IPG Photonics Corporation

05/05/2026 | Press release | Distributed by Public on 05/05/2026 15:20

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 rendered a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). While the decision may create a pathway for potential refunds of previously paid IEEPA tariffs, significant uncertainties remain, including the scope of eligible claims, administrative procedures, documentation requirements, timing of claim processing, the effect of any further governmental or judicial actions, and the ultimate collectability of any potential claims.
As of March 31, 2026, we have not recognized any benefit related to potential IEEPA tariff refunds due to the significant uncertainties surrounding the recovery process and ultimate realization of any potential IEEPA tariff refunds. We will continue to evaluate developments and will recognize any related amounts only when realization is considered probable and reasonably estimable under applicable accounting guidance.
The Supreme Court's ruling has no direct impact on tariffs imposed under Section 232, including tariffs on steel and aluminum. The impact to gross margin from higher tariffs for the three months ended March 31, 2026 was approximately 160 basis points, as compared to the three months ended March 31, 2025.
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. 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 Belarusian 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 Condensed Consolidated Statements of Operations. At March 31, 2026, the remaining value of the long-lived assets in Belarus was $4.3 million. The net working capital deficit excluding cash was $0.7 million and cash on hand was $0.6 million. The net asset value of our Belarus subsidiary has been reduced by $17.4 million due to the cumulative translation effect of the Belarusian ruble compared to the U.S. dollar, which is included in the accumulated other comprehensive loss component of stockholders' equity. We may incur additional asset impairment charges related to the Belarusian operations and the other comprehensive loss that is currently in the equity section of our Condensed Consolidated Balance Sheets could be charged to our Condensed Consolidated Statements of Operations.
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 continue to purchase from them. Our Board of Directors monitors and continues to assess risks associated with our Belarusian operations.
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"), other transportation, aerospace, heavy industry, but also may include consumer, semiconductor and electronics. Approximately 86% of our revenues for the first quarter 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;
•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 cannot reduce fixed costs or choose not to reduce fixed costs to match the decrease in the level of production. If we experience a decline in sales that reduces absorption of our fixed costs, or if we have production issues, our gross margins will be negatively affected.
We also regularly review our inventory for items that are slow-moving, have been rendered obsolete or are determined to be excess. Any provision for such slow-moving, obsolete or excess inventory affects our gross margins. For example, we recorded provisions for slow-moving, obsolete or excess inventory totaling $4.9 million and $9.5 million for the three months ended March 31, 2026 and 2025, respectively.
Selling and general and administrative expenses. 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 based primarily upon the level of acquisitions, litigation and project-related consulting expenses. Additionally, selling and 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.
Goodwill and long-lived assets impairments. We review our intangible assets and property, plant and equipment for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, lack of growth in our relevant business units, differences in the estimated product acceptance rates, or market prices below the carrying value of long-lived assets evaluated for sale could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets.
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 March 31, 2026, the foreign exchange gain was primarily attributable to the depreciation and appreciation of the Euro and Chinese yuan, respectively, as compared to the U.S. dollar, partially offset by the depreciation of the Indian rupee, as compared to the U.S. dollar. Our ability to adjust the foreign currency selling prices of products in response to changes in exchange rates is limited and may not offset the impact of the changes in exchange rates on the translated value of sales or costs. In addition, if we increase the selling price of our products in local currencies, this could have a negative impact on the demand for our products.
Income taxes. On December 15, 2022, the European Union (EU) Member States formally adopted the EU's Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The U.S. has withdrawn support for Pillar Two and proposed a "side-by-side" solution under which U.S.-parented groups may be exempt from certain provisions of Pillar Two, subject to international agreement and local implementation. The impact of the Pillar Two Framework on our income tax provisions for the three months ended March 31, 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 20% for the three months ended March 31, 2026, and 16% and 13% for the full years ended December 31, 2025 and 2024, respectively. One of our customers accounted for 12% and 11% of our net accounts receivable as of March 31, 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 March 31, 2026 Compared to the Three Months Ended March 31, 2025
Net sales. Net sales increased by $37.7 million, or 16.6%, to $265.5 million for the three months ended March 31, 2026 from $227.8 million for the three months ended March 31, 2025.
