Good morning, and welcome to IPG Photonics' Second Quarter 2017 Conference Call. Today's call is being recorded and webcast. At this time, I would like to turn the call over to James Hillier, IPG's Vice President of Investor Relations, for introductions. Please go ahead, sir.

Thank you, Christine, and good morning, everyone. With us today is IPG Photonics's Chairman and CEO, Dr. Valentin Gapontsev; and Senior Vice President and CFO, 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's Form 10-K for the year ended December 31, 2016, and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investor section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website. Many forward-looking statements made on this call are the company's expectations or predictions only as of today, August 1, 2017. 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.

Good morning, everyone. I'm pleased to report that IPG delivered another record second quarter. Our second quarter 2017 revenue and earnings per diluted share were above high end of our guidance. Demand for our core products, particularly high-power, kilowatt-scales fiber lasers, have never been stronger. Our leadership position within this fast-growing market drove record order activity in the quarter, resulting in a book-to-bill that was above one. Based on the strengths of our current backlog, we believe we are in excellent position to deliver another strong quarter in three months' time. We continue to believe that pace at which our fiber lasers are replacing conventional lasers and non-laser based technologies is accelerating. With fiber laser cutting systems approaching one-third of the installed base, we believe it is becoming increasingly difficult for fabrication folks with CO2 lasers to compete with fiber lasers due to the much faster metal cutting speed and significantly lower operating cost of fiber versus CO2 lasers. We've also seen fiber laser systems begin to replace more non-laser based technologies for cutting and welding applications. This includes machine presses for punching and stamping of metal, which use inflexible dies for cutting and drilling that wear out and break over time. Fiber laser cutting system now represent a superior return on investment for many publications folks due to their greater flexibility, reliability and the lower operation cost. During the second quarter, we also benefited from accelerating growth in high-power lasers and precision systems for laser-based welding application. This fiber laser welding system are increasingly replacing traditional resistance spot, arc welding, e-beam, and plasma equipment in automotive, aerospace, nuclear, railway, construction, chemistry and other heavy industries. We believe our market leadership continues to expand. There is more companies that can produce high power fibers lasers at our scale, our quality…

Thank you, Valentin, and good morning, everyone. First, let me remind you that I'll focus my comments on the key financial highlights of the second quarter. For additional details on our reported results, please refer to the Excel-based financial data workbook posted to our Investor Relations website in conjunction with today's earnings press release. Revenue in the second quarter grew 46% to a record $369 million, exceeding our guidance of $320 million to $340 million. This outperformance was primarily driven by China and, to a lesser extent, Europe, with robust demand across a variety of applications and industries. Aside from the better than expected order flow that Valentin highlighted, we benefited from strong execution in a number of key areas, including capacity planning, production and operations management, customer credit management and global administration. Revenue from materials processing applications increased 48% year-over-year, driven by accelerating growth in cutting and welding, while marking and engraving increased by a high single-digit percentage year-over-year. Revenue from other applications increased 19% year over year from strength in telecom and advanced applications. The contribution to revenue from OptiGrate, which was acquired during the quarter, was not significant. Second quarter revenue in our largest region, China, almost doubled year-over-year and represented half of total revenue. High-power laser sales for cutting and welding applications drove the majority of the nearly $90 million revenue increase in China versus the year ago period. We also benefited from strength in QCW laser sales, primarily related to consumer electronics applications, as well as from high-power pulse and other laser products. As Valentin noted earlier, we believe the pace at which our fiber lasers are replacing conventional lasers and non-laser based technologies is accelerating. This trend is especially pronounced within China, where the local machine tool OEMs have been faster to adopt fiber…

Thank you. We will now be conducting a question-and-answer session. Due to time constraints, we ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re-queue and those questions will be addressed time permitting. Thank you. Our first question comes from the line of Joe Wittine with Longbow Research. Please proceed with your question.

Hi. Good morning, and congratulations. I was hoping you could give us some color on just how you were able to respond to this upside. So particularly, with higher power sales, Dr. Gapontsev, you said greater than 50% year to date. And obviously, within that, your kilowatts shipped are up even higher. So how have you been able to scale up production in what seems like a seamless fashion? And as you look forward, are there any pain points for utilization that will need to be addressed?

