Good day, ladies and gentlemen, and welcome to the Axcelis Technologies First Quarter 2015 Conference Call. My name is Michelle and I will be your coordinator for today. At this time, all participants are in listen-only mode. And we will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions] I would now like to turn the presentation over to your host for today’s call, Ms. Mary Puma, Chairman and CEO of Axcelis Technologies. Ma’am, please go ahead.

Thank you, Michelle. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. If you have not seen a copy of our press release issued earlier today, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC’s Safe Harbor provision. These forward-looking statements are based on management’s current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. During the first quarter, execution across the business was solid, driven by continued momentum of Purion sales and strength in both the memory and non-leading edge foundry and logic segments. Revenue was $73.3 million, driven by a 42% quarter-over-quarter systems increase, was above both company guidance and analyst consensus estimates. Earnings of $0.02 per share were at the top end of guidance and above consensus estimates. For the second consecutive quarter system revenue was split nearly evenly between the memory market at 55% and the non-leading edge foundry and logic market at 45%. We expect this trend to continue into the second quarter and likely throughout the year. The balanced revenue between these two markets combined with our lower exposure to the turbulence of the leading-edge FinFET based foundry logic market is providing a more stable environment for Axcelis to ramp Purion. As a result we expect second quarter revenues between $69 million…

Thank you, Mary. We are pleased with our Q1 financial performance and guidance for Q2. Revenue in Q1 was above company guidance and analyst consensus, driven by the continued ramp of Purion H. Gross margin was slightly ahead of our improvement plans, fueled by lower material and labor costs and a broad product mix, and quarter end cash was $74.5 million, which includes positive cash flow from operations, in addition to proceeds from the sale of our headquarters. Current cash is at the highest level net of debt since 2002. Looking at our first quarter results, revenue finished at $73.3 million, up 17.2% from $62.5 million in Q4 and above our guidance. System sales were $42.5 million, up 42.3% from $29.9 million in Q4. GSS revenue finished at $30.8 million, down 5% from $32.7 million in Q4. Q1 sales to our top 10 customers accounted for about 81% of our total sales, compared to 70% in Q4, with one of these customers at 10% or above. Q1 system bookings were $65.9 million, compared to $56.1 million in Q4, with a Q1 book-to-bill ratio of 1.46 versus 1.72 in Q4. Backlog in the quarter finished at $60.1 million, compared to $37.9 million in Q4. Q1 combined SG&A and R&D spending was $19.9 million, compared to our guidance $19 million. Higher costs were mainly due to unplanned proxy fees and incremental R&D spending to support the rapid ramp of Purion H. SG&A in the quarter was $11.7 million, with R&D at $8.2 million. In Q2, we expect SG&A and R&D spending to return to our model of approximately $18 million. Gross margin in Q1 finished at 31.9% and above guidance compared to 30.1% in Q4. Lower than planned material and labor costs in our Purion products and higher overall factory efficiency drove…

Thank you, Kevin. The memory market continues to be strong for Axcelis. In DRAM, the 20-nanometer ramp continues in multiple fabs where the Purion H is the tool of record for critical material modification implants. The 3D NAND ramp is beginning, but expected to be more weighted to Q3 and Q4. The Purion XE plays a critical role in this process ramp. There continues to be turbulence in the leading edge foundry and logic market. We are focused on placing a Purion H evaluation system at a leading edge foundry logic customer during 2015 that will drive revenue in 2016 and 2017. The non-leading edge foundry and logic market is extremely active and has represented nearly half of our revenue for the last two quarters. So we thought it would be worthwhile to spend a few minutes to discuss the issues these customers face and the solutions that Axcelis provides for them. We define this market segment as customers producing 28-nanometer and older products on either 200 millimeter or 300 millimeter wafers. These customers are building advanced devices, but on older technologies for a variety of reasons. These products could be analog devices, mems, power devices, specialty logic, or sensors, supporting markets such as the internet of things, automotive, mobile, wearables, and consumer electronics. Many customers in this market are four-wall constrained, making productivity their number buying criteria. Others, such as those building advanced image sensors need capability only available on a modern implanter, and thus are driven by technical criteria. Axcelis offers this group of customers four choices to address their needs. For the customer with a more strategic focus and in need of the highest level of productivity or the lowest levels of metals contamination, Purion is the best solution for both 200 millimeter and 300 millimeter. Customers in need of additional capacity and a shorter qualification time can choose to buy a new legacy tool exactly like the tool they are currently running. If a customer has time and budget constraints, a used legacy tool upgraded and refurbished by Axcelis is often the best choice for this market. And lastly, for a customer that needs incremental capacity or incremental performance capabilities, Axcelis offers upgrades to their existing install base. This is a very active market segment and one that will provide a nice balance in the memory market for Axcelis for the foreseeable future. Now, I will turn the call back to Mary for her closing remarks.

