James F. Hillier - IPG Photonics Corp. Valentin P. Gapontsev, Ph.D. - IPG Photonics Corp. Timothy P. V. Mammen - IPG Photonics Corp..

Joe H. Wittine - Longbow Research LLC Jim Ricchiuti - Needham & Company, LLC Thomas Robert Diffely - D.A. Davidson & Co. Patrick J Ho - Stifel, Nicolaus & Co., Inc. Thomas Hayes - Northcoast Research Partners LLC Mark Miller - The Benchmark Co. LLC.

Good morning and welcome to IPG Photonics Second Quarter 2018 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 introduction. Please go ahead, sir..

Thank you, Christine, and good morning, everyone. With us today is IPG Photonics' Chairman and CEO, Dr. Valentin Gapontsev; and Senior Vice President and CFO, Tim Mammen. Statements made during the course of this 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 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, 2017 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, July 31, 2018. Company assumes no obligation to publicly release any updates or revisions to any such statements.

For additional details on our reported results, please refer to the earnings press release and Excel-based financial data workbook posted to our Investor Relations website. We will post these prepared remarks on our Investor Relations website following the completion of the call. With that, I'll now turn the call over to Valentin..

Good morning, everyone. IPG delivered yet another quarter of record revenue, net income and bookings, driven by the rapid adoption of our high power products. During the second quarter, we shipped more high power units and sold more optical power than we did in an entire year just three years ago.

We also made important strides in our newest product areas. We achieved strong growth in our new ultraviolet green, and ultrafast pulsed laser product.

We also delivered a record quarter in our systems and beam delivery business, evidence we are becoming a more complete solution provider within the automotive, aerospace, railway, pipeline, entertainment and medical device industries.

While the second quarter was strong, demand softness in Europe and China at the end of the quarter resulted in a more modest year-over-year growth in orders. We believe this trend is primarily driven by macroeconomic and geopolitical pressure rather than competitive dynamics.

We are seeing strong order activity in North America and some smaller regions. We remain the market leader in fiber laser technology and expect to maintain, if not expand, our market share this year.

IPG pioneered the development of hundreds of key technologies over the last two decades that enable our technology and cost advantages within the laser industry. There is no company that can deliver high power laser solution at our scale, quality, cost and lead time.

Our high power fiber lasers enable faster processing speed along with superior productivity and flexibility. This benefit only increased at high power. As a result, we are benefiting from relative market acceptance of our ultra-high power fiber laser technology at 6 kilowatts and above.

Ultra-high power laser sales increased more than 50% year-over-year and are now more than 40% of total high power product sales. We continue to see our largest OEM customers migrating to high power fiber laser cutting solutions at 8 and 10 kilowatts.

In addition, leading hOEMs (4:46) are now purchasing our unique fiber lasers at 12 and 15 kilowatts, which has no laser competition at all. These ultra-high power lasers continue to demonstrate faster cutting speeds and improved end-user productivity at the lower end of the cutting systems market.

Q2 sales of our high power rack-mounted fiber lasers increased by nearly 50% year-over-year with an even higher growth in the unit volumes.

The market for lower-end laser cutting systems in China has been expanding rapidly, driven by the superior productivity and flexibility of fiber-laser cutting system over non-laser technologies such as punch presses that use inflexible dies that takes weeks to build and wear out over time.

Also, the market for lasers in a low (6:01) cost-cutting systems remain a competitive one. Our rack-mounted products have enabled us to expand the market of laser technology by accelerating growth in this important product category. We are seeing strong traction in our newest pulsed laser product.

Sales of green pulsed lasers, used as an ablation tool for improving solar cell efficiency, more than doubled versus the year-ago period. In only our second quarter serving ultraviolet lasers, we achieved our first $1 million quarter for this product, driven by an application in consumer electronics.

This product primarily expands our addressable market for marking and engraving of non-metal and for material ablation. Within our new family of ultrafast pulsed lasers, revenue increased double-digit sequentially as we continue to target opportunities in the micro materials processing, scientific, and medical arenas.

As we expand our product capabilities within optical accessories, beam delivery products and systems, we're becoming a more complete solution provider to our customers.

Sales of beam delivery accessories, including high power welding and cutting heads, scanners, collimators, beam switches and process fibers, increased by 50% during the second quarter.

