potential impairment to goodwill in one or more of our reporting units, we may be required to record charges to earnings in our financial statements, which could negatively affect our results of operations. Foreign exchange. Because we are a U.S.-based company doing business globally, we have both translational and transactional exposure to fluctuations in foreign currency exchange rates. Changes in the relative exchange rate between the U.S. dollar and the foreign currencies in which our subsidiaries operate directly affects our sales, costs and earnings. Differences in the relative exchange rates between where we sell our products and where we incur manufacturing and other operating costs (primarily in the U.S. and Germany) also affects our costs and earnings. Certain currencies experiencing significant exchange rate fluctuations like the euro, the Chinese yuan and Japanese yen have had and could have an additional significant impact on our sales, costs and earnings. For the quarter ended June 30, 2026, the foreign exchange gain was primarily attributable to the depreciation and appreciation of the Euro and Chinese yuan, respectively, as compared to the U.S. dollar. Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products. Income taxes. On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The U.S. has withdrawn support for Pillar Two and proposed a “side-by-side” solution under which U.S.-parented groups may be exempt from certain provisions of Pillar Two, subject to international agreement and local implementation. The impact of the Pillar Two Framework on our income tax provisions for the six months ended June 30, 2026 and 2025, respectively, was not material. We are continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries. On July 4, 2025, the U.S. enacted H.R. 1 "A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14", commonly referred to as the One Big Beautiful Bill Act ("OBBBA"). OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the 2017 Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. Changes in tax laws may affect recorded deferred tax assets and deferred tax liabilities and our effective tax rate in the future. The legislation does not have a material impact on our financial statements. Major customers. While we have historically depended on a few customers for a large percentage of our annual net sales, the composition of this group can change from period to period. Net sales derived from our five largest customers as a percentage of our net sales was 19% for the six months ended June 30, 2026, and 16% and 13% for the full years ended December 31, 2025 and 2024, respectively. One of the Company's customers accounted for 12% and 11% of the Company's net accounts receivable at June 30, 2026 and December 31, 2025, respectively. We seek to add new customers and to expand our relationships with existing customers. We anticipate that the composition of our significant customers will continue to change. We generally do not enter into agreements with our customers obligating them to purchase a fixed number or large volume of our products. If any of our significant customers substantially reduced their purchases from us, our results would be adversely affected. Results of Operations for the Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025 Net sales. Net sales increased by $27.9 million, or 11.1%, to $278.6 million for the three months ended June 30, 2026 from $250.7 million for the three months ended June 30, 2025. 23 Table of Contents The table below sets forth sales by application: Three Months Ended June 30, 2026 2025 Change (In thousands, except for percentages) Sales by Application % of Total % of Total Industrial Solutions $ 237,043 85.1 % $ 204,880 81.7 % $ 32,163 15.7 % Advanced Solutions 41,537 14.9 % 45,841 18.3 % (4,304) (9.4) % Total $ 278,580 100.0 % $ 250,721 100.0 % $ 27,859 11.1 % The table below sets forth sales by type of product: Three Months Ended June 30, 2026 2025 Change (In thousands, except for percentages) Sales by Product % of Total % of Total Lasers and Components $ 219,814 78.9 % $ 196,175 78.2 % $ 23,639 12.0 % Systems 58,766 21.1 % 54,546 21.8 % 4,220 7.7 % Total $ 278,580 100.0 % $ 250,721 100.0 % $ 27,859 11.1 % Industrial Solutions sales accounted for 85.1% of total revenue and increased 15.7% year over year, as a result of higher sales in welding, cleaning and marking, service and parts, and additive manufacturing, partially offset by lower sales in cutting, and custom applications. Advanced Solutions sales decreased 9.4% year over year, driven by lower sales in micromachining, medical procedures, and advanced applications. Cost of sales and gross margin. Cost of sales increased by $9.0 million, or 5.7%, to $166.1 million for the three months ended June 30, 2026 from $157.1 million for the three months ended June 30, 2025, representing 59.6% of net revenue in 2026 vs. 62.7% of revenue in 2025, resulting in a gross margin of 