Thank you, Doug. Our Purion products are highly competitive and are rapidly gaining market share. To drive our revenues and share gain in 2015, we are focused on two very active market segments; memory and non-leading edge foundry and logic. Our highly leveraged business model is in place. Our streamlined cost structure and margin improvement initiatives will yield strong earnings and generate significant cash in 2015. And most importantly, we continue to have strong customer support. Our customers want to divide their implant business equally between two strong suppliers. Ensuring we meet our current customers’ expectations with respect to the ramp of the Purion H in 2015, while expanding our Purion footprint is our top priority. We thank you for your continued support. And with that, I’d like to open it up for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Kim Donovan with Needham & Company. Your line is open. Please go ahead.

Thanks for taking my questions. Would you be able to provide us with a breakdown of bookings in the quarter between memory and non-memory?

Yes. So for shipments, if you take a look at memory, we were at about 55%, and the non-memory, which is foundry logic business is 45%.

Okay. And based on your - on commentary by your peers, it seems like DRAM spending in Korea is moderating while 3D NAND is becoming more aggressive. Could you talk about the impact these changes have on your business?

Well, the DRAM spend is on 20-nanometer and seems to be pretty strong—continuing to be pretty strong. Purion H is a product that they’re using in 20-nanometer and it’s a new product. So even if it was moderating a little bit, at this point, we’re not seeing that as a result of the new product penetration. 3D NAND looks like it’s ramping more for the third and fourth quarter of the year. I think originally or last quarter we had talked about it being more of a middle of the year and that seems to be stronger now in the second-half really beginning in the third quarter.

In fact, if I look at our bookings, and we’ve said before that our bookings aren’t necessarily indicative of the future, because often we book and ship in the same quarter. But if we look at our bookings for the quarter, our—there is a slight shift towards, in fact, the foundry logic away from the memory. It’s about 55% to 45% memory. And as I look at the memory split, it’s still very heavily DRAM oriented. So that supports what Doug is saying that, there is still a significant amount of DRAM spending going on, at least, with relative to Axcelis’ opportunities and the flash will ramp up later in the year.

Okay. Thanks.

Thank you. And our next question comes from the line of Patrick Ho with Stifel Nicolaus. Your line is open. Please go ahead.

All right. Thank you very much. First, in terms of the leading edge foundry evaluations that you’re trying to get in right now, one, what are some of the applications that are driving the potential I guess placement of the Purion tools? And how do you see some of the dynamics in the marketplace in terms of 10 nanometers where you’re seeing some push out from one area and maybe pull-ins from other? How do you see that dynamic I guess impacting the timing of when you could get an evaluation unit in?

Well, I think, Patrick, the leading edge processes will be looking to implant as they reach higher levels of yield in order to fine tune that and improve their overall bin splits and so forth. Likely they’re - they’ll be using them for material modification implants and electrical tweaks, for lack of a better word, on the parametrics to give them better performance and better yield in those more valuable bins.

Great. And maybe on the finance side of things for Kevin, you guys have made good improvements on the gross margin front and you’re projecting I guess continued improvements as the year progresses. Are you now starting to realize some of the supply chain benefits and efficiencies you have talked about in the past now that you’re getting some more volume of Purion systems in the marketplace? Or is that still more of a second half, maybe even a 2016 story, in terms of the supply chain efficiencies?

So Patrick, in terms of the Q1 numbers, that we did see some improvement on the material side and on the factory side in labor. But as you know, the volumes continue to pick up because of the commonality across this Purion platform. This is going to be something of a continue to run right on to 2016. So if you look at kind of what we’ve been saying this year starting off a little slow, finishing in the high mid-30s, kind of mid-30% gross margin year, and then kind of ramp this up to us saying we’re going to get in the 30s in 2017. It’s kind of a gradual path that gets you there. And the material - so the material will continue to work in our favor as well as some of the labor pieces. And then, the other important part to the drops off in the first half is some of these expediting fees we have been talking about and some of the rework just on the first units going out, that should be behind us. So that will help continue to move this up. But Q1 it was mostly the labor and materials, starting to see that a little bit sooner than we anticipated.

Great. Thank you very much.

Thanks.

Thank you. And your next question comes from the line of Craig Ellis with B. Riley. Your line is open. Please go ahead.

Thanks for taking the question. I just wanted to follow-up on some of the expectations for the year. So it sounds like there’s been some very modest shift in 3D NAND. But on the other side of that, a trailing edge foundry is a little bit better. I think - as we look at the back half of the year, what’s the expectation for DRAM? Is this the view that DRAM will come back, or will it be softer in the back half of the year?