So, I think the first thing to really reference with that is that I've always said that one of the things I think the company does very well is plan for future growth, both in terms of capacity and the investments that we make, both the longer-term investments and the working capital investments. I think the way the company has performed this year has really validated those investments where people might have actually questioned them historically. Without those investments having been made, we would not have been able to respond to that. And I think it's actually probably one of the great strengths of what we do, even to the point of accepting the criticism that we may have been running inventory days higher than expected historically or even added investments. People always ask me, what's your level of CapEx going to be in a given year? We use a lot of our cash generated or a substantial part of it to reinvest in the business to ensure that we can respond to what we believe will be this sort of dual-thesis of secular growth that we have around displacing existing laser technology, as well as non-laser technology. I think the other great benefit of having made these investments and our ability to respond to this increase in demand is that it has really enhanced our competitive position versus other entrants trying to get into the market with this ability to deliver in very high volumes with increasing power levels. So, the increasing power levels cannot be understated as well because that's obviously driving a substantial increase in diode demand. I think what that will result in given the rate of growth we're seeing this year is potentially a slightly higher CapEx coming into next year as well in order to stay ahead of the curve on that investment side.

And also, you have to take in mind that the report nowaday, our growth in revenue. Our real growth in physical units of our products much higher because we (27:41) now the quality also to balance in the decrease in price of our product. If taken account this factor, you can add 10% our growth at minimum in physical units, practical all our products.

Certainly. Thank you. That's helpful. And I have a bunch here, but to keep it to one follow-up, maybe give us your thoughts on the automotive supply chain. Obviously, this morning, some concerning sales numbers in North America. I know IPG is more tied to new models being introduced, but from your perspective, are some of these numbers concerning enough that you could see some impact to investments going forward? Thank you.

You always like to have a bit of a tailwind behind any sector that you're dealing with, but we come back again to the way that we think about the basis, which is the secular shift towards using more lasers in a wider variety of applications. Whether it be in automotive or other industries, we believe that, that's the fundamental underlying driver of our performance, and then we also have to deal with the cyclical shifts in demand that you inevitably see in the shorter periods or short-term. So, you can see ramping demand with strong PMI and increasing production volumes across different industries, and then you can see periods where the secular shift continues to happen, with some a little bit of weaker demand. I think within automotive, we've always said we're very early stages in many applications using lasers across a wide variety of different areas from transmissions to the main body, and then you've also got some changes within the automotive sector happening as well with what's viewed as a very much a multiyear investment horizon on electric vehicle production that we think over the next four to five years will be a growth driver for us. So, I think that's how we look at things, and we acknowledge that you're going to have secular shifts and some cyclical impacts from period to period.

Thank you. Congrats again.

Thanks, Joe.

Our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch. Please, proceed with your question.

Yeah, hi. Thanks for taking my question. The first one I had was, Tim, can you just let us know how much of your sales in the quarter was from cutting and how much was from welding?

We don't specifically disclose that because it's difficult to determine it very, very accurately. It wasn't different – I think we've disclosed in the K historically, approximately 50% comes from cutting, and then 25-plus from welding. And the numbers are following those general trends. We do not specifically disclose that, Krish, because it's a number that we don't actually even get from the customers definitively.

And growth in welding is much higher than growth rate for cutting. So, it's – it confirm our claim because the welding, the application of laser in welding have very high potential. And more difficult to penetrate in this market due to – for practically, each customer could be customized, not standard, but customized product. But we're working very hard. We have great success in this direction.

All right, guys. That's very helpful. And then, just a big picture question. I know you guys have consistently grown double digits for the last several years. When you look forward over the next like three to five years, what do you think is the growth rate for the fiber laser industry? Thank you.

