IPG Photonics Corp (IPGP) 2014 Q4 法說會逐字稿

Good morning and welcome to IPG Photonics' fourth-quarter and year-end 2014 financial results conference call. Today's call is being recorded and webcast. (Operator Instructions). At this time I would like to turn the call over to Mr. Angelo Lopresti, IPD's Vice President, General Counsel and Secretary for introductions. Please go ahead, sir.

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. The risks and uncertainties include those detailed in IPG Photonics' Form 10-K for the year ended December 31, 2013 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.

Any forward-looking statements made on this call are the Company's expectations or predictions only as of today February 20, 2015. 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. IPG delivered another year of record revenues in 2014 growing our top line 19% from 2013. The bottom-line growth of 29% showed the ability of our vertical integrated business model to drive leverage in our operating profits even after substantial investments we made in 2014 and prior years. We continued to grow our breadth of publications, we saw fiber laser penetration in the major application of cutting continue to grow rapidly and we improved our competitive position in the automotive market.

In addition, the growth we anticipated in laser sintering and 3D printing at the beginning of the year was achieved with sales growing by more than 100% for those applications.

The breadth of our applications is growing and our products continue to be evaluated for new applications. In the automotive industry we have made significant progress in developing a unique multilayered beam process for welding and brazing zinc -- hot zinc coated steel. The application is generating excitement and interest from leading automotive manufacturers. In addition we recently shipped two 50 kilowatt lasers to NASA for material testing applications.

Sales of our cutting and welding heads are starting to increase as these accessories become more widely accepted in the market and we added to their features and capabilities of their optical heads. Every high power laser used in metal processing uses a processing head so that we should be able to increase sales of these accessories from a couple hundred units per year to many thousands over the next few years.

The laser market continues to grow at a significantly faster rate than GDP as lasers are being adopted across both existing and new applications. The total industrial laser market is expected to grow at about 5% in 2015 with industrial fiber laser growth expected to be significantly higher at about 13% after taking in account foreign currency headwinds. Excluding foreign currency headwinds, some industry analysts expect the growth of fiber market to be in the range of 17% to 18%.

In 2014, industrial fiber laser sales were estimated to have increased by about 14% while IPG's material processing sales increased by 20%. While this may seem to indicate that we are gaining market share, it is more likely that the market has grown faster than estimated by analysts.

Current industry analysis points to the fact that, for the first time, total industrial fiber laser sales exceeded CO2 laser sales in 2014 with total fiber laser sales expected to exceed CO2 laser by more than 20% in 2015. The gap is expected to continue to widen. Fiber laser sources are now the largest laser source in US dollar terms largely based upon progress in macro, low and mid power IR applications. Within a few years we expect that fiber laser sales will exceed the combined value of all other industrial laser sources, one of our target markets with continued regenerational switch to fiber lasers and the introduction of UV and ultra-fast fiber lasers.

In short our competitive position continues to be very strong. We are extending our lead by delivering the lowest cost, best and most reliable lasers in the market. With increased reliability, and lower maintenance and ease to use, our fiber laser and laser technology has now become a preferred processing solution rather than a choice of last resort. In addition our vertical integrated business model, robust IP portfolio, and manufacturing scale provide high barriers to entry.

We enter 2015 with a strong backlog and remain focused on gaining further share in our established material processing applications, completing development of and introducing new product which will expand our available market and applying our laser in large-scale and novel applications beyond our core application in metal processing. For example, we continue to make progress in the development of our green, UV and ultra-fast fiber lasers.

Currently, we have several units undergoing long-term testing and we have been careful to introduce products that meet the high-quality standards that IPG is known for.

With that, I will turn the call over to Tim Mammen.

Thank you, Valentin and good morning, everyone. Fourth-quarter revenue grew 25% to $207.4 million from $165.9 million a year ago. Materials processing sales increased 23% year over year to $191 million, accounting for approximately 92% of total sales during the quarter. The continued strong performance of materials processing was driven primarily by cutting, laser sintering and 3D printing applications.