System sales grew at an even faster rate, nearly doubling on year-over-year basis as we continue to target solution opportunities in the automotive, aerospace, railway, pipeline, and medical device industries. I remain confident in IPG's ability to grow faster than the markets we serve.

We're still in the early stages of fiber laser penetration against traditional tools and process technologies that are inflexible, less precise and less powerful by comparison. IPG's growth is enabled by the superior productivity, reliability and cost to ownership of our products, our competing laser and non-laser solutions.

Moreover, we continue to advance in new product areas that meaningfully expand our addressable market in the micro material processing, medical, defense, scientific, and projection and display industries.

Despite some headwinds in our business over the near-term, IPG has multiple potential growth drivers for the long-term, and we deliver on our mission to make our fiber laser technology the tool of choice in mass production. With that, I will turn the call over to Tim..

Thank you, Valentin, and good morning, everyone. I will review the key financial highlights of the quarter. Revenue in the second quarter grew 12% to $414 million. Foreign exchange headwinds during the quarter relative to sales assumed in our Q2 guidance reduced revenue by $8.4 million.

Without this impact, Q2 revenue would have been above the midpoint of our guidance range. Revenue from materials processing applications increased 11% year-over-year, driven by lasers sold for cutting and 3D printing applications. Revenue from other applications increased 33% year-over-year.

By region, second quarter revenue in China increased 10% year-over-year and represented approximately 49% of total. Sales of high power CW lasers for cutting applications drove the majority of the revenue increase in China versus the year-ago period. Welding sales in the region declined on a year-over-year basis.

We saw an expected reduction in demand related to consumer electronics investment cycle, as well as continued softness in high power welding related to automotive and electric vehicle battery welding in the region.

In Europe, revenue increased 18% year-over-year, driven by strength in medium power lasers for 3D printing applications, high power lasers for cutting applications and high power pulsed laser sales for cleaning and stripping applications.

Based on the record level of laser shipments into 3D printing customers during the first half of 2018, we expect to see a period of digestion through the end of the year, with second-half lasers shipments into 3D printing customers down versus the first half of the year.

In North America, second quarter revenue growth increased by 23% year-over-year, driven by strength in cutting and welding applications. Sales in Japan decreased 2% year-over-year, with a continued rebound in cutting offset by declines in welding and marking and engraving.

We continue to target compelling expansion opportunities in cutting, welding and other application areas that we believe will drive improved performance in the region. Turning to performance by product, high power lasers sales increased 20% year-over-year to $266 million in the second quarter and represented more than 64% of total revenue.

Fiber lasers at 6 kilowatts and above grew at an even faster rate and now account for more than 40% of all high power laser sales. Sales of our 1-, 1.5- and 2-kilowatt rack-mounted fiber lasers increased by nearly 50% year-over-year with even higher growth in unit volumes, driven by rapid growth in lower-end laser cutting systems in China.

Pulsed laser sales increased 1% year-over-year with rapid growth in green, ultraviolet, ultrafast and our highest power pulsed products, offset by lower sales of lower power pulsed products.

Medium power laser sales decreased 7%, as strength in 3D printing and welding applications was more than offset by a decline in cutting attributable to the shift by OEMs to kilowatt-scale lasers. Other product sales increased 27% year-over-year due to the strong sales growth in systems and beam delivery accessories that Valentin noted earlier.

Finally, QCW sales of $20 million declined 32% year-over-year due to the expected reduction in demand related to the consumer electronics investment cycle. Second quarter gross margin of 56.8% was up 90 basis points from Q2 2017 and above our guidance range of 50% to 55%.

We were able to more than offset declines in average selling prices with improved manufacturing efficiency, cost reductions, and favorable product mix. Second quarter operating income was $162 million or 39.3% of sales, up 110 basis points from Q2 2017. Excluding a foreign exchange loss of $2 million, operating margin was 39.8%.

Operating expenses as a percentage of sales increased 130 basis points year-over-year, as we continue to make necessary investments in sales, engineering, and administrative talents, as well as in IT systems. On a sequential basis, operating expenses declined 170 basis points as a percentage of sales.

Q2 net income was $122 million and earnings per diluted share were $2.21. Foreign exchange losses reduced EPS by $0.03. If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $23 million lower and gross profit to be $15 million lower.