The growth rate, if you look at the market analysis out there, is anywhere from low to mid-teens. I think the issues that nobody really can forecast is how rapidly and how many different industries choose to adopt laser-based technology. So, for example, this year, not only have we seen the transition to higher power devices because of the improvements in cutting speed, we believe we've also seen a significant transition toward displacement of inflexible metal processing punches and presses, where you have the machine tool dies that wear out. But also, punches and presses tend to damage the metal during the processes, where the laser doesn't. So, you've got a much more flexible process now. There are hundreds of thousands of punches and presses that are deployed around the world, it's very difficult to even come up with an estimate of the total population of them. If you're starting to see a transition towards displacement on a more fundamental level of that, you've got a very significant runway for growth even in that single application. And then, if you start to see the transitions, we talk about the transitions in welding, but there are many applications, deposition, ablation, and then you get into the newer product introductions. So, we think that the overall outlook for fiber lasers over a multiyear horizon is pretty optimistic. I can't get drawn onto specific numbers because I don't think it's really possible to even determine it.

Got it. Thanks, Tim.

Our next question comes from the line of Bobby Burleson with Canaccord Genuity. Please proceed with your question.

Yeah. Good morning. Congratulations on the strong results.

Thanks, Bobby.

So just quickly on consumer electronics, you guys have talked about the cadence of the investment cycle there being kind of every two years. I'm just wondering if we can think about looking at the gross this year, how much of it is attributable to consumer electronics and kind of what kind of headwind are we talking about next year on growth.

I think it's a little bit difficult for us to identify definitively because we sell a lot of stuff through the OEMs. Certainly, some of the upside on the QCW and some of the upside on the marking applications is related to consumer electronics. I would actually characterize this year, the consumer electronics, whilst it's meaningful, it's being more the icing on the cake because so much of the growth as well has come from the high-power applications as well. And we kind of wanted to – we tried to stress that in the script that this was not just a consumer electronics play, it is a broader based application step. With QCW up 80% year-over-year, I would say that quite a lot of our growth, not all of it because some of it came out of the aerospace drilling applications, was related to the consumer electronics business. So QCW was $29 million in the quarter. You're talking $10 million to $15 million of revenue on QCW and some few million dollars on the pulse lasers as well. So, it's really – I would characterize it more as the icing of the cake. Of course, it will be a bit of a headwind next year. I will say that we're already working on new applications within consumer electronics using different types of products and different types of materials that look forward to the next investment cycle. So, it's interesting that we're starting to see even the interaction when some of the main customers start already for newer applications going forward. I don't think it's going – we haven't seen a shift yet from it being a – to an annual investment cycle. There'll be some benefit next year, but it's still very much a biannual with the new product introductions, we think.

Okay. Great. And then in high power, just curious what the footprint is for automotive there generally. And then it sounds like there's some cyclicality there potentially. Is that being offset by this higher rate of adoption you're seeing in high power?

What do you mean by the footprint?

Like just how much of that is auto-related, do you think?

On the high power?

Yes.

It's part of it. But there's also the other main applications on welding outside of automotive. And then the cutting is a very significant part of the high power growth. So, it's not purely driven by automotive this year. It's across the applications, which is good to see, frankly.

High power is (36:56) what is small penetration of fiber laser (37:01) in heavy industry manufacturing. But now we're working very fast with, we hope, not just optical sources with (37:08) that this new technology and very successful with that application. Railway, chemistry industry, so aerospace and so on. It's a really very huge market in the future for high power lasers. We believe automotive is more for – or more power, for mid power. It's some kilowatt power, automotive. But for high power, both 10-kilowatt, it's very great future. We see a very great future. And we're working very hard in this area, actually. Result we have now is extremely promising.

So, it sounds like it's actually less than the overall corporate mix from automotive. If you look at high power, it's less auto exposure, percentage-wise.

We just don't get into discussing – the whole industry side is very difficult for us to identify. We've said before, even within automotive, we don't how many OEM systems are serving the automotive market, whether it's through – from the fabricators to the tier two, because some of the systems are sold through the OEMs. So, the industry side of it is just a very difficult question for us to answer. I think the answer is that the high power growth is broad-based across multiple industries and not just automotive.

Our next question comes from the line of Joe Maxa with Dougherty. Please proceed with your question. Joe Maxa - Dougherty & Company LLC: Hi. Thank you. I just wanted to dig into China a little bit, given the strength you've seen. And, obviously, you have a few puts and takes with consumer electronics and others. But are there any other applications that are really driving that revenue growth?