40.4% in 2026 vs. 37.3% in 2025. The increase in gross margin was mainly driven by a decrease in product costs as a percentage of sales as well as a $4.7 million benefit of tariff refunds recognized in the quarter, partially offset by an increase in unabsorbed manufacturing costs as a percentage of sales. Sales and marketing expense. Sales and marketing expense decreased by $1.8 million, or 7.0%, to $23.8 million for the three months ended June 30, 2026 from $25.6 million for the three months ended June 30, 2025. This change was primarily the result of a decrease of $1.0 million in personnel and related expenses, a decrease of $0.6 million in amortization expense, and a decrease of $0.3 million in trade fairs and exhibits expense. As a percentage of sales, sales and marketing expense decreased to 8.5% from 10.2% for the three months ended June 30, 2026 and 2025, respectively. Research and development expense. Research and development expense increased by $1.1 million, or 3.7%, to $31.0 million for the three months ended June 30, 2026, compared to $29.9 million for the three months ended June 30, 2025. This change was primarily the result of an increase of $1.5 million in personnel and related expenses as the Company continues to invest in new product development, plus increases in patent fees and other costs, partially offset by an increase in grant income of $1.8 million. As a percentage of sales, research and development expense decreased to 11.1% from 11.9% for the three months ended June 30, 2026 and 2025, respectively. General and administrative expense. General and administrative expense increased by $1.6 million, or 4.6%, to $36.5 million for the three months ended June 30, 2026 from $34.9 million for the three months ended June 30, 2025. The increase was primarily the result of outside advisor fees including acquisition related diligence costs and legal fees, as well as bad debt expense. As a percentage of sales, general and administrative expense decreased to 13.1% from 13.9% for the three months ended June 30, 2026 and 2025, respectively. Settlement of litigation matters. During the three months ended June 30, 2026, we recorded a benefit of $0.2 million in connection with the settlement of the patent litigation with affiliates of Trumpf SE & Co. KG ("Trumpf"), attributable to favorable foreign currency impacts associated with the settlement of the matter. The benefit was recorded in operating expenses. There were no settlement charges recorded during the three months ended June 30, 2025. Impairment charges. During the three months ended June 30, 2026, we reclassified the net assets of our Belarus subsidiary to assets and liabilities held for sale following the execution of definitive agreements to divest the business. Based on our assessment of fair value less costs to sell compared to the carrying value of the business, we recorded a $17.6 million 24 Table of Contents impairment charge, primarily reflecting the inclusion of approximately $17.5 million of cumulative currency translation adjustments in the carrying amount used for impairment testing. As of June 30, 2026, the disposal group is classified as held for sale on our Condensed Consolidated Balance Sheets. There were no impairment charges recorded during the three months ended June 30, 2025. Effect of exchange rates on net sales, gross profit and operating expenses. If exchange rates relative to the U.S. dollar had been the same as the comparable quarter one year ago, which were on average euro 0.88, Japanese yen 144 and Chinese yuan 7.23, respectively, we estimate that net sales for the three months ended June 30, 2026 would have been $4.9 million lower, gross profit would have been $2.3 million lower, and total sales and marketing, research and development, general and administrative expenses and other operating expenses would have been $1.6 million lower. Gain on foreign exchange. We incurred a foreign exchange transaction gain of $0.8 million for the three months ended June 30, 2026 as compared to a $3.1 million loss for the three months ended June 30, 2025. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese subsidiary has certain net liabilities denominated in U.S. dollars. The foreign exchange gain for the three months ended June 30, 2026 was primarily attributable to the appreciation of the Chinese yuan and depreciation of the Euro as compared to the U.S. dollar. Interest income, net. Interest income, net was $7.1 million for the three months ended June 30, 2026 as compared to $8.0 million for the three months ended June 30, 2025. The change in interest income, net was primarily due to lower weighted average interest rates across our investment portfolio in the current period as compared to the prior year. Provision for income taxes. The provision for income taxes was an expense of $7.3 million and an expense of $1.7 million, for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate was 58.2% for the three months