The effective tax rate in the quarter was 26%, which benefited from the lower effective tax rate for income earned in the United States due to the enactment of the Tax Cuts and Jobs Act and an increase in excess tax benefits related to equity compensation which were partly offset by provisions for uncertain tax positions and other matters.

We ended the quarter with cash, cash equivalents and short-term investments of $1.3 billion and total debt of $47 million. During the quarter, we repatriated $406 million in cash from Europe into the U.S. We expect to repatriate an additional $117 million from Europe into the U.S. in the third quarter.

As a result, we expect our interest income to increase by more than $3 million per quarter. Cash provided by operations during the quarter was $109 million, up 32% from Q2 2017. Capital expenditures were $57 million, up 160% year-over-year.

We continue to invest in new facilities and equipment to meet demand for our products over the next several years. Second quarter CapEx includes $26 million to acquire a manufacturing facility adjacent to our Oxford, Massachusetts operations.

We repurchased 132,000 shares for $31 million, completing the initial $100 million authorization of our anti-dilutive repurchase program. Since the program began in July 2016, we repurchased 593,000 total shares for $100 million at an average price of $168.

The board of directors has authorized a new $125 million anti-dilutive stock repurchase program.

Under this program, IPG management is authorized to repurchase shares of common stock in an amount not to exceed the greater of, one, the number of shares issued to employees and directors from January 1, 2018 through March 31, 2019; and two, $125 million exclusive of any fees, commissions, or other expenses.

As a reminder, the share repurchase program authorization does not obligate the company to repurchase any dollar amount or number of its shares, and repurchases may be commenced or suspended from time to time without prior notice. Turning to our guidance. Book-to-bill was at 1 for the quarter.

While orders grew slightly on a year-over-year basis, order flow was below our target as demand softened in Europe and China at the end of the quarter. This more modest year-over-year growth in orders has persisted through July and we believe is primarily driven by macroeconomic and geopolitical factors rather than competitive dynamics.

In addition, we do not expect to see a material pickup in welding during the third quarter, as projects related to electric vehicle battery investment may only materialize in Q4 and the consumer electronics investment cycle remains a headwind to growth.

Finally, foreign exchange tailwinds that have benefited revenue for the last four quarters have reversed with the depreciation of the Chinese yuan and euro. While we are encouraged by the strength in new products and select regions, including North America, this growth will only partially offset the more modest outlook in China and Europe.

Based on these factors, for the third quarter 2018, we expect revenue of $360 million to $390 million. We expect our third quarter tax rate to be approximately 26%, excluding effects relating to equity grants. We anticipate delivering earnings per diluted share in the range of $1.80 to $2.05.

As compared to just a few months ago, the current global macroeconomic trade and geopolitical environment is more uncertain and could remain so. In addition, we expect foreign exchange to be more of a headwind, particularly with the depreciation of the Chinese yuan over the last month.

As such, we believe full-year revenue growth for 2018 will be in the range of 7% to 9%.

As discussed in the Safe Harbor passage of today's earnings press release, actual results may differ from our guidance due to factors including, but not limited to, product demand, order cancelation and delays, competition, tariffs, trade policies and general economic conditions.

Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release and is subject to risks outlined in the company's reports with the SEC. With that, Valentin and I will be happy to take your questions..

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Joe Wittine with Longbow Research. Please proceed with your question..

Hi. Good morning. So, Tim, you called out 3D printing, the EV battery welding and then the CE cycle. So, I mean, those are meaningful parts of the business but not the majority of the business by any stretch.

So, beyond that, I'm curious, is the rest of the business holding up, the integrated channel business, et cetera?.

So, I mean, through the first half of the year, you've seen weakness on the welding side, you've seen strength in 3D printing and really, I would say, outperformance on cutting. The growth on the cutting, that certainly slowed into Q3, and then you've got the welding continuing to be slow and the 3D is slowing down.

We did want to call out that in July there was still a modest growth in year-over-year order flow. It certainly wasn't at the level we need to have to grow the business in the range that we are expecting to. So I would characterize it that order flow is holding up. It's just not at the level we need to see it.

But you do have significant weakness in some of the applications, particularly EV not coming back as strongly as we expected even in Q2, certainly not in Q3. And then the 3D printing is really going to be quite a lot weaker in Q3 at this point in time..

Okay.