Sales to other markets including advanced applications, telecom and medical applications, which accounted for approximately 8% of IPG's total revenue, increased by approximately 57% or by $6 million to $16.4 million. This growth was primarily driven by two 50 kilowatt fiber lasers that we shipped to the NASA Ames Research Center that Valentin mentioned, and another 50 kilowatt laser that we shipped for another advanced application. Orders for advanced applications are typically large a dollar value but are not even from quarter to quarter.

High-power laser sales, which accounted for 56% of total revenue, increased 32% year over year to $116.2 million. This growth, which demonstrates our continued leadership in this area of the market, was driven primarily by strong sales for cutting applications, improved sales for automotive welding, as well as revenue from advanced applications.

Increased demand for our new low-cost low-power and high-power pulsed lasers for marking and engraving applications resulted in pulsed laser sales increasing by 16% year over year to $32 million.

Sales of medium power lasers rose 58% to $21.3 million or 10% of total revenues. This growth continues to be driven by sales for fine processing applications, particularly cutting of thinner materials and also from laser sintering and 3D printing applications.

Sales of QCW lasers which are mostly used for fine welding, percussion drilling of fine holes and some glass cutting increased by 23% year over year to $6.8 million and accounted for 3% of total revenues. Sequentially, sales were lower due to the cyclicality of the fine welding projects for consumer electronics applications that we mentioned on our Q3 call.

Revenue from low-power lasers increased 9% to $3.2 million as a result of slightly higher medical sales.

Sales of other products which include amplifiers, diode lasers, green lasers, mid-IR lasers, integrated laser systems and certain components decreased 47% year over year to $9.6 million. The overall decrease was caused by a decline in system sales in Russia due to economic conditions in foreign currency devaluation there, as well as having had a comparatively large systems order in Q4 of last year.

Service, parts, lease and other revenue, including accessories, totaled $18.5 million, an increase of 76% from last year, primarily due to increased sales of accessories and deferred revenue recognized in the quarter which totaled $2.9 million as compared to $0.6 million which was deferred in the fourth quarter of 2013. Excluding the change in deferred revenue, service, parts, lease and other revenue increased by approximately 40%.

Now looking at our Q4 performance by geography -- sales in Asia increased to $97.8 million or by 36% year over year. Within that region, China sales increased 53% to $61.2 million. Demand was driven by applications such as cutting, welding and marketing and engraving. Our sales force in China has done a very nice job in leveraging the growth in that region.

In Japan, sales increased 4% year over year to $16.8 million as volume demand was partially offset by currency headwinds due to the weak yen. In Turkey, we continued to benefit from strong demand from our cutting OEMs. We shipped a 5 kilowatt single mode laser to a customer in Korea for a specialty scribing application in the steel industry. This marks another design win for a new application as we continue to see an increase in fiber lasers displacing CO2 technology.

European sales grew 8% year over year to $69.4 million, driven by strong growth from our cutting OEMs, partially offset by weakness in Russia related to the economic environment there. As I previously mentioned, we also had a large system order in Russia a year ago. In Germany, in addition to cutting, we experienced significant demand for 3D printing applications and we expect that market to continue to grow. We also gained traction in the German automotive industry. A number of customers continue to evaluate the laser seam stepper around the world.

North American sales increased 31% year over year to $39 million. This growth was primarily related to project-driven demand for high-power lasers used for applications, welding applications in the US and the increase in sales for advanced applications described above. We also had a big automotive win in the US retrofitting lasers in a 3D robot cutting application in the auto industry.

Now working our way down the income statement -- gross margins of 54.9% were at the top end of our target range of 50% to 55% as a result of the strong revenue performance, which helped absorption during the quarter and some benefit from product mix related to increased high-power laser sales.

Sales & Marketing expenses increased to $7.9 million or 3.8% of sales from $7.2 million, or 4.3% of sales a year ago. We saw an increase in real dollars but a decline in the percentage of sales we benefited from leverage in the model.

Research & Development expenses increased to $13.8 million from $10.9 million year ago. As a percentage of sales, R&D was up slightly at 6.7% compared with 6.6% of sales a year ago.

General & Administrative totaled $15.1 million, or 7.3% of total sales compared with $13 million, or 7.9% of sales a year ago.