ended June 30, 2026. This compares to the effective tax rate for the three months ended June 30, 2025 of 20.1%. The increase in income taxes for the three months ended June 30, 2026 vs. June 30, 2025 was primarily due to an increase of income before provision for income taxes, excluding impairment charges for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025. The discrete tax detriment was $0.3 million for the three months ended June 30, 2026 as compared to a discrete tax detriment of $0.3 million for the three months ended June 30, 2025. Net income. Net income decreased by $1.4 million to a net income of $5.2 million for the three months ended June 30, 2026 compared to a net income of $6.6 million for the three months ended June 30, 2025 due to the factors described above. Results of Operations for the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025 Net sales. Net sales increased by $65.6 million, or 13.7% to $544.1 million for the six months ended June 30, 2026 from $478.5 million for the six months ended June 30, 2025. The table below sets forth sales by application: Six Months Ended June 30, 2026 2025 Change (In thousands, except for percentages) Sales by Application % of Total % of Total Industrial Solutions $ 464,633 85.4 % $ 392,896 82.1 % $ 71,737 18.3 % Advanced Solutions 79,444 14.6 % 85,618 17.9 % (6,174) (7.2) % Total $ 544,077 100.0 % $ 478,514 100.0 % $ 65,563 13.7 % 25 Table of Contents The table below sets forth sales by type of product and other revenue: Six Months Ended June 30, 2026 2025 Change (In thousands, except for percentages) Sales by Product % of Total % of Total Lasers and Components $ 433,466 79.7 % $ 383,518 80.1 % $ 49,948 13.0 % Systems 110,611 20.3 % 94,996 19.9 % 15,615 16.4 % Total $ 544,077 100.0 % $ 478,514 100.0 % $ 65,563 13.7 % Industrial solutions accounted for 85.4% of total revenue and increased 18.3% year over year, as a result of higher sales in welding, cleaning and marking, services and parts, cutting, drilling, and annealing applications, partially offset by lower revenue in additive manufacturing. Advanced solutions sales decreased 7.2% year over year driven by lower revenue in micromachining, and advanced applications, partially offset by higher revenue in medical procedures. Cost of sales and gross margin. Cost of sales increased by $37.0 million, or 12.5%, to $332.1 million for the six months ended June 30, 2026 from $295.1 million for the six months ended June 30, 2025. The increase in cost of goods sold was primarily due to an increase in product costs of $30.0 million, and an increase of $11.9 million in unabsorbed manufacturing expenses, partially offset by a reduction of $6.7 million of provisions for inventory reserves. Net tariff costs were also $1.8 million higher in the six months ended 2026 vs. 2025, despite a $5.1 million benefit recorded during the six months ended June 30, 2026 for tariff recoveries, because the U.S. tariff programs did not fully impact us until the second quarter of prior year. Our gross margin increased to 39.0% for the six months ended June 30, 2026 from 38.3% for the six months ended June 30, 2025. The increase in gross margin was mainly driven by a reduction of provisions for inventory reserves partially offset by higher unabsorbed manufacturing expenses as a percentage of sales. Sales and marketing expense. Sales and marketing expense decreased by $1.6 million, or 3.2%, to $48.4 million for the six months ended June 30, 2026 compared with $50.0 million for the six months ended June 30, 2025. This change was primarily the result of lower amortization expenses for intangible assets fully amortized as well as lower personnel related costs. As a percentage of sales, sales and marketing expense decreased to 8.9% from 10.4% for the six months ended June 30, 2026 and 2025, respectively. Research and development expense. Research and development expense increased by $6.0 million, or 10.3%, to $64.3 million for the six months ended June 30, 2026, compared to $58.3 million for the six months ended June 30, 2025. The increase was primarily the result of higher personnel and related expenses, outside advisor fees and other costs, partially offset by grant income of $1.9 million. As a percentage of sales, research and development expense decreased to 11.8% from 12.2% for the six months ended June 30, 2026 and 2025, respectively. General and administrative expense. General and administrative expense increased by $4.9 million, or 7.2%, to $72.6 million for the six months ended June 30, 2026 from $67.7 million for the six months ended June 30, 2025. This change was primarily the result of an increase in personnel costs and related expenses, higher outside advisor costs driven by legal fees and due diligence costs and an increase in information systems costs as we continue to invest in our systems capabilities. As a percentage of sales, general and administrative expense decreased to 13.3% from 14.1% for the six