I mean the key applications are still the main ones that we work with there. But you're starting to see some of the emerging applications even in additive, deposition and ablation outside of the three core applications. Within the new products, we have the ultrafast being evaluated in China, where there's a lot of interest in that product. So, we expect that in the future to grow. But yes, it's really – I mean it all sounds rather boring when it's the 3 million applications of cutting, welding, marking, engraving. And then you get into the deposition and ablation type areas, which is starting to drive some contribution. Joe Maxa - Dougherty & Company LLC: And you believe the, from what I understand, that the main driver is just the acceleration replacing other metal processing applications versus specific growth in China from, let's say, they're in – whatever the buildout, whether it's new rails or whatever the case?

I think there's some tailwind from infrastructure spending in China and relatively strong macro situation with the PMI still being above 50%. And then you've got some of the consumer electronics, which I've characterized as the icing on the cake. So, I'd say you're benefiting from a broad cross section of different industries, both on even sort of the heavy industry side, construction side, consumer electronics, automotive electric vehicle, even some of potentially the aerospace. And then, yeah, I think there are some infrastructure spending that's been relatively robust in China this year. Joe Maxa - Dougherty & Company LLC: Great. That's all helpful. Thank you.

Our next question comes from the line of Patrick Newton with Stifel. Please proceed with your question. Patrick Newton - Stifel, Nicolaus & Co., Inc.: Yeah. Valentin and Tim, thank you for taking my questions, and congratulations on the quarter. I wanted to focus on high power and the year-over-year 57% growth rate, incredibly impressive. If we were to take some of the key variables, whether it be ASP trends, average power trends or unit growth, can you help us understand how those impacted that 57% growth?

So, I think, first of all, in terms of ASPs, the declines year-over-year were on average within the ranges that we expect of 5% plus, 5% to 10%. You've seen a transition for up to lasers with more than 6 kilowatts driving the total revenue growth. Valentin mentioned we're now selling 12-kilowatt and even 15-kilowatt lasers for cutting applications. You've also seen on some of the medium and fine cutting applications, people actually transition to 1 kilowatt to 1.5 kilowatts. So, in each of those areas, you've seen that coupled with an increase in total unit volumes driving the high-power sector not just in Asia, but also in Europe, and a little bit, to a lesser extent, in North America because a lot of those cutting systems, there's fewer OEMs here on that, on the North American market. It's a bit difficult to bifurcate it more directly than that as clearly a lot of different things that are driving the high power, as well as we said some of the displacements of non-laser technologies, which we've heard – at Laser Munich, this was mentioned to us – is mentioned to me at least four or five times by not only our sales people, but some of the OEMs that I spoke to in China. So, it's a little bit of hearsay, but everyone was saying that there certainly seems to be a trend on the non-laser technology side. Patrick Newton - Stifel, Nicolaus & Co., Inc.: And, I guess, just as a follow-up to that given your last comment on displacing non-lasers. So, I'm thinking that on China, maybe a two-part question. On displacing the non-laser portion of the market, is there any way to quantify how much of that growth in China is actually coming from that? And then on the China customers, can you talk about the size of the customers that are driving this growth? Are these smaller players, mom-and-pop shops? Are we talking about multinationals? And how are they funding their purchases? Is this still heavily reliant on attainable credit?

Sure. We don't have a lot of insight into the ultimate end customers when I spoke to some of the OEMs in China. It was a broad cross-section of different industries, but I've already mentioned some of the infrastructure side, construction, transportation outside of automotive. So, for example, buses use a lot of lasers, both welding and cutting. Railways, where, again, metal cutting and welding are applications. It's behind the seams of this. It's a bit difficult to, again, answer that question definitively. On the credit side, we always say that you have to have good access to credit in China. China always slows down if there's some tightening, and I think you've had pretty much an expansionary credit process. We continue to use our process of using bank notes to work with the working capital requirements of the larger customers. Outside of the larger customers, we were able to collect a lot of the deposits and prepayments from the smaller customers that we had. So, we were being pushed for deliveries. And when we're being pushed for deliveries, clearly, the customers are placing those prepayments with us, which enables us to meet the revenue that would come from those deliveries. In terms of the end customers, again, people, even the OEMs that I spoke to, weren't able to be very definitive on – part of it is obviously just – is the fabricators that is a very high – there's a very large installed base of fabrication shops that serve a multiple cross-section of industries as well. So, some of the demand is obviously coming from them, as well as some of the larger industrial complexes.

Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question. James Ricchiuti - Needham & Co. LLC: Hi, thank you. Good morning. Just wanted to circle back to the comments you made about bookings, about bookings being above expectations. I'm just wondering if you can give us a little bit more color on where some of the upside is being driven in bookings. I mean, whether it's by geography, or just any additional color. Because it does sound like bookings were even somewhat surprising to you, if that – I don't want to put words in your mouth.

It only was surprising to Valentin. It may have been a bit surprising to me. On a geographic – I mean, it's pretty broad based, Jim, on a geographic basis. Clearly, Asia, I think actually one of the countries that we haven't mentioned much, it's not huge, but where growth has been very strong and robust and across quite a diverse set of applications is in Korea. We mentioned Japan is a little bit weaker than we would like to see it. Europe has certainly been very strong, again, across core applications and industries that we serve there, both in Germany and then in other areas. Italy's performed well, the sales into Switzerland, even Eastern Europe, Poland continues to hold up well. Many of the other countries where we've recently invested on the sales and service side in, for example, Czech and Slovak, that's performed very well. Turkey's started to come back a little bit after all, I mean, despite all – even the geo-political uncertainty there. Bookings in Russia have been pretty good year-to-date. You normally expect Russia to pick up in the second half of the year. Russia's actually performed, even though it's a small number, pretty well in the first half of the year. And then North America, we mentioned was up 20%, again, that's a pretty diverse set of applications in terms of revenue, but that's also driven by the bookings though. It's pretty broad-based, and I think that's reflective of the general strength on the macro and PMI side, and some of the recovery you're seeing in Europe as well. James Ricchiuti - Needham & Co. LLC: Got it.

But South America now, we're very fast penetration, Mexico, Brazil and other South America countries, we're making our way with new management and (47:45). And so now, we hope it would be a much faster penetration (47:52) in this area. It's – don't forget about type of laser we're going with, now we're going from us after the market with great potential for the medical. For medical application, we've now start in only one year as a business. In the business, medical during the year, we reached fantastic results. For example, in urology, Mexico, some kind or some our customers may talk – start in the business talking about some revolution even. This is the reaction we're making now with our new products in the medical (48:25) how to make this operation and so on. The same way (48:29) medical market future have to our side to be multi-hundred million dollars of business only for medical applications. The same many other applications, we've started to develop now in serious in West Indies (48:45). So, our future, not only cutting and welding, our future – and also, one other application which will really open door for use, a new innovative high-quality laser in. The product we're not able to use or use very old solutions, 10 years old technology, which absolutely unpractical, now, fiber laser probably changed situation in many of these applications. James Ricchiuti - Needham & Co. LLC: Valentin, you anticipated and answered my next question about medical. So, it looks like you see this being a multi-hundred million-dollar business for you. If we think about this vertical over the next couple of years, historically, a small part of your business. But you see quite a bit of runway across the board, I guess, as well with ILT?

ILT, it's not big company, small company, but very well – they have good position (49:44) supplies for medical with a (49:49), a Medtronics-like, a (49:51) Medical, Boston Scientific, many others. So, today is was through the ILT, we really become a qualified supplier of not just the laser, but we've become a qualified supplier of multi-x machines for many application. This medical device market is more than $100 billion. And, of course, automation, they need to model automation, so now our target to become major supplier of automation systems, fantastic in this application. ILT help us, we'll say, two, three years in introduction to entry into to the business. James Ricchiuti - Needham & Co. LLC: Okay. Thanks very much. Congrats on the quarter.

Thank you, Jim.

Our next question comes from the line of Jagadish Iyer with Summit Redstone. Please proceed with your question.

Yeah. Thanks for taking my question. Two questions, Tim and Valentin. First, how much of this revenue growth that you are experiencing in 2Q and your guidance from 3Q is being driven by new products and new markets?