Operating expenses for the fourth quarter were $34.3 million, including a foreign exchange gain of $2.6 million compared with $32.7 million a year ago, which included a foreign exchange loss of $1.6 million.

Fourth-quarter operating income was $79.8 million or 38.4% of sales compared with $49 million or 29.5% of sales in the fourth quarter of last year. Excluding foreign exchange transaction gains and losses, operating margins were 37.2% and 30.4% in 2014 and 2013, respectively.

Our tax rate in the fourth quarter was 29.2%. While we had a benefit of $0.02 per share resulting from the reenactment of the R&D tax credit which was signed into law at the end of the fourth quarter this benefit was offset by other adjustments to the provision, related to the amount of income arising in different tax jurisdictions and reserves for uncertain tax positions. As a result, there was no substantial benefit to the effective tax rate in the quarter.

Net income for the fourth quarter increased by 54.2% to $56.4 million. On a diluted per-share basis, we reported $1.07 for the fourth quarter compared with $0.70 a year ago. Excluding the benefit related to foreign exchange transaction gains and the lower effective tax rate during the quarter, EPS was $1.02.

If exchange rates had been the same as one year ago we would have expected revenue to be $10.6 million higher, gross profit to be $5.6 million higher and operating expenses would have been $2.4 million higher.

Now turning to the balance sheet -- we continue to maintain a strong balance sheet ending the quarter with cash and cash equivalents of $522 million and $35.6 million of debt, including lines of credit.

At December 31, 2014, inventory was $171 million, down 1% from $172.7 million at year-end 2013. Our current level of inventory on hand amounts to approximately 168 days compared with our target range of less than 180 days. However the US dollar-translated value of inventory benefited from the depreciation of the euro and the Russian ruble. The value of inventory was translated to the average exchange rates prevailing for the last three months; the value of inventory would have been approximately $8.8 million higher.

Accounts receivable were $143.1 million at the end of the fourth quarter or 63 days sales outstanding, compared with $103.8 million at the end of 2013 or 57 days sales outstanding. The increase is primarily due to the timing of revenue during the quarter. Cash provided by operations during the quarter was strong at $60.1 million. Capital expenditures for the quarter totaled $15.9 million and were $88.6 million for 2014.

Backlog, which we report annually, was $321 million at December 31, 2014, compared with $265 million a year ago, representing a 21% increase. Our backlog includes $174.5 million of orders with firm shipment dates and $146.5 million of frame agreements that we expect to ship within one year compared with $132.6 million of order with firm shipment dates and $132.4 million of frame agreements at December 31, 2013.

Book-to-bill for Q4 2014 was greater than 1.

Now for our expectations -- our solid execution in 2014 positions IPG well for a successful year ahead. In 2015, we are focused on qualifying IPG's products for new applications, establishing partnerships with new OEMs and end-users, and deepening our relationships with existing customers. We will also continue to control costs and temper our capital expenditures.

With that in mind, we currently expect revenues for the first quarter to be in the range of $195 million to $205 million. I should note that historically first-quarter revenues can typically be lower than the preceding quarter due to seasonality in our business. We anticipate Q1 earnings per diluted share in the range of $0.92 to $1.02. The midpoint of this guidance represents quarterly revenue and EPS growth of approximately 17% and 26% respectively, year over year. It should be noted that if exchange rates were at a similar level to those on the same quarter one year ago we would have expected our revenue guidance range to be up to $10 million higher and our forecast growth to be even stronger.

The EPS guidance is based upon 52.873 million diluted common shares which includes 52.153 million basic common shares outstanding and 720,000 potentially dilutive options at December 31, 2014. This guidance is subject to the risks we outlined in our Reports with the SEC and assumes that exchange rates remain at present levels. I want to reiterate that we do not attempt to forecast gains and losses related to exchange rates.

In addition, we expect capital expenditures for the full-year 2015 will be approximately $65 million.

With that, Valentin and I will be happy to take your questions. Thank you.

(Operator Instructions). Patrick Newton, Stifel.

Thank you, good morning. Can you hear me?

Yes, Patrick. Good morning.