months ended June 30, 2026 and 2025, respectively. Settlement of litigation matters. During the six months ended June 30, 2026, we recorded $13.5 million of legal settlement charges ($13.3 million net of the impact of change in foreign exchange rates) related to patent litigation with affiliates of Trumpf SE & Co. KG ("Trumpf"). The charge was recorded in operating expenses and reflects an agreed-upon settlement for past damages associated with sales of certain adjustable mode beam ("AMB") laser products. There were no settlement charges recorded during the six months ended June 30, 2025. Impairment charges. During the six months ended June 30, 2026, we reclassified the assets and liabilities of our Belarus subsidiary to assets and liabilities held for sale following the execution of definitive agreements to divest the business. Based on our assessment of fair value less costs to sell compared to the carrying value of the business, we recorded a $17.6 million impairment charge, primarily reflecting the inclusion of approximately $17.5 million of cumulative currency translation adjustments in the carrying amount used for impairment testing. As of June 30, 2026, the disposal group is classified as held for sale on our Condensed Consolidated Balance Sheets. There were no impairment charges recorded during the six months ended June 30, 2025. 26 Table of Contents Effect of exchange rates on net sales, gross profit and operating expenses. We estimate that, if exchange rates relative to the U.S. dollar had been the same as the comparable six-month period one year ago, which were on average euro 0.92, Japanese yen 149 and Chinese yuan 7.25, respectively, we would have expected net sales for the six months ended June 30, 2026 to be $13.9 million lower, gross profit to be $5.6 million lower, and total sales and marketing, research and development, general and administrative expenses and other operating expenses would have been $4.8 million lower. Gain (loss) on foreign exchange. We incurred a foreign exchange transaction gain of $1.0 million for the six months ended June 30, 2026 as compared to a loss of $5.5 million for the six months ended June 30, 2025. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Chinese and Indian subsidiaries have certain net liabilities denominated in U.S. dollars. The gain for the six months ended June 30, 2026 was primarily attributable to gain from the depreciation of the euro and the appreciation of the Chinese yuan as compared to the U.S. dollar, partially offset by the loss from the depreciation of the Indian rupee as compared to the U.S. Dollar. Interest income, net. Interest income, net, was $14.0 million for the six months ended June 30, 2026 as compared to $15.4 million of income for the six months ended June 30, 2025. The change in interest income, net was primarily due to lower weighted average interest rates across our investment portfolio in the current period as compared to the prior year. Provision for income taxes. Provision for income taxes was $6.7 million for the six months ended June 30, 2026 compared to $8.5 million for the six months ended June 30, 2025. The effective tax rate was 49.7% for the six months ended June 30, 2026 as compared to 45.1% as compared to the six months ended June 30, 2025. The decrease in tax expense for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily due to an increase in equity-based compensation expense allowed for tax purposes in excess of the deductions reflected for financial statement income. This decrease was largely offset by an increase of income before provision for income taxes, excluding long lived asset impairment charges. For the six months ended June 30, 2026, the Company recorded net discrete tax benefits of $0.8 million related primarily to equity-based compensation tax deductions in excess of the amount recognized for financial statement income which was partially offset by detriments from the filing of prior year tax returns and other adjustments. This compares to a net discrete tax detriment of $4.9 million for the six months ended June 30, 2025, related primarily to equity-based compensation expense reflected in financial statement income in excess of the deductions allowed for tax purposes. Net income. Net income decreased by $3.6 million to a net income of $6.8 million for the six months ended June 30, 2026 compared to net income of $10.4 million for the six months ended June 30, 2025, due to the factors described above. Liquidity and Capital Resources We believe that our existing cash and cash equivalents, short and long-term investments, our cash flows from operations and our existing lines of credit provide us with the financial flexibility to meet our liquidity and capital needs. We expect to continue making investments in capital expenditures, evaluate acquisition opportunities, repurchase shares of our stock in accordance with our repurchase program, carry out research and development and invest