INVESTOR PRESENTATION November 2018 Tim Mammen CFO Safe Harbor - PowerPoint PPT Presentation

INVESTOR PRESENTATION November 2018 Tim Mammen CFO

Safe Harbor Statement The statements in this presentation that relate to future plans, market forecasts, events or performance are forward-looking statements. These statements involve risks and uncertainties, including, risks associated with the strength or weakness of the business conditions in industries and geographic markets that IPG serves, particularly the effect of downturns in the markets IPG serves; uncertainties and adverse changes in the general economic conditions of markets; IPG's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; inability to manage risks associated with international customers and operations; foreign currency fluctuations; high levels of fixed costs from IPG's vertical integration; the appropriateness of IPG's manufacturing capacity for the level of demand; competitive factors, including declining average selling prices; the effect of acquisitions and investments; inventory write-downs; intellectual property infringement claims and litigation; interruption in supply of key components; manufacturing risks; government regulations and trade sanctions; and other risks identified in the Company's SEC filings. Readers are encouraged to refer to the risk factors described in the Company's Annual Report on Form 10-K and its periodic reports filed with the SEC, as applicable. Actual results, events and performance may differ materially. Readers are cautioned not to rely on the forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 2

Revolutionizing the Laser Industry Traditional Lasers IPG Fiber Lasers 15 kilowatt Carbon Dioxide (CO 2 ) Continuous Wave 2 kilowatt Continuous Wave Picosecond Pulsed Lamp-Pumped Nd: YAG  Expensive  Inefficient  Higher Productivity  Efficient  Bulky  Frequent Maintenance  Compact  Minimal Maintenance  Unreliable  Costly Consumables  Reliable  No Consumables  Difficult to Operate  Not scalable  Robust  Scalable 3

Our Mission Making our fiber laser technology the tool of choice in mass production 4

Key Takeaways Vertical integration, Global market leader in manufacturing scale, fiber laser technology and technology across multiple end driving industry- markets and applications leading margins Expanding multi-billion Rapidly growing dollar addressable earnings and cash market opportunity flow 5

Dual Secular Growth Strategies (1) Conversion from Non-Laser to (2) Conversion from Traditional Lasers to Laser Technologies Fiber Lasers Global Machine Tool Consumption in 2017: ~$78B Fiber Lasers a Growing Percentage of Annual Demand Global Laser Systems for Materials Processing in 2017: ~$14B for High-Power Industrial Laser Sources Laser Systems 18% of Worldwide Machine Tools and Growing $3B $100B $80B $2B $60B Non-Laser Machine Tools Other Laser Sources $40B $1B Fiber Lasers $20B Laser-Based Systems $0B $0B 2004 2006 2008 2010 2012 2014 2016 2018 2020 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Oxford Economics, Optech Consulting and IPG Photonics Corporation Source: Optech Consulting and IPG Photonics Corporation 6

Broadest Portfolio of Fiber Lasers Any wavelength, mode of operation, power, beam quality or application Diode Holmium Fe:ZnSe/S 10 nm 400 nm 700 nm 1.5 μ m 10 μ m Lasers Lasers Lasers Far-IR X-Ray Ultraviolet Visible Near-Infrared Mid-Infrared UV Blue, Green, Yellow, Ytterbium Erbium Thulium Cr:Zn/Se/S Lasers Orange , Red Lasers Lasers Lasers Lasers Lasers Peak Power (Megawatts) Thick steel cut with Pulse Duration: Pulse Duration: Pulse Duration: Pulse Duration: Pulse Duration: a continuous wave 0.05-50 ms 1-200 ns 0.7-5 ns ~2 ps <500 fs laser Peak Power: 120kW Peak Power: 23kW Peak Power: 1 MW Peak Power: >150 kW Peak Power: >10 MW Peak Power: >20 MW Applications: Applications: cutting, Applications: Applications: thin- Applications: black Applications: thin cutting, welding, welding, soldering, scribing, thin-film film ablation, low-k marking, sapphire metal cutting and Drilling using a soldering, drilling, drilling, brazing, ablation, via drilling and silicon dicing, and glass scribing, drilling, ophthalmic quasi-continuous brazing annealing and flex cutting, glass scribing solar thin films, OLED surgery, high wave laser surface preparation, film cutting, scientific precision, scientific texturing, annealing, marking, drilling and scribing Surface Cleaning using a pulsed laser Micromachining using an ultrafast laser Time Continuous Quasi- Nanosecond Picosecond Femtosecond Nanosecond Wave Continuous Pulsed Pulsed Pulsed Pulsed Wave Throughput Precision 7