The new product introductions, which now would – not including the QCW, grew approximately at the same rate as the rest of the business. So, they're starting – or continuing to make a contribution, but they're not the fundamental part of the driver yet. So those are really the new products on the higher power pulse systems, the accessories, the green, and there's a couple of other ones. The newer products, for example, the marking systems for UV, the first sales were only received in – the orders were only received in June. And the ultrafast technology is now under evaluation and in the application labs with customers, so we expect to start getting orders from those devices in the next few months. Valentin can maybe give a bit more of an update on that. But a little bit of revenue from the projection and display, obviously, from the first half of the year, so that was also pleasing to see. But it's really still whilst the newer products are contributing, the main drivers on the newer products are still to come. And we believe that they will be an important part of the revenue stream for the company over the next couple of years.

Okay. And if I look at – you've been selling high power for several years now. And how should we be thinking about existing customers who initially purchased these higher-powered lasers and they were pretty much at the lower end of the spectrum as you look at it today? So how should we think about the replacement cycle around upgrade option that is available? And when do you think that would really kick in? Is there any kind of timelines and any other thoughts that you might be able to help us out with? Thanks.

We're still a way from a replacing cycle of the installed base of fiber because really, the volume on fiber laser sales only started to really ramp in 2011 and 2012, and then the thousands of units we've been selling has really been only in the last three to four years. So even though we've been selling high power lasers since 2004, the total volumes in the market were very low. I think the more important thing to understand is if you look at the cutting market, and we highlighted this piece of data in the script, is that fiber now has potentially penetrated to about 30% of the installed base of cutting systems. So, there's still a very significant runway for replacing existing cutting systems that use CO2, and then potentially as you get more and more installed into that base, you will – then your fiber lasers will be the earlier fiber laser that would be sold, would be approaching a 10-year life cycle, and that's typically where you start to see some replacement of those systems. So, I think you're a little bit early on a fundamental replacement of the first fiber lasers that were sold just because the volumes of them were pretty low.

Okay. Congrats on the strong result.

Great. Jagadish, thank you

Our next question comes from the line of Mark Miller with The Benchmark Company. Please proceed with your question.

Let me add my congratulations on a great quarter. Systems, you mentioned they were up. Just give us a little more color, what's going on with your system sales and your strategy there.

With systems, we normally work in both in market application and micro applications. It's a big range of different kind of systems. And we – so for some applications – we are on pace with the new technology, for example, for market application (55:01), and so on. For them, we develop unique technology for large diameter pipe. And our proven technology (55:09) the full system, not just technology, not just lasers for this system. A full, complete solution is for a gas pipe, for oil pipe (55:25) installed directly in the field. It's a long process introduction, market takes three to five years minimum. And we in the middle will just wait until – we're going to get started in development in the – developed in Russia, but now, we're going into Canada, U.S., to other countries. So, a lot of countries and so on. It would be a very serious business for both on oil and gas. We develop the practical system for – to where we can – for assembly, the railway, the full tracks, wagon, (56:05) and also for (56:08) wagons. Also, we tested this in the field, full complete solution. It's – this also, we have – from the point for us also now with the problem sanction of the American new sanction can delay our penetration to this market. But the (56:31) it's multi-hundered million it now operates, so in that – in our (56:40) this political problem. And maybe now, we reap our costs for the development for West market. For that, we created two partners inside a very serious development team in Milan, Italy. Now, Milan company is second. We develop also in America this year, and developed also a strong inside application center and the assembly center for – to work in American market.

Thank you.

So, it's for macro. For micro application (57:18), we're working for consumer electronics and not just selling away the – when the – our – what OEM customer like, the most successful comes with (57:29) over this year, right, more than $600 million enter the use (57:37). So, maybe 70%, 80%, our laser in all the systems. But now, we're going to start to work directly with major consumer manufacturers, major manufacturer. We often join whoever there is when develop with them, a new process directly to this end. Successful as some 10 different new technology processed, which we developed and now application with the next step to make sale the – to assess the rights. That supplies this, I would say, full automotive station, not just to provide this technology or license this technology to our Chinese OEMs. It's also a lot of different applications. Still, from system point, we develop project as sources for digital cinema premium. First, it's now – we're now working a deal with premium theater – theater in London, Chicago, in Portugal, in Paris. And so we start to install our system directly in theaters. It's very successful and no (59:02) operation for people. It's also a very interesting system solutions, and so we are looking for a great future also in this application. So, it's the same, medical device for medical application through ILT in our – the production factory I would say also in the Marlborough, Massachusetts quasi ILT, it's – now we see this branch for mid-level application in the material processing in the U.S. So, we total this, our estimation during the next five years, it would be still a portion of total hour business system direct from complete solution package: technology, system, hardware and service installation, so all complete solution for customers.