Good morning, Valentin and Tim. So, I guess first question is just on free cash flow and usage of cash. Really solid free cash flow generation so a two-part question, I guess. One is when does this free cash flow begin to converge with net income and two is given nearly $10 and net cash per share, how should we think about priorities of using that cash and how should we think about willingness to perhaps start to doing shareholder-friendly actions with the cash?

So the first question is an interesting one. With CapEx coming down as a percentage of revenue, I won't give you what our estimate will be of revenue because that would give you an annual guidance number for revenue. But obviously with our estimates of where CapEx will be for the full-year as a percentage of revenue that will come down. Clearly expect some strong growth in operating cash flow this year.

So I think we'll start to see a significant diminishing of the gap between free cash flow and net income this year and probably that position strengthen into 2016. I certainly don't think free cash flow will be quite equal to net income this year but we're my getting closer and closer to that, given the diminishing investment cycle.

The second part of the question, there are multiple parts to that as well. We continue to believe that we are still relatively early in the penetration of fiber lasers, not only into the industrial market, despite all the progress that we've made but also into potentially a wide range of many, many other applications.

We continue to look at potential acquisitions within the industry that would strengthen our position. Some of them are relatively small, some of them may be larger. We've looked at things before and walked away from them because they may have good aspects to them but there's a lot of baggage.

But we're very patient about this stuff and I think the process we're taking is very good. So at this point in time, we're preserving our cash really for acquisition strategy. Now if we haven't as I said before made significant acquisitions or identified things within a reasonable time frame -- and I'm not going to say exactly what that is -- you know clearly we may have additional cash available for share buybacks. We might look at maybe offsetting some of the dilution in relation to options but we're still a way away from that. We really are looking at cementing the competitive position in the position of the Company at this point in time and strategically we think that's the most important thing.

Great, and then just as a follow-up, I just wanted to focus on the margin side. On gross margin near term should we expect an uptick in the March quarter as you get the full benefit of the ruble in the quarter, and then perhaps maybe gross margin starts to trend down afterwards just given a mean reversion? And then on the op margin side, you did say that we should expect controlled cost and tempered CapEx.

Should we interpret that to mean that there is still a leverage opportunity in 2015, 2016 timeframe or should we think more like 2012, 2013 where your earnings growth was below your revenue growth rate?

No, I think we're still targeting an earnings growth rate at least equal to revenue growth rate. I do think that there's probably limited amounts of leverage. In Q1 I think you just take the top end of the gross margin range still as being, if you get to the top end of the revenue range is a good proxy.

Your point about getting some benefit out of the exchange rate devaluation and then potentially that diminishing less is actually a very perceptive one, but I don't think it's going to have a dramatic reduction in gross margin the second half of the year. I think we're still targeting -- not I think -- we're still targeting to get into the upper half of that range and consistently remain there if we can grow the business at a reasonable level.

I do think that 37% operating margins if you take out the FX is a pretty -- we're very pleased with that. It's a stellar number. We have no problems with it and of course you may see the odd quarter where you're above that but in a medium to long-term basis that's an operating basis that we'd like to maintain.

If there's anywhere on the income statement we're going to and we're starting to think about doing more work on this, it's actually looking at our effective tax rate but I've got no specific direction I can provide you on that time. It's an extremely complex area but, if anything, taxes are some area we could work on in the next 18 months or so and may be able to drive a little bit of benefit out of that.

This year, continued investment in R&D is obviously a strategic direction we want to go in. There will be a little bit of leverage off G&A. I think it's important to continue investing in sales and marketing given all of the different opportunities that are out there not just on the industrial side but outside of the industrial market as well.

Great, thank you for the detailed answer. Good luck.

Joe Maxa, Dougherty & Company.

Thank you and good morning. I was interested in the commentary about the US auto market and the retrofit opportunities. It sounds like a big quarter in Q4. Do you expect to see more of that? Is that just the start of a trend or what should we be thinking of along those lines?

It's an ongoing part of the business in the US. You'll remember that the US business is not nearly as OEM-driven as it is in the rest of the world because there just aren't that number of system integrators here. So it tends to be much more project-driven, particularly on the industrial side. And we had -- I think everyone was a bit worried in Q3 when US revenue was weak compared to the previous year and I said that it was really just driven by the timing of projects.

