Mary Puma - Chairman & CEO Kevin Brewer - EVP & CFO Douglas Lawson - EVP, Corporate Marketing and Strategy.

Edwin Mok - Needham & Company Craig Ellis - B. Riley & Co. Patrick Ho - Stifel Nicolaus Dave Duley - Steelhead Securities Mark Miller - Benchmark Christian Schwab - Craig-Hallum Capital Group.

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies Second Quarter 2015 Conference Call. My name is Crystal and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed ma’am..

Thank you, Crystal. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. If you've 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.

Our second quarter financial results preview the significant earnings potential of Axcelis with revenue driven by continued traction of Purion products combined with a strong GSS business, tight control of expenses and increasing gross margins.

This quarter highlights the potential leverage of our business model and shows that Axcelis can generate strong cash flow and earnings. Revenues of $78.4 million driven by healthy sales in both systems and GSS was above both company guidance and analysts’ consensus estimates. Earnings of $0.05 per share was also above both guidance and consensus.

For the third consecutive quarter, system revenue showed a healthy split between the memory market at 61% and the non-leading edge foundry and logic market at 39%. We expect this trend to continue into the third quarter and likely throughout the year. These two markets will continue to provide a stable and healthy environment for Axcelis to grow.

We will continue to have low exposure to recent CapEx spending reductions in the leading edge foundry and logic market. As a result we expect third quarter revenues between $75 million and $80 million, gross margins of approximately 34% to 35%, operating profit of $5 million to $7 million and EPS ranging from $0.03 to $0.05.

Our cash balance will be approximately $80 million. The commonality of the Purion platform combined with our innovative scan spot being advanced energy filter and Eterna ELS Source has enabled the Purion product family to rapidly gain momentum with our customers.

Based on this momentum and the strength of both the memory and non-leading edge foundry and logic markets, we continue to expect that Axcelis will exit 2015 with between 17% and 20% share of the approximately $1 billion ion implant market.

Our market share growth is mainly driven by our Purion H High Current system, which is the fastest growing new product in Axcelis' history. The Purion H is now installed and running production in four memory fabs at two customers.

We recently added two new Purion H customers, one memory, one foundry, bringing our install base by the end of Q3 to four customers in six fabs. Our Purion XE High Energy Implanter is also driving share gains. This year we've penetrated three new non-memory 200 and 300 millimeter customers.

As a result of the Purion commonality, these initial Purion penetration should open the door for future expansion of our entire Purion family within these customers and create significant opportunity for continued share gain during 2016. We will also be intensely focused on further broadening the customer base for Purion.

Therefore we expect future growth of Purion products to come from new customers as well as repeat sales to existing ones. Our strategy for 2015 remain intact and we've made significant progress to date, which I would like to take a moment to review.

We have objectives in 2015 that will increase revenues, growing Purion share and memory globally, placing at least one Purion H evaluation unit at a leading edge foundry logic customer, capturing as much business as possible in the very active non-leading edge process technology segment and growing our GSS business.

Our first objective expanding our memory footprint and growing our topline through Purion share gain in this market is on track. This is very important for Axcelis as the memory market is heavily implant capital intensive.

Our growth has been driven by rapid Purion H adoption and the very active Korean memory market as evidenced by our strong first half systems revenue growth. Recently we announced a Purion H order for an evaluation system at a third leading memory customer. This positions us for additional revenue outside of Korea in 2016.

It also opens the door for Purion H in the growing 3D NAND segment. Our second objective placement of at least one Purion H evaluation unit at a leading edge foundry or logic customer is expected within the next 6 to 12 months.

Recent CapEx reductions and 10 nanometer production ramp delays in this market could push our first evaluation placement into 2016. However, we expect that Purion H scanned spot beam advantages will help these customers overcome technical difficulties in advanced FinFET development.

As a result, we believe that this potential delay will be a positive for Axcelis in 2016 and '17 just as a pause in memory spending last year ultimately accelerated our Purion H ramp in the memory segment.

We’re pleased with our progress against our third objective, maximizing the revenue opportunity at customers using non-leading edge process technology. 42% of our systems revenue in the first half of 2015 has come of this very active market. These customers historically have a large Axcelis install base and strong GSS relationships.

