Good morning and welcome to IPG Photonics' fourth quarter and year end 2015 financial results conference call. Today's call is being recorded and webcast. There will be an opportunity for questions at the end of the call. At this time, I would like to turn the call over to Mr. Angelo Lopresti, IPG's Senior Vice President, General Counsel and Secretary, for introductions. Please go ahead, sir. Angelo P. Lopresti - Secretary, Senior Vice President & General Counsel: Thank you, and good morning everyone. With us today is IPG Photonics' Chairman and Chief Executive Officer, Dr. Valentin Gapontsev; and Senior Vice President and Chief Financial Officer, Tim Mammen. Statements made during the course of this conference call that discuss management's or the company's intentions, expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include those detailed in IPG Photonics' Form 10-K for the year ended December 31, 2014, and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investors section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website. Any forward-looking statements made on this call are the company's expectations or predictions only as of today, February 12, 2016. The company assumes no obligation to publicly release any updates or revisions to any such statements. We will post these prepared remarks on our website following the completion of the call. I'll now turn the call over to Dr. Valentin Gapontsev. Valentin P. Gapontsev - Chairman & Chief Executive Officer: Thank you, Angelo. Good morning, everyone. 2015 was another…

Thank you. Our first question comes from the line of Patrick Newton with Stifel. Please go ahead with your questions. Patrick Newton - Stifel, Nicolaus & Co., Inc.: Thank you, good morning, Valentin and Tim. I guess I really wanted to focus on the growth outlook. You spoke to managing the business for double-digit growth. You talked about strength in the core portfolio and several ways that you believe that you can grow in the back half of the year. I just wanted to put a finer point on this and help understand if the double-digit growth rate is actually taking down or still within the target range of your prior 10% to 15% metric that you put out post 3Q earnings? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: So the double digit is double digit. We're not providing an update to that 10% to 15% growth range. And we've chosen to frame it in this way, Patrick. So there isn't an additional finer point to really put on it. We do remain very confident for the year as a whole. As I mentioned, even the core products orders in Asia are very strong. We talked about North American and European opening backlog being a bit weaker. I'd like to point out that we've actually had a couple of large automotive orders in the last week or so both in North America and in Germany that indicate some continuing improvement in those geographies as well. So I don't want to get drawn on any more finer points. Overall, I think we set ourselves a good target for the year, and it's a target that we are actively and proactively managing the company to attain. Patrick Newton - Stifel, Nicolaus & Co., Inc.: And then just…

Thank you. And our next question comes from the line of Joe Wittine with Longbow Research. Please go ahead with your questions.

Hi, good morning. I appreciate the disclosure of the backlog in China. Tim, I think that was helpful relative to investor concern for today. So at this point, is it safe to say you actually feel better about China in 2016 than you did 90 days ago and that your technology remains a priority investment, or is that too aggressive of a view today as visibility in the second and third quarter orders are still murky? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: I think one of the comments that I've mentioned the thing – you've got to bifurcate your emotional reaction or hype to everything that's going and really look at what the facts of the situation are. So you have strong frame agreement order. You've got strong shippable backlog order. We're receiving positive feedback from all of the main OEMs in all the core product introductions. You've got definite projects and growth coming out of the battery welding, which will be strong in China and even in other parts of the world. And then you've got the consumer electronics cycle that's going to go through probably an investment phase this year that benefits our marking and QCW lasers. One of the other companies that sells automation and sensing equipment that announced yesterday is also expecting to benefit from that cycle driven by the major consumer electronics manufacturers. So we've never really – and outside of your emotional reaction, even 90 days ago we were still confident that China would have a reasonable to a good year in 2016, and we continue to believe that. And that's how I'd characterize it. You've got to strip away your emotional side of the equation and look at what the facts are.