So, let's call it the automotive business, either your main OEM partners or the integrated business there, or general industrial and Ag, you're kind of core cutting business, right? Are those investments slowing or being put on hold due to tariff-related uncertainty at all or are you not necessarily hearing that from what I'm characterizing is the core business here?.

No. Certainly, in China, I think there's a lot more uncertainty within the end market where we're a little bit removed from it. But the tariff talk and the trade war talk I think is having a psychological effect on the end markets and certainly making people less optimistic about the investment decisions they're making.

So, yes, absolutely, particularly in China, and obviously Europe is a large export market so that weighs on Europe as well. And undoubtedly, the uncertainty is certainly causing a pause in investment decisions within those end markets that you referenced..

Right. Okay. Makes sense.

And then, with that, what was your approach with assembling the second half guidance given what was, sounds like, an ongoing continuation of this pressure through July? Did you kind of assume a continuation of the July pattern through December, let's say, or do you factor in any kind of relative pickup?.

No. So, when we pulled together the guidance, the interesting thing is there's quite a lot of backlog already on hand for Q4. July order flow, we were pleased to see, did show some modest growth year-over-year. So I'd say that on the order flow side, we haven't seen any further deterioration. It's just kind of stable.

We're working on some projects for the EV. Those projects will certainly have some competition from other suppliers in the market, but we hope that we'll win those. So, that would be some upside that we'd expect coming into the end of the year.

The other thing we've referenced is that so long as the macro doesn't deteriorate, in a year where you don't have the consumer electronics cycle investment, you generally see Q4 being slightly up on Q3. So we've tried to take that into account as well in really estimating what's going to happen for the second half of the year.

I'd say we caveat that with – it really assumes that there isn't any greater uncertainty or further macroeconomic impact over the coming three months or so..

Okay. I'll step aside. Thank you..

The interesting trend we are looking now – we see some of the – a decline in the shippable orders. So we're talking about (26:25) shippable orders with fixed delivery date. But we see much faster growth and much larger than last year in frame orders. They're growing frame orders, but customers are now afraid to fix delivery date, this major problem.

They're waiting what happen of full uncertainty with this trade war, tariffs and so on. They prefer to wait now, to delay the real shippable order, our opinion..

Makes sense. Thank you..

Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question..

Hi. Thank you. I'm wondering if some of the weakness that you're seeing, is it broadly based among your customers, or is it confined to some of your larger customers..

It's certainly more pronounced amongst the larger customers because they drive so much of the revenue. And that's one of the things that really also gives us some comfort that it's more macro and geopolitically rather than competitively driven, because some of the competitors have got share amongst the smaller, even Tier 3 customers.

And we're actually going to have a big effort this quarter to try and not win back because we never really were supplying into those smaller customers, but to win over some of that business into the second half of the year..

Got it. And Tim, I wonder how we should think about gross margins at these lower levels of revenues as well as you also have some what sounds like, in some areas, a better mix of business..

So, yeah, you've got some better mix of business. You've got some of the newer product introductions growing. You've got some of the new diode R&D development, which is going to bring down diode costs quite substantially, starting to come on stream in the second half of the year. So those are all benefits.

My bigger concern on the gross margin side, offsetting that and weighing on that, is the currency headwinds which have really benefited us. So, particularly the Chinese yuan, that's gone from RMB 6.40 at the beginning of the year and now sort of it's ranging between RMB 6.70 and RMB 6.80.

That clearly has a much more of a headwind on selling prices in China. So I think we got some definite puts and takes around that. And then you've also got the euro depreciating a little bit, but not nearly as dramatic as the yuan impact. I used a range of 55% to 56% when I pulled my guidance together.

So I'm still forecasting strong gross margins, but certainly not in the upper half of 56%, 57% where we have been. I've been more moderate on that..

And on R&D, a little bit of a step-up in the quarter, and it's been trending higher.

Should we assume this kind of continued high level of R&D investment or should that flatten out a bit?.

No. For R&D and such, we are looking now at the beginning of new world crisis now. So we have to prepare, compensate it with first – introduce in market new products and new applications which will compensate drops in the current applications..

Thank you..

Our next question comes from the line of Tom Diffely with D.A. Davidson. Please proceed with your question..

Yeah. Good morning. I was curious if you're seeing any changes in the competitive environment, specifically in China and maybe particularly around Raycus, the process of trying to go public..