So we continue to work on many different retrofit opportunities. This was a good win. We expect new opportunities to arise, not just over the next year but the next three years or more. It's difficult to predict when the volume of them will be or when exactly that will arise. But this was a great win against one of our major competitors with the fiber laser against one of the stronger -- although we still think it's a weak competing technology -- but one of the better technologies that tries to compete against us.

It was a great result. But it's not necessarily going to drive a trend where you suddenly are going to see, at this point in time, hundreds of lasers on a consistent basis for retrofit in automotive in North America. It's still very project-based.

And you have to take in mind that the laser penetration in the American automotive market is still much less than in Europe and Japan. So it's a lot of opportunities here to grow this business faster in the US in automotive than in other regions.

And one more question I'll ask is actually looking at these strong backlog and then sticking to the geographic mix, obviously strong China quarter again. Where do you see that whole Asia-Pacific market growing in 2015? China probably slow us down but do you have -- will that offset in Japan and other areas?

Yes, we're still targeting for a good year in China. Clearly we're monitoring what's going on there very closely but there's a significant pipeline of opportunities that exist there.

There is upside in Japan. We've talked about this before both on the automotive welding side where we're qualified with one of the largest manufacturers there but also in particular on cutting applications, where penetration of fiber into Japanese cutting is maybe at 10% to 15% over the next couple of years. The major cutting OEMs in Japan expect to go to a penetration rate equivalent to that that's been achieved in Europe and China. So it implies 50% to 60% of their systems will be fiber. So that's one of the big upside opportunities in Japan.

And in Korea, we talked about that unique application there. The cutting business in Korea is starting to grow, so I think in Korea there is good opportunities on higher power. Many lower power systems in Korea now continue to be supplied out of China. So maybe a little bit more limited growth there.

Then if we can get the newer product into the market, Korea is a big demander of some of the more advanced laser technologies. And that would be a benefit in Korea over the next couple of years.

All right. Thank you very much.

Mark Douglass, Longbow Research.

Hi, good morning everyone. Tim, can you discuss the price and volume trends in fourth quarter? Typically your volumes outpace, your sales price comes down a little. But I'm wondering if ASPs are relatively stable, given there seems to be a real move in cutting applications towards even higher powers -- 2, 3 kilowatts now 4, 6, even 8 kilowatt systems.

Can you talk about what the fourth quarter was like as far as pricing volumes?

Pricing, as we'd said at the beginning of the year, has been much more stable. You know, the need to reduce pricing by 15% or 20% to displace other technologies is gone; so we probably saw an average like 3% to 5% reductions. Some of the benefit on cutting from higher power is starting to -- it's not meaningful yet. It's really starting to come through on the ASP level if we look at the high-power lasers. But it hasn't driven ASPs up yet by 10% or so.

I think that transition, as you move to higher volumes of 6 and 8 kilowatts, is a potential benefit to this year. In addition, foreign exchange has started to offset some of that high-power benefit a little bit.

Okay. And then looking at the 3D printing growth that materialized in 2014 greater than 100%, what's the size of that business as we're exiting 2014? And does the pace continue pace in 2015 or do you think it gets even better?

So, the 3D printing with the systems integrated primarily in ,so this is really medium power applications about $19 million; if you add onto that some of the more specialized high-power applications, the total additive manufacturing was closer to $22 million for the year.

I think in terms of total systems sales, the market estimates are around 600 units this year. I think a ramp to more than 1,000 units in the near term is still very much a possibility and then if you go beyond that if every single job shop or the vast majority of the job shops decided they need to have some 3D printing capability or additive manufacturing capability for metals, you know the market I think grow significantly beyond that 1,000 units per year.

So I can't say that it's going to accelerate. We don't have too much data around that right now. I think we have to wait and see Q2, Q3 how things are trending. And don't forget a lot of the sales for the lasers are in Europe as well. So we have a little bit of that FX headwinds.

I think unit volumes are going to be maintained with very strong growth. The dollar value sales may not quite accelerate, but we're still targeting very strong growth for that area.

Okay, thank you.

Jim Ricchiuti, Needham & Company.

Thank you, good morning. I wonder if you could talk about the bookings in the quarter by region? It sounds like you had obviously a good bookings book-to-bill. Was it consistent around the various geographic regions?