Great, that's helpful. And as my follow-up, could you give us some sense or walk us through your profitability expectation for 2016? You've been pretty clear that investors should not expect operating leverage this year. It will be somewhat of a year of investment. You've walked through that. But help us model in gross margin for the year maybe given a combination of a little bit uncertain macro and then you also have these new products scaling which may impact mix, I assume. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: So you've got puts and takes on this. In general, we expect to maintain margins in the upper half of the range, so broadly similar to where we've been over the last year. You'll maybe see on the take side a bit more pricing pressure at the lower end of the market. But you'll see some puts and benefits from many of the new product introductions. If you can grow the company even at what for us is a moderate rate, you'll see a continued good absorption of manufacturing costs. So that gives us some comfort at that. There are also levers that we can pull. Hiring at the manufacturing level can be slowed down. It's expected to be slower than it was last year. We can cut for example things like overtime, if necessary. We have some flexibility around some of the other compensation structures not just in manufacturing, but the rest of the P&L. On the operating expense side, I think you'll probably see some leverage out of G&A. Even though we'll have some investment in that. You'll see a little bit of leverage out of R&D. I think the R&D investments will be a bit more moderate. And then higher investments on the selling expense side. The selling investment is absolutely required in order to expand into new geographies, support the new product line introductions. At the bottom that leaves you with probably as I said relatively flat operating margins. We reiterate again this is not a business that you're going to run at 39% or 40% operating margins. And we intend to maintain the business model and invest as we need to, to grow the business. Valentin P. Gapontsev - Chairman & Chief Executive Officer: Last year, we made enormous drop – to decrease additional cost of our major current products. And when you check the results, the average decrease of costs up to 15% to 20% for most products. We're working (43:43) decrease of costs will support also margin.

Thank you. Our next question comes from the line of Krish Sankar with Bank of America. Please go ahead with your question.

Yeah, hi, a couple of quick questions. Tim, can you characterize your customer base in China. What kind of customers are these? Are these like really big guys, small guys, do they have any access to credit issue? The second one follow-up is that I'm kind of struggling to get to your double-digit growth guidance because it seems like your quarterly seasonality is going to be completely different from what you experienced the last four or five years if you had to stick with your guidance. So, I'm kind of curious what gives you the confidence that this year is going to be off seasonal year compared to the last five years? Thank you. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: First of all, on the China question, there's many different customers that we deal with there on the end user market, all the major automotive manufacturers. In consumer electronics with the major manufacturers, consumer electronics and their subcontractors who produce their equipment. And then you've got all the major OEMs who produce equipment, the low macro systems, micro systems, fine processing systems. There are of course some smaller customers that may have less access to credit than some of those larger companies. In general though, we haven't seen a change in that environment at this point in time. If anything I think there is an attempt by the government to make sure there is sufficient liquidity in the market rather than going through a phase of tightening. So, we haven't seen any significant changes in that. And some of the OEMs by the way are pretty significant companies. The largest customer we've got out there is clearly very big but there are three or four other significant OEMs with a revenue in the range…

Got it. Thank you.

Our next question comes from the line of Joe Maxa with Dougherty & Co. Please go ahead with your questions. Joe Maxa - Dougherty & Co. LLC: Hi. Thanks for the color on how you're looking at getting the double-digit growth. I'm wondering how much of that may come from the new products that you're introducing this year. Is it just very minimal or do you expect to see some meaningful growth from these newer products such as the cinema and the ultra-fast lasers and the UV laser. Valentin P. Gapontsev - Chairman & Chief Executive Officer: We expect over the – sales this year, starting within the UV. Some UV systems we introduced we have demand from the consumer – the system, the manufacturers which provides in large quantity they require from us. They're waiting when we are able to start to provide them this UV and ultra-fast pulses because our solution much more practical, much high efficient, and much less costly than existing. Now we're competitive for any of our products on the market today. So we practically will change the – plan to change situation in this market segment. Regarding the cinema, it's similar – or platform. It's new and very hot. All the top operators in their field are waiting. They don't have other serious solution, only our one solution. They get a diode solution, but it's much less stable, and they're also much more costly today. So all practical operators working the field are now waiting. We will start extremely – we'll start to open door for shipments to them. Special customer will finish qualification. And one of the diode customer and already also is support our sales to other people. We don't have any limitation here for – exclusivity right for this customer. So…

Okay, thank you. And our next question comes from the line of Tom Hayes with Northcoast Research. Please go ahead with your question.