Advantages of Our Fiber Lasers Record Modular / Monolithic Highest Beam MOPA Reliability Power Scalable Design Power Quality Configuration Efficiency Architecture Faster Lower Small Efficient Easy Systems Processing Operating Integration Footprint Cooling Speed Costs 8

Significant Barriers to Entry Business: Technology: Vertical IP & Process Integration Know-How & Scale 9

Highest Volume, Lowest Cost Diode Producer 10,000,000 100% 9,000,000 90% 8,000,000 80% Packaged Diode Costs % Chg. 7,000,000 70% Tested Chips Produced 6,000,000 60% 5,000,000 50% 4,000,000 40% 3,000,000 30% 2,000,000 20% 1,000,000 10% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 Tested Chip Production Cost/Watt Decrease (2009 Base Year) Source: IPG Photonics Corporation 10

Global Presence Clean Clean Oxford & Marlborough, MA, USA Room Room ► Wafer fab operation, chip-on- Percent Burbach, Germany Percent Contractors ► Components and final assembly submount assembly, wafer G&A 4% 415,000 ► packaging, components and final ~1,300 employees 6% Sales 650,000 R&D 5% assembly sq. ft. 11% sq. ft. ► ~2,000 employees 5,835 Clean Room Current Percent Fryazino, Russia ► Components and final assembly Employees ► ~1,700 employees 580,000 sq. ft. Manufacturing 74% RoW Other US China Other Asia 0% 6% 12% 15% 4% Germany US 8% 5,835 37% Sales by Current Russia Region, 2017 30% Employees Other Europe China 21% 44% Germany 23% 11

Total Addressable Market $10B $9B $8B $7B Estimated $6B New $6.5B Industrial Laser $5B Lasers Applications Market in $2.6B $3.9B $4B 2017 $3B Metal Processing $2B $1B $0B 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Optech Consulting, Strategies Unlimited and IPG Photonics Corporation 12

Industrial Laser Market $4B $4B $3B $3B CO 2 , Solid State and Diode Lasers $2B $2B $1B $1B Fiber Lasers Metal Processing 62% Market Share in 2017 $0B $0B 2015 2016 2017 2018 2019 2020 2021 2022 2023 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Optech Consulting, Strategies Unlimited and IPG Photonics Corporation 13

Metal Cutting $2B Fiber Installed Base of ~100,000 $1B Laser Cutting Systems Worldwide CO 2 & Other $0B 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Optech Consulting and IPG Photonics Corporation 14

Metal Joining (Welding & Brazing) $800M Laser $600M Welding $0.7B >$5B Annual Demand $400M For Welding Equipment Globally $200M Traditional Welding Equipment, $4.6B $0M 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Optech Consulting, Freedonia Group and IPG Photonics Corporation 15

New Laser Applications $7B $6B $5B $4B $3B Sensors and Instruments $2B R&D and Scientific Defense $1B Non-Metal Micro Materials Processing $0B 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Strategies Unlimited and IPG Photonics Corporation 16

Strong Growth and Industry-Leading Margins $1,500 50% 38% $1,200 40% 34% Revenue ($ Millions) Operating Margin $900 30% $600 20% $1,130 $648 $300 10% $0 0% 2013 2014 2015 2016 2017 9M'18 Revenue Operating Margin 2018E based on reported results through the first nine months and the fourth quarter 2018 guidance midpoint 17

Rapidly Growing Cash Flow $450 $400 $350 $300 $ Millions $133 $250 $200 $150 $100 $71 $147 $50 $48 $0 2013 2014 2015 2016 2017 9M'18 Free Cash Flow Capex 18

Return Profile 45% 40% 35% 36% 30% 31% 25% 21% 20% 19% 19% 20% 19% 15% 16% 10% 5% 0% 2013 2014 2015 2016 2017 9M'18 Return on Equity Return on Invested Capital, Excluding Cash 19

Target Business Model 16% Market Revenue Growth 40% 1%-4% CAGR Growth 54% 57% Gross Margin 50%-55% 50%-55% Average Operating 36% 39% 32%-37% 32%-37% Margin Average 20