At this point, we see DRAM, especially for Axcelis, relative - especially relative to Purion H, being there for the entire year. And so, what that means in terms of the overall market, again we’re - we may be a little bit disconnected, Craig, because of the new product penetration with Purion H and its importance in these material modification implants at 20 nanometer. And so, both - so we see it pretty steady through the year.

And then, following up on a statement you made a couple of times, Mary, I think it’s notable whenever somebody really puts a stake in the ground. It sounds like you are doing that by saying your customers want to evenly split their ion implant share. For how long has that been the message to Axcelis and how quickly do you think the company can really make substantial progress beyond what looks like a very good exit velocity at the end of 2015, if you can get to 20% market share?

So our customers have been saying that to us now for several years since we’ve had the Purion platform. I think they’ve been excited about the platform and as we’ve rolled out each additional tool, we’ve also increased the opportunity that we have to actually achieve that 50% of the market. I think we have a very good chance of hitting that goal. And we’ve talked about this in our model that we expect by 2017 we can actually have up to 40% of the market. And if you look if you look at the mix among the competitors, 40% of the market could actually be a leading market share. So that’s our goal, we’re focused on that. We think with the progress that we’re actually seeing now in the first half of 2015 that will get us halfway there by the end of this year, which is really I think accelerated versus I think what many people had anticipated. So halfway there by the end of this year, and onwards to 40%-plus by 2017.

Thanks for the color.

Thank you. [Operator Instructions] Our next question comes from the line of Christian Schwab with Craig-Hallum. Go ahead.

Hey. Fabulous job, guys. Two quarters in a row, beaten raise, well done.

Thanks, Christian.

Thank you.

Mary, when is the last time you had 20% market share?

We’ve been talking about this. We actually were in a range of 20% to 24% market share back - just as we were coming out as a public company, so the early 2000s. So we’re pretty excited about this, because getting back up to 20% is getting us into what we consider to be a more normal range for Axcelis. And with the toolset that we have right now with the Purion platform, we think we can do even better than that.

And then, as we - on the foundry logic disruption that’s going on, could this end up being wonderful news for you, similar to last year’s kind of modest disruption in 2014 regarding memory spending, which allowed you to get more evaluation tools out faster?

Yes, I think that’s exactly right, Christian. The longer the turbulence stays in the leading edge, the more established Purion H gets with both memory and with the non-leading edge foundry and logic customers, which then proves the tool solid for both logic and high volume and makes it easier for those customers to make a decision to go with the tool. Couple that with its technology advantages for material modifications and angle control and so forth, and I think the turbulence is going to be a positive thing as well.

Great. And then, I just wanted to clarify. On the 20 nanometer mobile DRAM, right - I would suggest that’s a new step, a new ion implant step that did not exist previously for the large Asian memory manufacturer. And you guys have been sole sourced for that step. Is that correct?

Well, we can’t comment specifically on the customer’s process. But it is a step which Purion H has a significant performance advantage over the competition. And as a result, the customer has been moving it into multiple fabs as they’ve rolled out the 20 nanometer process in multiple fabs.

Perfect. And then, as we look to the non-leading edge, which other people are beginning to in the space get excited about as well - as you look at some of the opportunity not necessarily for - on the image sensor side where people are kind of driven a little bit more by having a better strategic solution. But if you look at kind of the capacity in the budget people, right, who want a refurbished or an upgraded or potentially a new legacy tool, that market to me seems to be customers who purchased maybe last time you had 20% market share. So is the available market that’s available to you for upgrading and new legacy tools and refurbishing - have you guys done any work to attempt to quantify how big that opportunity over the next few years is?

We have. There - if you look at that market in terms of installed implanters that these customers are using, it’s measured in the thousands. So there’s a fair amount of opportunity in terms of upgrades, replacement, refurbishment, and so forth. And any one of these customers who purchases a Purion to replace the tool, that generates a used tool opportunity as well. So it’s a nice market and we expect as a result of the Internet of Things and the automotive market especially, that this will be a very active market at least through the end of this year and likely well into next.

Great. I don’t have any other questions. Great job, guys. Thanks.

Thanks, Christian.

Thank you. [Operator Instructions] I’m showing no further questions at this time. And I would like to turn the conference back over to Ms. Mary Puma for any further remarks.

Thank you, Michelle. We’ll be attending the B. Riley Conference on May 14 in Los Angeles, the Craig-Hallum conference in Minneapolis on May 26, and the CEO Summit in July at SEMICON West. We will also be on the road during the month of June. And we’re looking forward to catching up with all of you. Thank you.