Good morning, gentlemen. First question, Tim, on the increased spending on sales and marketing. Just wondering as far as the pace of growth of that, have the expenses already been added, or are they kind of should be layered in over the year? And my follow-up was just kind of on the timing of the new Wuhan and Czech Republic facilities on when you plan on opening those? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: So the sales and marketing was the investment that we wanted to make last year, for various reasons didn't happen. We've just hired for example the new General Manager in Brazil and in Mexico. We've hired the new sales person in the Czech Republic. The Czech Republic is not a major expense. You've got a specialist sales guy who's going in there. So the sales and marketing investment is expected to happen during the course of this year because we didn't quite get to where we wanted to last year. In terms of the new offices the Czech office is very small. It's up and running. The Wuhan office has also opened.

Great. Thank you. Valentin P. Gapontsev - Chairman & Chief Executive Officer: A year ago, we opened office in Poland and now it's going well, pretty well. So that we have also to split sales in East Europe also to the Czech Republic and other countries because somebody (54:37) sales between these countries.

Okay, thank you. And our next question comes from the line of Bobby Burleson with Canaccord Genuity. Please proceed with your question. Bobby Burleson your line is live. Please check if you're muted. Okay. Then our next question comes from the line of Jim Ricchiuti with Needham & Company. Please go ahead with your question. Jim Ricchiuti - Needham & Co. LLC: Thanks. Good morning. You seem to be suggesting a pick-up in the consumer electronics business. Are these orders you already have in backlog for Q2, Q3 delivery or are you anticipating the orders are going to come in? It sounds like you have pretty good line of sight for this. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: We'll anticipate it at this point in time. Jim, we don't have the orders in hand but we've got indications from the two of the main OEMs that supply into that market. That they are expecting a strong year for sales due to that investment cycle. They rarely give us orders a long way ahead of time for that. They don't in fact get those orders from their end customer until much closer to when the investment happens. Jim Ricchiuti - Needham & Co. LLC: And if you were, Tim, to look at 2015 what kind of year was it in that particular segment of the business? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: 2015 was more moderate. I think the last cycle that you had was some investment in 2014. 2015 wasn't bad but it wasn't a big investment cycle. We saw some pick-up, more in a change in applications there that drove the QCW for the fine welding rather than it being a penetration of an application, rather than it being driven by a significant capacity spend. I think this year people are expecting a capacity benefit not just a application penetration benefit.

Thank you. And our next question comes from the line of Tom Diffely with D.A. Davidson. Please go ahead with your question. Tom Diffely - D.A. Davidson & Co.: Good morning. Tim, first on China you said that you saw less pricing pressure recently. Could you expand a little on that? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: So certainly at the lowest end of the pulse laser product line, pricing has in the last couple of quarters stabilized a bit more than it has historically. That's driven by the fact that the low-cost suppliers in China really cannot afford to go down any further on pricing. They have brought themselves, we believe, to the limit, and that limit is actually starting to affect their financial performance. There are rumors in the market that one of them may not even be particularly financially stable at the moment. So that whole strategy has an end gain to it that is not in our opinion particularly sustainable for these smaller companies, even as they try to grab share initially when they introduce product. Valentin P. Gapontsev - Chairman & Chief Executive Officer: (57:49) from mainly to power Chinese customers that our competition in China now practically near the bottom, so they practical don't have any margin at all. They could not more drop down even to survive long time. So they expect for this next year many of them will disappear from the market. But we still in spite we compete with them. We also dropped price. We still have very reasonable margin from our product. Tom Diffely - D.A. Davidson & Co.: Okay. That's very helpful. Valentin P. Gapontsev - Chairman & Chief Executive Officer: This people cost of this Chinese competitors cost is much higher than IPG cost for general product and we also have good performance our product much better. So we are sure we'll stay in this market and wouldn't be much more price situation this especially next year. Tom Diffely - D.A. Davidson & Co.: Okay and then just quick clarification. Tim, you noted $100 million in short-term investments, does this market differ in investment strategy for your cash? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: On the balance sheet, yes, we're trying to get a little bit more yield out of the cash that's sitting there. It's not a huge amount, so we put some into shorter-term investments have a weighted average maturity of less than a year given that interest rates were supposed to go up we hadn't put much into that that side of it. And the yield is still not great, but I think it's averaging something like 60 basis points as compared to close to zero on straight less than 90-day Treasuries or even negative on that. So yes, there is that $100 million that is in there, Tom.