in resources to strengthen our organization. The extent and timing of such expenditures may vary from period to period. Our future long-term capital requirements will depend on many factors including our level of sales, the impact of the economic environment on our growth, the timing and extent of spending to support development efforts, expansion of global sales and marketing activities, government regulation including trade sanctions and tariffs, the timing and introductions of new products, the need to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. In the near term, we will incur capital expenditures related to the expansion of capacity in Germany. As of June 30, 2026, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources. 27 Table of Contents The following table presents our principal sources of liquidity: June 30, December 31, 2026 2025 (In thousands) Cash and cash equivalents $ 399,225 $ 403,790 Short-term investments 472,094 435,538 Unused credit lines and overdraft facilities 225,882 224,432 Working capital (defined as current assets excluding cash, cash equivalents and short-term investments, minus current liabilities) 368,130 350,075 Short-term investments at June 30, 2026 consist of liquid investments including corporate bonds, commercial paper, U.S. Treasury and agency obligations and term deposits with original maturities of greater than three months but less than one year. See Note 4, "Fair Value Measurements" in the notes to the Condensed Consolidated Financial Statements for further information about our short-term investments. The following table details our Credit Facilities as of June 30, 2026: Description Total Facility Interest Rate Maturity Security U.S. Revolving Line of Credit (1) $200.0 million SOFR plus 1.25% to 1.45%, depending on our performance June 2030 Unsecured Other Lines of Credit (2) $21.3 million Various Various Unsecured Euro Credit Facilities (Germany) (3) Euro 5.9 million ($6.7 million) Various Various Unsecured, guaranteed by parent company Euro Facility (4) Euro 1.5 million($1.7 million) 3M EURIBOR plus 1.25%(5) N/A(5) Common pool of assets of Italian subsidiary (1) At June 30, 2026, there were no drawings and no guarantees issued. (2) Other lines of credit available to certain foreign subsidiaries in U.S. dollars and their respective local currencies. At June 30, 2026, there was $0.3 million drawn on these lines and there were $2.0 million of guarantees issued against the lines which reduced total availability. (3) The facilities are available to certain foreign subsidiaries in their respective local currencies. At June 30, 2026, there were no amounts drawn on these lines; however, there were $1.6 million of guarantees issued against the lines which reduced total availability. (4) At June 30, 2026, there were no drawings and no guarantees issued. (5) The facility does not have a stated maturity date. The interest rate in effect as of June 30, 2026 is fixed through September 2026. After that date, the interest rate may be renegotiated and availability may be terminated in accordance with the terms of the facility. At June 30, 2026, our committed credit line is with Bank of America N.A. in the amount of $200.0 million. Under the credit agreement, we are required to meet certain financial covenants, which are tested quarterly and include an interest coverage ratio and a net leverage ratio. The interest coverage covenant requires we maintain a trailing twelve-month ratio of consolidated EBITDA to consolidated interest expense on all obligations that is at least 3.0 times. The net leverage covenant requires we maintain a trailing twelve-month ratio, which is the sum of all indebtedness for borrowed money on a consolidated basis, less cash and available marketable securities not classified as long-term investments in the U.S. in excess of $50 million up to a maximum of $500 million, to consolidated EBITDA that is less than 3.0 times. We were in compliance with the financial covenants as of June 30, 2026. In addition to the financial covenants, the credit facility includes additional customary events of default, including non-payment of principal, interest or fees, violation of covenants, cross default to certain other indebtedness, invalidity of any loan document, material judgments, bankruptcy and insolvency events and change of control, subject, in certain instances, to cure periods. Upon the occurrence of an event of default, the lenders may elect to declare amounts outstanding under the Credit Agreement immediately due and payable. 