You see, the Raycus, it's all too more – we don't believe in future of Raycus, relatively speaking. From point quality of product, opportunity to compete without they have (30:45) extremely limited opportunities, so the revaluation (30:50) markets are crazy at all.

Regarding the danger of such company like Raycus, Chinese company (30:57), they destroy the market. They drop and drop prices, work in very small margin range and so on. They practically destroy market prices and so on. Each year – this year again, they dropped off price practically up to 50% and more. It's crazy at all.

We don't understand how they're working because they bill materials that were into 70% to 80% of their – unbelievable. It's some tricks. We don't believe an ideal financial (31:32) without the reporting the mark-to-market..

Okay. But it sounds like....

So this is real. They destroyed – before it was good marking market. Now the units have grown, but in price they destroyed practically. Even Chinese major players – Chinese players of marking system growing out of this market OEM, because they absolutely practically destroyed, no profit at all.

The same was tried to make destroy all supply (32:02), but with the market it's over. Of course, we have better opportunity. Our manufacturing costs much cheaper than we believe they have today. But price is going down. This is a major problem. The units are growing, a problem to grow (32:17) but in revenue, it impacts final revenue for low-end product..

Okay. But it sounds like thanks to your cost structure, you're able to – at least your blended gross margin is obviously doing quite well despite the impact from this and China specifically. Okay. Maybe switching gears....

We're working very hard to decrease cost of our product this year. Again, from beginning next year, we introduce new generation of the high power fiber laser, much more efficient and much more perfect than the current line, and also much less costly.

From manufacturing cost, we decreased again 20% to 30%, and now have to continue (33:06) even with decline of ASP to support the same highest profitability at all, but it impact revenue with dollar it's in – Chinese destroy the market practically..

Yeah. Okay. Maybe switching gears then on the 3D side.

How big is the 3D additive manufacturing market today and where do you see that going over the next few years?.

So I think through the first half of the year, that market has been up again close to 50%. It's going to go through a bit of a hiatus in the second half of the year. So the average growth rates in the market are still being achieved at the 20% level that we've referenced before and I think that is a sustainable rate going forward.

So I think that there's very much on the additive side. It's a temporary pause that we're seeing there. You're certainly starting to see metal additive manufacturing processes deployed much, much more broadly and widely, and most of the companies that are continuing to grow the business significantly..

Your 20% number was a multi-year number, you said?.

Yeah. So there's market data out there, Tom, that's talked about that average growth rate of 20% being sustained over a five-plus-year time horizon..

Okay. Great. Thank you..

Our next question comes from the line of Patrick Ho with Stifel. Please proceed with your question..

Thank you very much. Tim, maybe following up just some of your comments. You talked about cutting slowing down as you go into 3Q and you also mentioned that the impact of this current slowdown is among major customers.

How do you, I guess, differentiate talking to your customers whether this is the macroeconomic-geopolitical situation, or perhaps it's just the digestion period from some of your larger customers given the strong buying that they've seen over the past 12-plus months?.

I mean, in terms of financial results, it doesn't really make a difference whether it's just digestion or macroeconomic. I think, though, that certainly there's more uncertainty from what people are saying, and they are referencing investment decisions being either more moderate or being delayed, and that is a macroeconomic impact.

I think the question is almost a bit too nuanced, Patrick, I think. There is just a slowdown in the rate of growth of that cutting market at the moment. And you've got some weakness on the welding side, driven by the consumer electronics investment cycle and some of the other welding applications being slower.

Yeah, I don't – not sure I can really parse out the difference between sort of digestion and macroeconomic effect of it. We're pretty certain with the larger customers it's not a competitive thing because we're the exclusive supplier to the largest and highest volume OEMs that we have on the cutting side. So it's not a competitive dynamic there.

At the lower end of the market, there is more competition from some of the other customers..

Okay. Fair enough. Yeah. It may be just a nuance thing because it sounds like your customers are sort of telling you that it's a bigger, I guess, macroeconomic and geopolitical concerns that are weighing on, I guess, their buying habits (37:10)..

Yeah. I can't really add any more to that at this point..

Okay. But maybe a follow-up question.