Our next question comes from the line of Tom Diffely with D.A. Davidson. Please proceed with your question. Thomas Robert Diffely - D.A. Davidson & Co.: Yes, good morning. Just a quick follow-up on your comment that you're starting to see fiber lasers replace the non-laser systems. Just curious, does this extend into welding at this point?

Yeah, it does. Early stages, though, on the welding, but given that most welding is done with non-laser technologies, growth of lasers will primarily come from that displacement. So, we mentioned the different areas that we're working in that area, both resistant spot welding, our processes, plasma, e-beam, and certainly some of the – in the newer industries, they would have evaluated whether to use those, and have chosen to use laser given all the efficiencies and performance advantages. And then in some of the older industries, they have clearly been using those technologies for a longer period of time, it is often a replacement to those technologies. So, Valentin mentioned the pipe welding system that's been developed. Historically, pipe welding has always used traditional technologies. Within railcar building, it's been traditional technology. So, yeah. So, we're starting on that road of replacement. Thomas Robert Diffely - D.A. Davidson & Co.: Okay. Do you have a sense of how much of the traditional huge welding market you could actually address with fiber lasers over time?

Well, in theory, a laser can do all the different types of welding that every single one of those applications can do. It's not a limitation of the application itself. And quite often, the quality of the weld is better, the strength of the weld, the thermal damage is less. It often comes down to more the economics. So as the cost of the fiber laser becomes more competitive, you'll be able to see that displacement happen more regularly. It comes down to the acceptance actually of the end industries. Many of them have been using traditional technologies for not just tens of years, but even the last hundred years. So you've got to change the way that those industries view laser technology and move them away from a technology that they may have been very comfortable with for a long period of time. It's not a limitation around laser capability in welding. It's about addressing the other dynamics that exist in those end markets, and driving acceptance and penetration.

Okay. Great. Thank you.

Thank you. Due to time constraints, our final question will come from the line of Tom Hayes with Northcoast Research. Please proceed with your question.

Thanks. Good morning, gentlemen. Thanks for taking my question. Just real quickly, Tim, in the release, you called out one of the areas was telecom. Just wondering if you could provide some color on where the strength came from this quarter, then your – a little bit of sense for the size and the outlook for that business.

On telecom, we continue to execute on providing a more complete solution, coupling the technologies that we bought last year on digital signal processing with our optical capability. And that continues to perform well. We see and are looking for substantial growth in telecom actually over the next 12 to 18 months with new product introductions that take us to 100-gig and above. So, it was basically an execution around the areas that we've been looking for growth from. Do you want to add any to that about telecom?

We developed a new very advanced technology to make our own module type, the transponder for new generation in the – both for one whole transmission and for datacom servers. And so, on it, we're up to – during our (01:04:27), during the two, three years, we have developed 400g, 600g, the transponders. And we developed also new kind of (01:04:39), very powerful based on this own technology to complete a integrated solution, DWDM and others. So, it's really very serious product we created, developed, now it improve essential, our team. And according schedule, very tough schedule, but going very well. But our target to become serious player in the market, telecom market, with revenue in multiple hundred millions minimum. But it takes time, three years. Project for two, three years. We have one very serious project when we invited to become this major provider and so on. But it's the project for 2019 to 2020 year. Now, we prepare all the hardware and software for this project. It's very large project.

Thank you. I would now like to turn the floor back over to management for closing comments.

Okay. Thank you, again, for joining us this morning. We look forward to speaking with you on the next quarter. Have a great day.

Thank you, everyone.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.