28 Table of Contents The financial covenants in our loan documents may cause us to not make or to delay investments and actions that we might otherwise undertake because of limits on capital expenditures and amounts that we can borrow or lease. In the event that we do not comply with any one of these covenants, we would be in default under the loan agreement or loan agreements, which may result in acceleration of the debt, cross-defaults on other debt or a reduction in available liquidity, any of which could harm our results of operations and financial condition. See Note 9, "Financing Arrangements" in the notes to the Condensed Consolidated Financial Statements for further information about our facilities. The following table presents cash flow activities: Six Months Ended June 30, 2026 2025 (In thousands) Cash provided by operating activities $ 32,329 $ 11,229 Cash used in investing activities (23,340) (261,516) Cash used in financing activities (10,755) (34,457) Operating activities. Net cash provided by operating activities increased by $21.1 million to an inflow of $32.3 million for the six months ended June 30, 2026 vs. an inflow of $11.2 million for the six months ended June 30, 2025, primarily due to cash provided by net income after adding back non-cash expenses and reductions in accounts receivable, partially offset by an increase in cash bonus payments made in the first quarter of 2026 based on improved financial performance, cash paid for the Trumpf legal settlement, and an increase in inventory levels. Our largest working capital items typically are inventory and accounts receivable. Items such as accounts payable to third parties, prepaid expenses and other current assets and accrued expenses and other current liabilities are typically not as significant as our working capital investment in accounts receivable and inventory because of the amount of value added within IPG due to our vertically integrated structure. Accruals and payables for personnel costs including bonuses and income and other taxes payable are largely dependent on the timing of payments for those items. The increase in cash provided by operating activities in the first half of 2026 when compared to the first half of 2025 primarily resulted from: •an increase in cash provided by net income after adjusting for non-cash operating activities, mainly due to higher revenues; •a decrease in net cash used by income and other taxes payable due to the timing of estimated tax payments made and refunds received from filing tax returns. •a decrease in cash used by accounts receivable due to the timing of collections; The increase in cash provided by operating activities in the first half of 2026 when compared to the first half of 2025 was partially offset by: •an increase in cash bonus payments made in 2026 vs. 2025 based on improved financial performance; •the payment of the Trumpf settlement in April 2026; •an increase in cash used by inventory; and •an increase in cash used by accounts payable due to timing of payments. Investing activities. Net cash used in investing activities was $23.3 million for the six months ended June 30, 2026 as compared to cash used in investing activities of $261.5 million in 2025. The cash used in investing activities in 2026 related to $37.0 million of cash used for capital expenditures, partially offset by $10.6 million of net proceeds from the maturities of investments, a $2.0 million cash deposit received from the prospective purchaser in connection with the pending Belarus operation sale agreement and $1.0 million in proceeds from the sale of property, plant, and equipment. The cash used in investing activities in 2025 primarily related to $222.0 million of net purchases of short-term investments and $40.2 million of cash used for capital expenditures. Financing activities. Net cash used in financing activities was $10.8 million for the six months ended June 30, 2026 as compared to net cash used of $34.5 million in 2025. The cash used in financing activities in the first half of 2026 was due to amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted 29 Table of Contents stock units of $10.8 million. The cash used in financing activities in 2025 primarily related to the purchase of treasury stock of $30.2 million and the net cash outflow from amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units of $4.3 million. The amount disbursed to withhold these shares increased in 2026 compared to 2025 due to the vesting of restricted stock units at substantially higher stock prices. Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information are forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements. The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to accurately predict and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 1, "Business" and Item 1A, "Risk Factors" of Part I of the Form 10-K filed with the SEC for the year ended December 31, 2025 (the "Annual Report") and in Item 1A, "Risk Factors" of Part II of this quarterly report. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to rely on such forward-looking information. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Recent Accounting Pronouncements See Note 2 in the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects on our Condensed Consolidated Financial Statements contained in Item 1 of this Quarterly Report.