Given that you guys in general have been very accommodating to customers in terms of your own price reductions over time, how do you, I guess, look at potentially gaining share or entering some of the low- and medium-range fiber laser market opportunities that tend to be a lot more competitive at least within those spaces in terms of pricing? How do you enter those markets, how do you, I guess, compete more effectively in some of those opportunities that are there?.

So I think we already compete very effectively in them. It's not as – we have a very significant share in the lower end of the cutting market. We have still significant share even at the lowest end of the pulsed market, maybe not the dominant share there.

So we compete by providing very high-quality product with better performance, very strong service and support in applications, product that meets safety requirements and warranty.

We're also, potentially at the lower end of the market, going to become a bit more aggressive around pricing, particularly in order to win some of the business from the lower cost smaller cutting equipment manufacturers.

So we will use our cost initiatives to be aggressive in the market and ensure that the competition is not able to chip away at the lower end of the market. So we've always used that. We've always said the pricing is not only to drive the expansion of the market.

One of the key elements of pricing is to try and limit the ability of the competition to build scale because if they build scale, they're potentially going to become a more meaningful competitor. And that strategy has not really changed. It continues to be deployed in that manner..

Thank you..

Our next question comes from the line of Tom Hayes with Northcoast Research. Please proceed with your question..

Thank you. Good morning, gentlemen..

Hi, Tom..

Tim, I think a lot of your comments have been focused on international markets but it sounds like North America is doing pretty well. Maybe you could discuss what you're seeing there..

Yeah. North America is performing very nicely. We had a great quarter in order flow from North America across a pretty wide variety of applications. The applications tend to be more diverse than the rest of the world. So the core industrial market applications were good. The systems business order flow is growing nicely.

A lot of the green and UV – actually the UV came through China, but some of the green orders are going to Asia but they're placed on our North American entity. The telecom business performed pretty nicely in the quarter. The advanced business also quarter-over-quarter was a strong grower. So, yeah, that was really quite a bright spot.

The trouble is that North American revenue is less than 20% of the total. So you just can't offset some of the weakness elsewhere with that North American growth..

Okay. And then I just wanted to kind of double back and make sure I understood your comments on, while you saw the sales slip in both medium and low powered, it's more of a reflection of the market moving upstream, the power spectrum than really kind of any large change to those specific markets..

Yeah. All of the low-cost cutting equipment manufacturers have moved from selling 500 and 700 watt systems to selling 1-, 1.5- and 2-kilowatt rack-mounted systems primarily. So, that is the shift in the power. Obviously, at that lower end of the market, there is more competition from some of the other suppliers.

So, if you looked at the 8-, 10-, 12-, 15-kilowatt, we're the exclusive supplier at that level. There's certainly ongoing competition, it's not new, at the lower end of the market but we have very significant share there still. And that part of the market has grown dramatically.

So the decline in medium power for cutting is not related to – it's related to the shift to the higher power levels. You're right..

Great. Thank you for your time..

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

You've done very well in the high power market, as you just noted. But there's anticipation that at least one of your competitors are going to be introducing higher power lasers in the second half of the year.

Do you see that market or has the market become more competitive, or you still have a very strong position? Just wondering about the competitive situation in the high power market..

I wouldn't say the dynamics on the high power market have changed. People have talked for many years about introducing some higher power products. We know one OEM that was looking at a higher power laser from a competitor and they've actually come back to IPG and asked for a quote for the same power laser.

So, that seems to indicate that maybe the product is not, from the competitor, ready for deployment commercially. So, no, there isn't a change really in the market – the highest end of the market..

You indicated you're getting some good traction in the UV market.

What about that market? Is the primary competitor there responding to your inroads?.

So the UV wins we've had, as we mentioned before, being at the lower power of UV for marking applications, they've performed really well. We saw really solid revenue reported for that type of laser in Q2 with some additional supplies we made in Q3. So the market acceptance of the product has been strong.

And we also, outside of UV, booked some and recorded some revenue from the ultrafast. So, that was really pleasing to see because we've been waiting for that revenue to start to gain traction..

Would you say the $1 million, was that for ultrafast or for UV first $1 million-type quarter?.

It was, yeah, more than $1 million for UV in the quarter..

Okay. Thank you..

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments..

Okay. Thank you for joining us this morning. We look forward speaking to you again next quarter and we hope maybe we will report to you more optimistically around this time..

Thank you, everybody..

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..