They’re rapidly adopting Purion for both technical and productivity reasons. We are also doing well against our fourth revenue objective, growing our GSS business. GSS revenues have been steady in 2015, driven by used tool sales and higher utilization at our customer fabs.

We should see future growth as our increasing install base of Purion products exit the warranty period. We've two major objectives focused on improving our earnings. First we have and will continue to maintain tight control of operating expenses in cash and second our initiatives to deliver greater than 40% gross margins in 2017 remain on track.

As with our revenue ramp, this will not be a linear March, but we expect to meet our goal to end the year with an average gross margin in the mid 30% range. Overall, we are pleased with the progress we've made toward our 2015 objectives and believe this positions us to gain market share, increased earnings and generate cash in 2016 and beyond.

Now I would like to turn it over to Kevin to discuss our second quarter financial results..

Thank you, Mary. We are pleased with our second quarter financial performance and the progress we’ve made with Purion account penetrations. Revenue in the quarter finished above the company guidance and the analyst consensus driven by the continued ramp of Purion H and strength in our GSS business.

Gross margin was higher than forecast fuelled by lower manufacturing cost, a broad product mix and strength in our GSS business.

EPS was also above company guidance, driven by higher revenue and gross margins and we continue to strengthen our balance sheet with an ending cash balance of $78.1 million, up from $74.5 million in Q1, driven primarily by cash from operations.

Looking at our second quarter results, revenue finished at $78.4 million up from $73.3 million in Q1 and above our guidance. Q2 system sales of $41.6 million compared to $42.5 million in Q1. Q2 GSS revenue was $36.9 million compared to $30.8 million in Q1.

Q2 sales at our top 10 customers accounted for approximately 74% of our total sales compared to 81% in Q1 with two of these customers at 10% or above. Q2 system bookings were $39.7 million compared to $65.9 million in Q1 with Q2 book-to-bill ratio 0.94 versus 1.46 in Q1. Backlog in Q2 finished at $59.9 million compared to $60.1 million in Q1.

Q2 combined SG&A and R&D spending was $20 million, flat compared to $19.9 million in Q1. Spending was higher than guidance, primarily driven by accelerated vesting and performance based stock options and slightly higher fringe expense. SG&A in the quarter was $12.1 million with R&D at $7.9 million.

In Q3 we expect SG&A and R&D spending to be in the range of $20 million to $21 million and in line with our near term model. Gross margin in Q2 finished at 34.6% and above our guidance compared to 31.9% in Q1. Gross margin improvement was driven by higher GSS revenue and improving manufacturing cost on Purion products.

Margin improvement remains a top focus on the business and will provide significant leverage and earnings potential as we gain market share. I continue to be personally evolved in key initiatives that will enable lower product cost.

Operating profit in Q2 was $7.2 million and above our guidance compared to $3.4 million in Q1 and Q2 net income finished above guidance at $5.9 million or $0.05 per share compared to $1.9 million or $0.02 per share in Q1. Q2 inventory ended at $122 million up from $109.5 million in Q1 driven by the ramp in Purion and timing of material purchases.

We expect to see a significant burn of inventory in the next two quarters. Q2 accounts payable were $38.8 million compared to $30.5 million in Q1. Q2 receivables of $42 million compared to $42.8 million in Q1. Q2 cash and cash equivalents finished at $78.1 million, compared to $74.5 million in Q1.

Cash finished slightly below our guidance of approximately $80 million due to the timing of shipments. In the quarter we generated $3.1 million of cash from operations brining year to date cash from operations to $11.8 million. We expect Q3 cash to finish at approximately $80 million.

In summary, I’d like to direct you to the updated business model in our investor presentation. There is a way to look at Axcelis financially. Our near term model shows targeted quarterly revenues of $80 million to $100 million, with spending in the $20 million to $21 million range to line with increasing revenues in account penetrations.

Gross margins are modeled in the mid to high 30% range, which drive $7 million to $16 million of quarterly net income. Our longer-term 2017 model has not changed and highlights the leverage in the business. Axcelis can generate significant profits in cash as revenues grow and gross margins move towards 40% and beyond.

Implementation and programs previously discussed will fuel steady improvement in gross margin while the successful Purion will drive revenue growth. With that, I will now turn the call over to Doug who will discuss some of Purion’s technical advantages that are driving customer adoption..