Yes, we had a -- book-to-bill was nicely above 1 -- there wasn't really any weakness out there. You had good order flow in the US through the end of the year. Europe was, despite some concern about the European economic environment, Europe performed pretty well. Asia was good.

I think, obviously the area which is struggling a bit is Russia but they still had quite a good revenue quarter in Russia given all of the headwinds that they are facing there. It was still just under 5% of revenue.

But if you looked to the beginning of the year and said where would you like to perform better before everything got a bit more difficult you would have said maybe the Russian growth would have been higher -- then you've also got the exchange rate which depreciated by 80% in the fourth quarter. So there wasn't really any weakness on a specific geography like you haven't seen Europe fall out of bed, China hasn't fallen out of bed or anything like that.

Now this year and last year, end of last year, the fastest growth was in the United States booking.

Got it. And as we look at two months, almost two months into the quarter any change in the trends in terms of what you're seeing in the markets in terms of bookings activity?

No, the bookings rate through the first six weeks has been good. It's up year over year in just about every geography. There's a good amount of order flow and backlog already for Q2. You've got obviously the next week or so China's on holiday with Chinese New Year, but China bookings have been really good for the first six weeks. No real change there. And Europe's been strong even with the FX headwinds. So we have no -- no change really on that at this point in time.

Okay, thank you.

Krish Sankar, Bank of America Merrill Lynch.

Yes, hi. Thanks for taking my question. I have two of them. One, Tim, in the past you guys have spoken about use of fiber lasers in oil drilling applications. I understand that the environmental rules make it pretty slow to adopt, but given where oil prices have you seen an acceleration in that incorporating fiber lasers?

No, that's still very much an R&D type application. So they bought for that application several lasers last year. Q3, I think we delivered some very high powered devices. There's probably ongoing R&D work but no specific news to report on that, Krish, and I don't have any feedback as to whether how that -- obviously the significant decline in the oil price affects that.

Got you. No worries. Then a quick follow-up. Do you guys give a gross margin guidance for the March quarter?

No, we don't generally give -- I said if we continue to grow the business at a reasonable rate, we expect to be in the upper half of the range so we don't give a specific gross margin amount.

That's it. Thank you.

Jeremie Capron, CLSA.

Thanks and good morning. Congratulations on very strong results in last year. I wanted to ask first about your customer mix in terms of vertical industries that you serve. Are you seeing any shift beyond the emergence of additive manufacturing as a new end market? Obviously automotive historically has been the largest vertical industry that you've served and it sounds like you have significant customer wins there. I'm wondering if you're seeing any other shifts here.

Not yet. I think automotive is one of the largest. With the significant growth in cutting you get into much more diverse applications [stet] some of the cutting lasers obviously is going into automotive we called out some of the project wins. There's one customer that supplies multidimensional cutting systems there.

But the cutting growth going into all kinds of industrial fabrication is probably a significant shift over the last couple of years. Additive manufacturing is now the fourth largest application but the major shift if you see anything happen will be more around newer product introductions over the next couple of years. You've got new applications coming to the fore with the industrial but they are all relatively small at the moment.

So, no fundamental shift in that.

Consumer electronics and that area is also a big part of the business particularly at its lower and medium power levels. We're a very well recognized supplier into the major consumer electronics manufacturers for, again, a variety of applications, cutting of thinner materials, a lot of battery welding a lot of other spot welding applications, and I mentioned we've talked about like the glass cutting is a smaller application but it's a nice differentiator.

Okay. And looking at the cash flow statement for the year, it looks like you've got quite a big drag coming from the increase in receivables and you mentioned it in your prepared remarks but I wonder if you could give us any more color on what's going on there. You mentioned the timing of revenues there, but it's a significant increase and, on the other hand, inventory days have come down. I wonder if much of that is due to ForEx, or if there's a real reduction in your overall inventory management?

So on receivables, I did point out that the timing of revenue in the quarter was fairly strongly weighted to December a bit more than it had been a year ago. I've got no undue concerns about receivables. We certainly didn't change any policy to make a revenue number here. I've seen how much cash has been collected in January so you've seen some of that receivables turn already in January. In China where there's some receivables outstanding, a very high percentage of that is covered with banknotes that do have a longer days collection but we've been running those banknotes in China for the better part of at least two years now with zero -- touch wood -- losses on them.