The table below sets forth sales by application:
Three Months Ended March 31,
2026 2025 Change
(In thousands, except for percentages)
Sales by Application % of Total % of Total
Industrial Solutions
$ 227,590 85.7 % $ 188,016 82.5 % $ 39,574 21.0 %
Advanced Solutions
37,907 14.3 % 39,777 17.5 % (1,870) (4.7) %
Total $ 265,497 100.0 % $ 227,793 100.0 % $ 37,704 16.6 %
The table below sets forth sales by type of product:
Three Months Ended March 31,
2026 2025 Change
(In thousands, except for percentages)
Sales by Product % of Total % of Total
Lasers and Components
$ 213,652 80.5 % $ 187,343 82.2 % $ 26,309 14.0 %
Systems
51,845 19.5 % 40,450 17.8 % 11,395 28.2 %
Total $ 265,497 100.0 % $ 227,793 100.0 % $ 37,704 16.6 %
Industrial Solutions sales accounted for 85.7% of total revenue and increased 21.0% year over year, as a result of higher sales in cutting, welding, cleaning and marking, partially offset by lower sales in additive manufacturing, custom applications, drilling and cladding. Advanced Solutions sales decreased 4.7% year over year driven by lower sales in micromachining and advanced applications, partially offset by higher sales due to increased demand of laser equipment used in medical procedures.
Cost of sales and gross margin. Cost of sales increased by $28.0 million, or 20.3%, to $166.0 million for the three months ended March 31, 2026 from $138.0 million for the three months ended March 31, 2025 due to the increase in cost of sales being higher than the growth in revenue. The primary reason for the increase in cost of sales was due to an increase in cost of products sold of $22.5 million and an increase of $4.7 million in tariffs.
Sales and marketing expense. Sales and marketing expense increased by $0.1 million, or 0.4%, to $24.5 million for the three months ended March 31, 2026 from $24.4 million for the three months ended March 31, 2025. This change was primarily the result of an increase of $0.5 million in personnel and related expenses, an increase of $0.3 million in costs related to trade fairs and exhibits, and an increase of $0.1 million in depreciation expense, partially offset by a decrease of $0.5 million in amortization expense, a decrease of $0.2 million in premises expense, and a decrease of $0.1 million in advertising expense. As a percentage of sales, sales and marketing expense was 9.2% and 10.7% for the three months ended March 31, 2026 and 2025, respectively.
Research and development expense. Research and development expense increased by $5.0 million, or 17.7%, to $33.3 million for the three months ended March 31, 2026, compared to $28.3 million for the three months ended March 31, 2025. This change was primarily the result of an increase of $3.8 million in personnel and related expenses, an increase of $0.7 million in lease expense, and an increase of $0.5 million in consultant fees. As a percentage of sales, research and development expense increased to 12.5% from 12.4% for the three months ended March 31, 2026 and 2025, respectively.
General and administrative expense. General and administrative expense increased by $3.3 million, or 10.1%, to $36.1 million for the three months ended March 31, 2026 from $32.8 million for the three months ended March 31, 2025. The change was primarily the result of an increase of $2.5 million in personnel and related expenses, an increase of $0.7 million in information systems expense, and an increase of $0.5 million in legal expense partially offset by an increase of $0.6 million of gain on sale of fixed assets and a decrease of $0.5 million of bad debt expense. As a percentage of sales, general and administrative expense was 13.6% and 14.4% for the three months ended March 31, 2026 and 2025, respectively.
Settlement of litigation matters. During the three months ended March 31, 2026, we recorded $13.5 million of legal settlement charges 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 three months ended March 31, 2025.
Effect of exchange rates on net sales, gross profit and operating expenses. If exchange rates relative to the U.S. dollar had been the same as the comparable quarter one year ago, which were on average euro 0.95, Japanese yen 153 and Chinese yuan
7.27, respectively, we estimate that net sales for the three months ended March 31, 2026 would have been $9.0 million lower, gross profit would have been $3.3 million lower and total sales and marketing, research and development, and general and administrative expenses would have been $3.2 million lower.
Gain on foreign exchange. We incurred a foreign exchange transaction gain of $0.2 million for the three months ended March 31, 2026 as compared to a $2.4 million loss for the three months ended March 31, 2025. Our European subsidiaries have certain net assets denominated in U.S. dollars, and our Indian, and Chinese subsidiaries have certain net liabilities denominated in U.S. dollars. The foreign exchange gain for the three months ended March 31, 2026 was primarily attributable to the depreciation and appreciation of the Euro and Chinese yuan, respectively, as compared to the U.S. dollar, partially offset by the depreciation of the Indian rupee, as compared to the U.S. dollar.