Thank you. And our next question comes from the line of Jagadish Iyer with Redstone. Please go ahead with your question.

Thanks for taking my question, two questions, Tim. First on the QCW lasers, I just wanted to understand the kind of growth that we should be looking at for this year. And given what you had mentioned particularly in China that you see competition on the low end, do you see competition on the QCW? And what kind of growth rate should we be thinking about for the QCW for this year? And then I have follow-up. Valentin P. Gapontsev - Chairman & Chief Executive Officer: For QCW we don't see any competition. Nobody can produce such quality lasers now and to sell with such price for them cost would many times higher than our cost so this way. So even somebody will produce, try for them in order watching the time try to reproduce but not successful and could not have compete with price for that. So as I've said today already that we don't see any competition for QCW in next, at minimum for three years. For component growth of QCW market, it's as you know net (01:00:55) lamp-pumped YAG market more than 10,000 units. So it still can grow three to five times without any problem. It's going to this year grow more than 50% again.

Okay, good. That's helpful, Valentin. And then as a follow-up, Tim, just as clarification on the higher CapEx that you had said for this year. What kind of capacity we should be looking at in terms of this incremental CapEx that you're going to be spending over the next say 12 to 18 months in terms of quarterly run rates that you can sustain with this kind of capacity spend expansion that you're doing? Thank you. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: So I see a lot of the CapEx is going to come through this year. Let's talk about it at a high level. First of all, related to manufacturing and facilities directly that add capacity, probably 75% as it relates to that. Some of it relates to sales, service, and application buildings around the world. Most of the facilities will only come on stream towards the end of the year, and some of them are only being started now. So in terms of depreciation and actually benefiting capacity, there's not going to be a huge amount of that benefit coming in early on in the year. It's more looking forward to supporting 2017 and 2018. So while this has a bit of a negative impact on cash, there's actually not a big impact on depreciation this year. And even when those buildings are brought on stream, they probably only affect depreciation by about $0.5 million a quarter. In terms of some of the equipment, the diode area for example, new MBE reactors, again, those are only expected to be delivered in the second half of the year, and then they have to be qualified and brought up to speed. So I mentioned that we've already invested in diode capacity, and we saw…

Thank you. Our next question comes from the line of Jeremie Capron with CLSA. Please go ahead with your question.

Hi, good morning. Thanks. I was wondering that we've talked about the company landscape for pulse laser in China. I wonder if you could give us an update on your core market of high-power lasers. Some competitors are coming up with higher power units. And I wonder how this translates in terms of the pace of price declines for your product, especially in the context of a slower cutting market. Valentin P. Gapontsev - Chairman & Chief Executive Officer: The market tricks when the people clear more. We have more higher-power units, more deals, and so on. And market tricks, the reality you have to provide reliable ways, but as you know we might – as you know we might even 10 kilowatt from one channel 10 kilowatt or the 2 kilowatt, 2.5 kilowatt, some of them they basically they claim today. We all the time are making optimum of modules. Our time to provide not to provide reliable power, provides lasers that will work many years without service. So they need to have redundancy and we've built optimal large (1:08:23) with sub-optimum quantity of module. But power lasers as you know are much cheaper we have in a very high margin to compare. Other people, they are working variable margin. Some of them even recognize this. So what it sounds, no problem to make 2.55 kilowatt for one module, but for what? It would be much less reliable, much less practical and so on. So we don't see any sense to make this. So it's a commercial trick to claim we have higher power; that's how it is, but it doesn't tell them the real competition in the market. Customer needs are not more your customer needs final, reliable, highest commodity product very high efficiency, and so on. All…

