IPG PHOTONICS CORPIPGP
IPG PHOTONICS CORP Stock Compensation Disclosure
STOCK-BASED COMPENSATION
Compensation expense related to the employee stock purchase plan was $1,689, $1,602 and $1,595 for the years ended December 31, 2025, 2024 and 2023, respectively. During the years ended December 31, 2025, 2024 and 2023 the Company issued 86,252, 74,061 and 57,984 shares, respectively, at an average price of $59.39, $66.48 and $86.89, respectively, under the employee stock purchase plan. As of December 31, 2025, there were 232,861 shares available for issuance under the employee stock purchase plan.
Stock-based compensation, including the employee stock purchase plan, is included in the following financial statement captions:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Cost of sales | $ | 8,955 | $ | 8,687 | $ | 7,929 | ||||||||||||||
| Sales and marketing | 6,138 | 5,941 | 5,421 | |||||||||||||||||
| Research and development | 10,318 | 10,239 | 9,396 | |||||||||||||||||
| General and administrative | 17,603 | 12,283 | 16,858 | |||||||||||||||||
| Total stock-based compensation | 43,014 | 37,150 | 39,604 | |||||||||||||||||
| Tax effect of stock-based compensation | (9,430) | (8,191) | (8,660) | |||||||||||||||||
| Net stock-based compensation | $ | 33,584 | $ | 28,959 | $ | 30,944 | ||||||||||||||
Incentive Plans — In 2025, the Company’s stockholders approved the 2025 Incentive Compensation Plan (the "2025 Plan"), which replaced the Company’s 2006 Incentive Compensation Plan (as amended, the "2006 Plan") and provides for the issuance of stock options, PSUs, RSUs, other equity-based awards and cash awards to the Company's directors, employees, consultants and advisors. The 2025 Plan provides for issuance of 2,100,000 shares of the Company's common stock, less one share of common stock for each share of common stock subject to an award granted under the 2006 Plan after March 10, 2025. Generally, subject to certain exceptions, any shares underlying an award under the 2006 Plan and 2025 Plan that expire without being exercised, or are forfeited, canceled or otherwise terminated without a distribution to a participant of shares, cash, or other benefit in lieu of shares or that are withheld by, or otherwise remitted to, the Company to satisfy a participant's tax withholding obligations will again be available for issuance under the 2025 Plan. Accordingly, the number of shares available for future grant under the 2025 Plan may differ from, and may exceed, the number of shares initially authorized for issuance under such
plan. At December 31, 2025, 2,133,891 shares of the Company's common stock were available for future grant under the 2025 Plan. The Company may grant stock options only at an exercise price equal to or greater than the fair market value of its common stock on the date of grant. Equity awards generally vest over periods of to three years and, in the case of stock options, generally expire ten years after the date of the grant. The vesting of awards under the 2025 Plan and the 2006 Plan accelerate following the occurrence of certain change of control events if the participant's employment is terminated within two years by the Company without cause or by the participant for good reason or if an entity acquires control of the Company and does not agree to assume existing awards or replace with equivalent value awards. Awards granted to non-employee directors automatically become vested upon a change of control. All shares issued under the 2025 Plan are registered shares, newly issued by the Company.
The Company granted certain RSUs and PSUs to executive officers and other senior managers. The RSUs provide for time-based vesting of a fixed number of shares generally over three years. Non-executive directors of the Company receive RSUs for their board service, which vest generally one year after the grant date and provide for vesting of a fixed number of shares. The PSUs provide the holder with the right to receive shares of the Company's common stock after the applicable award vesting period, generally three years. The final number of shares, if any, delivered upon vesting of PSUs are determined over the relevant performance period, generally three years. Outstanding PSUs as of December 31, 2025 are based on internal financial metrics established by the Company's Board. The final number of shares to be delivered under the PSUs range from 0% to 200% of the target award amount.