So I've got no -- it really is just the timing on the quarter. I think as you get used to covering the Company you can see those days move around a little bit.

On inventory, I clearly called out that we -- the inventory levels if you translated inventory at the same exchange rates or the average rates that have been in place over the previous three months, the translated value of inventory would have been about $8 million higher. So I'm not trying to hide behind the decline in inventory as being attributable solely to improved processes, although there's been a lot of work done on inventory management in the Company. Some of that benefit is FX and I said in the script that it was about $8.8 million, I think. That would obviously if you factor that $8.8 million, take your days up a bit but it still puts you below the 180 days that we target.

Okay, good. Thanks very much.

Mark Miller, Noble Financial Capital Markets.

First of all, congratulations on another great quarter. I just was wondering in terms of you said you had your green and UV lasers under test. If all goes well, can you give us an approximate timeline or something when we start to see these things shipping or being sold?

Really it's mainly product developed now mainly in new product we introduce this year (inaudible) some of the (inaudible) introduced second quarter some of them in second half of year but, total, we expect this year would be a serious contribution revenue growth from point of new product.

Okay, just wanted a little more color about this retrofit [big wing]. Are you retrofitting from your previous lasers or competitors lasers? What is being retrofit?

Competing lasers and then we also were competing against somebody else to get the business. So we're not retrofitting our own lasers. It's older technology.

(inaudible) Company installed five, seven years ago now they replaced by our fiber laser.

So it's a competitive win. Finally, can you give us an update on one major opportunities for seam steppers in the fabs? How is that going along in the auto assembly fabs?

Seam stepper going the (inaudible) certification test very successful in these couple German major automotive companies and now it's going to the (inaudible) also in Japan. They started to test the major [place] in Japan, also it's very successful than other application automotive also we found this also serious customers also very interested to use this seam stepper. So very serious future but this market's very (inaudible) so conservative it's a long way to be able to build OEM business with this large company. They have to change technology in order assemblywise (inaudible) it's in change technology cycle typical between 10 to 18 years for this major assemblywise.

3D printing has come along very strongly. I'm just wondering, what should be the surprise for this year in terms of growth and what are your opportunities?

The real problem, metal processing in metal parts growing, printing steel market it's not to watch it all, despite 20 years development it's still market small with plastic materials, very fast growth, metal, steel. It's only prototype in small parts, some aerospace parts and so on. But it's not a large market as this Company major player in this market more of them German, its midsize here (inaudible) lower cap companies.

Most of them use our lasers but now to the major problems they have to must use would be at the speed of growing would increase a factor of 10 and more. So it's possible only by use of multi-BMC (inaudible) to use more and more BMC in each system is going from many of these manufacturers have developed but now use two beams. Some of them start to claim four beams but the real evolution would be when it would be like many 10 beams in each system then the (inaudible) can reach what they need, very serious new development. We're working in that direction.

Thank you.

Mark Douglas, Longbow Research.

Hello again. Tim, you said $65 million in CapEx for 2015?

Yes, approximately that's the --

Approximately?

Target, yes.

That's a big drop. And obviously you've really juiced your CapEx in the last two years. So can you frame with what you've invested in the past couple of years how long of a runway does that get you if you want to frame it in years or sales dollars before we need to step up the investments again?

We built -- now this year we finish in the round of the investment in new facilities so everywhere in Russia and US, in Germany and now so we invest in both inside development also in building also in equipment capital equipment so now it's a real balance, capital expenses to more normal, about three years was very critical for us. Now as our facility can double minimum to double our revenue when using these facilities.

Okay, thank you.

At this time, we have reached the end of our question-and-answer session. I will now turn the conference back over to Valentin Gapontsev for any additional concluding remarks.

Thank you for joining us this morning. As usual, we look forward to speaking with you on next quarter. We hope it will be also good message for you.

Great, thank you, everyone.

Thank you. Ladies and gentlemen, that concludes our conference call. Thank you for joining us today.