Thanks. And if I may, I have one more on...? Valentin P. Gapontsev - Chairman & Chief Executive Officer: You'll see we'll now this year or last year we shipped kilowatt laser, sell more than 7,000 pieces, 7,000 by one year. In total optical power to 12 megawatt of optical power, 12 megawatt ask other people how much power, total for fiber laser they are making per year. A few ten – a few hundred kilowatt only. With 12 megawatt of optical power, you need for this to make this unique for this to produce only diode pump, high power diode, not one chip, multi-chip diode module. We produced last year of about million such diode module, each 50 watts, 60 watts with very high lifetime. 50 watts, 60 watts million piece, ask other people what capacity they have. To develop such capacity, you need five to 10 years. Nobody can even waste any money if you're not able (01:10:51) to increase and produce in short time. (01:10:54) support serious competition. We could not expect because not serious, nobody have such capacity as they are useful. It's only diode but many other components also you have to produce also very high volume high quality and so on. To make few pieces 10 pieces, 100 even pieces is not too difficult. To make 10,000 pieces high power per year is enormous. Not only investment but many years, steps, and development people trained in equipment, especially on automation. (01:11:32)

Understood. And on the balance sheet aspect here, you've made some good progress in terms of working capital and fixed asset turnover in the last two years. Now we have a slower year ahead of us, do you think we should expect similar trends, similar improvement or any change here, Tim? Thanks. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: We continue to be focused not on just generating great margins but also managing working capital. I'm not forecasting any fundamental shift in days sales outstanding. I think we've managed that pretty well. Inventory days, I think, will fluctuate a bit during the year depending on where demand peaks and troughs. So for example you may see inventory days exiting Q1 a little bit higher because we're expecting very strong demand in Q2 and Q3 and then inventory days lower by the end of Q3. So there will be some fluctuations around inventory. I think that we're going to have to manage. For the rest of the balance sheet, I think, as you point out in pretty good shape. And I don't think there's going to be anything detrimental around that. We're certainly managing to ensure that we don't have anything detrimental.

Thank you. And our next question comes from the line of Mark Miller with The Benchmark Company. Please go ahead with your question.

I just had a question. You said sales grew 13% year-over-year in China but they were down significantly sequentially. I just was wondering what drove the sequential decline. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: Mark, they're nearly always down sequentially in China Q3 to Q4. So the first thing that drives it is just simple seasonality. And so, you always have to look at China just on a quarter-over-quarter basis compared to the previous year to look at what the business trends are. There was nothing unusual that drove that sequential shift this year.

And then I'm wondering if you could estimate what percent of sales recently have come via replacement sales and how do you expect that to grow in the years ahead? Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: By replacement, do you mean displacing an incumbent laser technology?

On a customer who's been using your lasers and these lasers in time need to be replaced. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: So there is still about – yes, if you look at the real acceleration if you take the high power or the QCW, right, most of these lasers are in terms of the volume of sales less than five or six years old. So, we think a laser in a laser. It's also important to understand that the age of the system that the laser goes into like a typical cutting system has a life of eight years to 10 years depending upon the duty cycle it's put through, a welding system because the duty cycle is a bit low, it's potentially a bit of a longer life. So, you're not into like the replacement cycle yet. What you do have though is if you look at the total number of cutting systems that's installed around the world, there are more than probably 50,000 high-power cutting systems. By our estimation, fiber's penetration into the total installed base is you can look at net up our high power sales and total units, it's probably somewhere over 20%. There is still a huge potential opportunity as those older CO2 cutting systems reached their replacement cycle to grow into the installed base even though we've grown substantially into the annual demand and that's a very important thing to note. It's not that fiber is already 80% of the installed base. It's still relatively early stages in that. And similarly, for QCW on displacing YAG lasers, it's relatively early stages into the installed base of many of these older laser systems.

Thank you. This concludes today's question-and answer-session. I'd like to turn the floor back to management for closing remarks. Valentin P. Gapontsev - Chairman & Chief Executive Officer: Okay. Thank you for joining us this morning. Again, we look forward for speaking with you on next quarter's call. Have a great day. Timothy P. V. Mammen - Chief Financial Officer & Senior Vice President: Thank you, everyone. Valentin P. Gapontsev - Chairman & Chief Executive Officer: Thank you.