The Company has not granted stock options since 2020. The following table summarizes the option activity for the year ended December 31, 2025:
Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||||||||||||
| Outstanding at January 1, 2025 | 615,363 | $ | 153.29 | |||||||||||||||||||||||
| Granted | — | — | ||||||||||||||||||||||||
| Exercised | (9,383) | 83.48 | ||||||||||||||||||||||||
Canceled | (105,879) | 114.38 | ||||||||||||||||||||||||
| Outstanding at December 31, 2025 | 500,101 | $ | 162.84 | 1.97 years | $ | — | ||||||||||||||||||||
| Exercisable at December 31, 2025 | 500,101 | $ | 162.84 | 1.97 years | $ | — | ||||||||||||||||||||
The intrinsic value of the options exercised during the years ended December 31, 2025, 2024 and 2023 was $34, $1,747 and $4,085, respectively. All options were vested during the year ended December 31, 2025. Cash received from option exercises during the year ended December 31, 2025 was $783. Tax benefit received from option exercises during the year ended December 31, 2025 was $8.
The following table summarizes the RSU activity for the year ended December 31, 2025:
Number of Shares | Weighted-Average Grant-Date Fair Value | |||||||||||||
| Nonvested at January 1, 2025 | 743,266 | $ | 103.41 | |||||||||||
| Granted | 704,376 | 64.61 | ||||||||||||
| Vested | (355,015) | 113.11 | ||||||||||||
Forfeited | (64,488) | 77.52 | ||||||||||||
| Nonvested at December 31, 2025 | 1,028,139 | $ | 75.07 | |||||||||||
The fair value of each RSU is the market price of Company stock on the date of grant. The weighted average grant date fair value of RSUs granted during the years ended December 31, 2025, 2024 and 2023 was $64.61, $86.09 and $128.71, respectively. The intrinsic value of the RSUs that vested during the years ended December 31, 2025, 2024 and 2023, was $21,352, $19,634 and $23,082, respectively. The total compensation cost related to nonvested RSUs not yet recorded at December 31, 2025 was $47,160 which is expected to be recognized over a weighted-average of 1.9 years. The aggregate fair value of RSUs vested during the years ended December 31, 2025, 2024 and 2023 was $40,156, $32,386 and $28,319, respectively.
The following table summarizes financial metric-based PSUs activity for the year ended December 31, 2025:
Number of Shares | Weighted-Average Grant-Date Fair Value | |||||||||||||
| Nonvested at January 1, 2025 | 245,585 | $ | 107.97 | |||||||||||
| Granted | 82,875 | 65.23 | ||||||||||||
| Vested | — | — | ||||||||||||
Forfeited | (32,474) | 95.76 | ||||||||||||
| Nonvested at December 31, 2025 | 295,986 | $ | 84.64 | |||||||||||
For the years ended December 31, 2025, 2024 and 2023, the weighted average grant date fair value for new grants was $65.23, $86.54, and $131.13, respectively. Expense for the financial metric-based PSUs was recognized at 0% to 100% of the target goals. The total compensation cost related to nonvested PSUs not yet recorded at December 31, 2025 was $7,930, which is expected to be recognized over a weighted average period of 2.1 years.
The Company has not granted TSR PSUs since 2021. There were no TSR PSUs outstanding during the year ended December 31, 2025. The intrinsic value of the TSR PSUs vested during the years ended December 31, 2024 and 2023 was nil and $128, respectively. The aggregate fair value of awards vested during the years ended December 31, 2024 and 2023 was nil and $331, respectively.
The Company has an employee stock purchase plan ("ESPP") offered to its U.S. and German employees. The plan allows employees who participate to purchase shares of common stock through payroll deductions at a 15% discount to the lower of the closing stock price on the first day or the last day of the six-month purchase period. Payroll deductions may not exceed 10% of the employee's compensation and are subject to other limitations.
The assumptions used in the Black-Scholes model for the calculation of the ESPP fair values were as follows:
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Performance term (year) | 0.5 | 0.5 | 0.5 | |||||||||||||||||
| Volatility | 38% - 53% | 36% - 38% | 35% - 37% | |||||||||||||||||
| Risk-free rate of return | 4.24% - 4.29% | 5.26% - 5.37% | 4.76% - 5.47% | |||||||||||||||||
| Dividend yield | 0.00% | 0.10% | 0.10% | |||||||||||||||||
| Fair value per share | $18.30 - $20.95 | $20.45 - $26.92 | $23.42 - $33.55 | |||||||||||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.