Thank you, Kevin. There are several technical capabilities that are driving the high level of customer interest and the rapid adoption of the Purion product family. For Purion H, the key differentiator is the advanced scanned spot beam. This beam line design provides a high level of control over the key implant parameters of angle, dose and energy.

As a result, the customer sees significantly improved across the way for uniformity compared with the competitor's tool. This uniformity advantage is critical for material modification implants especially for high aspect ratio device structures. All advanced process flows for DRAM, NAND and FinFET utilize these high aspect ratio structures.

Energetic metals contamination is also a big concern for all IC manufacturers. The design of the Purion beam line provides customers with the industry’s lowest level of metal contamination. This is accomplished utilizing a hybrid filtering technique, which provides both magnetic and electrostatic filtering of metals.

This results in extremely low levels of energetic metals contamination, which were essentially un-measurable in line delivering significantly higher yields for our customers. Cost of ownership is a key measurement used by our customers. Axcelis' Eterna ELS Source delivery is nearly four times the source life time of the competitor's tool.

This is a significant differentiator when implanting silicon, germanium and carbon; three species that are used extensively for material modification. This capability provides a big cost of ownership advantage to Axcelis and the Purion product family.

Lastly the commonality of the Purion family provides customers with the confidence and ability to easily adopt the full family of Purion products and their events. Since the wafer handling, user interface and factory interface are common across the Purion product family.

Customers incur much lower cost and risk when adding a new implanter to their manufacturing line. Now I'll turn the call back to Mary for her summary..

Thank you, Doug. Our Purion products are highly competitive and are rapidly increasing both our customer base and market share ensuring we meet our customer's expectations with respect to the ramp of the Purion H is in 2015, while expanding our Purion footprint continues to be our top priority.

To drive our revenues and share gain in 2015, we're focused on two very active market segments; memory and non-leading edge foundry and logic. We're not directly affected by the current CapEx and technology challenges that leading edge foundry and logic companies are facing related to 10 nanometer FinFET development.

We expect to benefit from these difficulties and delays in 2016 and '17, as a result of Purion H capabilities. Our streamline cost structure and margin improvement initiatives will yield solid earnings and cash generation as our revenues continue to increase and most importantly we continue to have strong customer support.

Our customers want two strong implant suppliers who will drive innovation and competition like not only the advantages that Purion technology brings them, but also highly value our customer support as demonstrated by our first place ranking for the second consecutive year across multiple categories in the 2015 VLSI Research Customer Satisfaction Survey.

We're very proud that Axcelis has executed well and turned the corner in 2015. We thank you for your continued support and with that, I would like to open it up for questions..

[Operator Instructions] And our first question comes from Edwin Mok from Needham & Company. Your line is now open..

Hey, thanks for taking my question and congrats for the great quarter. So first question I had on the two new Purion H customers you highlighted Mary in your prepared remarks, I think you said one is a leading edge memory and the other one is a non-leading edge logic customer. Did I get that correct that's the first part.

And then second part on the non-leading edge side, that's clearly a first logic Purion H customer you guys penetrated right, do you expect to see more as we go through the second half of this year in '16?.

Yes Edwin, this is Doug. You're right on the first part of your question. One was a third leading memory customer and the second is a 200 millimeter foundry customer, which we announced as TowerJazz.

And as far as your second question goes, yes, we have a lot of interest in Purion H as a result of the rapid ramp that the product has seen and we do expect additional new customers over the course of the next year..

Have you called in defined the first customer, for DRAM than or actually [flush] [ph] something like that?.

The first customer, the memory customer is going to focus on 3D NAND to start..

I see, great.

Thanks for clarifying that and then on the non-leading edge side of the business, it looks like it's very strong and you guidance imply will remain strong in the third quarter, I know it's tough in terms of visibility on that part of the market right, but anyway you can kind of give some idea of how sustainable that is for that business and what kind of interest you have in potentially booking that you may have already booked in your backlog?.

So it is very difficult with that business. I think you've heard Doug call it a whack a mole kind of business where opportunities pop up and we really need to be prepared to quickly be able to respond and take those orders and ship our tools very quickly.