Interest income, net. Interest income, net was $6.9 million for the three months ended March 31, 2026 as compared to $7.4 million for the three months ended March 31, 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 a benefit of $0.6 million and an expense of $6.9 million, for the three months ended March 31, 2026 and 2025, respectively. The effective tax rate was (55.4)% for the three months ended March 31, 2026. This compares to the effective tax rate for the three months ended March 31, 2025 of 64.6%. The income tax benefit for the three months ended March 31, 2026 was primarily due to a discrete tax benefit related to equity-based compensation. In addition, a decrease of income before provision for income taxes in the three months ended March 31, 2026 as compared to March 31, 2025 also lead to the decrease in tax expense. Other discrete items for the three months ended March 2026 did not have a significant impact on our tax rate.
Net income. Net income decreased by $2.2 million to a net income of $1.6 million for the three months ended March 31, 2026 compared to a net income of $3.8 million for the three months ended March 31, 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 March 31, 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.
The following table presents our principal sources of liquidity:
March 31, December 31,
2026 2025
(In thousands)
Cash and cash equivalents $ 480,761 $ 403,790
Short-term investments 332,144 435,538
Unused credit lines and overdraft facilities 226,365 224,432
Working capital (defined as current assets excluding cash, cash equivalents and short-term investments, minus current liabilities) 373,057 350,075
Included in cash and cash equivalents is $0.6 million of cash located in Belarus, as of March 31, 2026.
Short-term investments at March 31, 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 March 31, 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)
$21.4 million Various Various Unsecured
Euro Credit Facilities (Germany) (3)
Euro 5.9 million ($6.8 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 March 31, 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 March 31, 2026, there were no amounts drawn on these lines; however, there were $1.8 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 March 31, 2026, there were no amounts drawn on these lines; however, there were $1.8 million of guarantees issued against the lines which reduced total availability.
(4) At March 31, 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 March 31, 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 March 31, 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 March 31, 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.
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:
Three Months Ended March 31,
2026 2025
(In thousands)
Cash (used in) provided by operating activities
$ (5,463) $ 13,445
Cash provided by (used in) investing activities
95,246 (274,386)
Cash used in financing activities (11,712) (5,670)
Operating activities. Net cash used in operating activities increased by $18.9 million to an outflow of $5.5 million for the three months ended March 31, 2026 vs. an inflow of $13.4 million for the three months ended March 31, 2025, primarily due to an increase in cash incentive bonus payments as well as the impact of increases in working capital and a decrease in cash provided by net income after adding back non-cash expenses. 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 used in operating activities in the first quarter of 2026 when compared to the first quarter of 2025 primarily resulted from:
•an increase in cash bonus payments made in 2026 vs. 2025 based on improved financial performance;
•an increase in cash used by inventory as we manufactured more in the first quarter of 2026 compared to the first quarter of 2025 when we moderated our investments in inventory;
•an increase in cash used by accounts receivable due to higher sales at the end of the first quarter of 2026 and timing of collections;
•an increase in cash used by prepaid expenses and other assets due to higher prepayments made to vendors and timing of bank acceptance drafts; and
•an increase 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.
The increase in cash used in operating activities in the first quarter of 2026 when compared to the first quarter of 2025 was partially offset by:
•an increase in cash provided by accounts payable due to timing of payments; and
•an increase in cash provided by non-bonus related accrued personnel and lease expenses based on the timing of payments
Investing activities. Net cash provided by investing activities was $95.2 million for the three months ended March 31, 2026 as compared to cash used in investing activities of $274.4 million in 2025. The cash provided by investing activities in 2026 related to $110.7 million of net proceeds from the maturities of investments, and $0.8 million in proceeds from the sale of property, plant, and equipment, partially offset by $16.3 million of cash used for capital expenditures. The cash used in investing activities in 2025 primarily related to $249.8 million of net purchases of short-term investments and $24.8 million of cash used for capital expenditures.
Financing activities. Net cash used in financing activities was $11.7 million for the three months ended March 31, 2026 as compared to net cash used of $5.7 million in 2025. The cash used in financing activities in both years related to amounts disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units. 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.
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