What we see right now based on some of the key drives for the industry and the internet of things, automotive and mobile is that segment continues to be very active and we expect that activity to continue out probably 6, 12, 18 maybe even 24 months as we see expansion for some of those specialty devices. So we're very, very focused on that.

I think the TowerJazz sale is particularly indicative of where we're focused because here we have a customer who was actually buying a brand new system for 200 millimeter to drive productivity within their fab. So those are the kinds of opportunities that we expect to be able to capture moving forward..

Great. That's very helpful. And any opportunity in Japan or is it still largely still obviously not the market you guys are talking..

Well, we continue to work on Japan. I think for us right now it's probably more of a 2016 kind of effort in terms of seeing any results, but we have a number of things that we are doing to essentially engage with customers there.

We have in fact sold some implanters there, legacy implanters into Japan and now we’re working with several customers to try to break in with the Purion platform, but again probably a 2016 event..

Okay. Great. One last question I’ll ask and I’ll let other guys ask, but on the gross margin side, it looks like your guidance is at the mid 30s based on how you're resolving guidance here. Kevin just I want to understand let's say given the environment and let's say your business stay around this level, how do you think the gross margin can progress.

You talk about some cost reduction that you have.

Should we expect some of them to start to come in, in the December quarter? I understand mix and you guys talked about assuming similar mix go forward, how do we kind of gross margin can progress?.

So Edwin, its Kevin, now we’re making very good progress with the cost out initiatives lowering material cost and labor cost and manufacturing. And as Mary said, we’re guiding 34, 35 in Q3. We’re not providing full year guidance or I guess Q4 guidance but full year, we still think we’re going to end up in kind of that mid 30% range.

The thing I will note that we still have two low margin EVAL tools out there that most likely based on what we can see right now will be converting in Q4. These are tools that we continue to work with customers develop both new capabilities and some improvements to the product.

So I guess when you kind of do in your model you got to think these tools are little bit lower gross margin are going to hit in that Q4 area, but again we still feel that full year we're in the mid 30% gross margin range.

Then as you get into the out years which we’ve updated the model in the IR pitch, we started talking to these higher revenues of $80 million to $100 million and gross margins moving from kind of that mid 30% to upper 30% range and then clearly on the 2007 model, which we have not updated and it remains unchanged, we expect to be at that 40% gross margin plus gross margin level at some point in 2007..

Edwin let me just add one thing on there is those EVAL tools that Kevin talked about when we take revenue on those and have our call, we will make sure that we give you some idea of the impact they had on the gross margin, so that you can see what the run rate of the business is at that point in time..

Yes that would be very helpful, but maybe just talk about your Purion II now that you guys have to ramp up and ship some more tools right, I know you can describe what kind of margins are you running these in terms of let’s say there is a new shipping, what kind of gross margins are you seeing incrementally on the tools that you guys are shipping right now, maybe that's a good way for us to think about where the margins can get to?.

So I would assume, I'll kind of give you the systems gross margins, but what I will tell you Edwin is that quarter-over-quarter, we have been seeing margin improvement on the Purion platform and particular on the Purion H and Purion XE. So we are making continued progress. I can comfortably say that each quarter has been better and that will continue.

So we have very detailed roadmaps in place that take us out for the next couple of years by tool number and there is a series of initiatives that are driven by either by lean factory initiatives, which surround some of the rapid cycle time improvements that we have planned.

And we've got a lot of suppliers things planned with both ready to volume and moving to our low cost sourcing partners as the parts become more and more stable by the day..

It is also fair to say that we're pass some of the extra cost that we had moving up in the first place..

Right, some of the cost that hit us early on in Q4 last year and Q1, in the Q2 area we have flushed through a lot of the supplier type of thing with expediting fees and freight. So we're moving beyond those..

The other thing Edwin, Kevin mentioned Purion H and Purion XE specifically, we've seen an uptick in interest in the Purion M especially in image sensor and power device markets and the good thing about the commonality is all of the improvements in the gross margin that have been made on the Purion H and XE are become part of the Purion M as a result of the commonality and the common station..

We can't comment exactly on where the gross margins are, but it's safe to say that for the Purion H relative to the introductions of the Purion XE and the Purion M the margins have come up much, much more quickly than those two products based on the commonality..

Okay. Great. Sorry I lied, I'll just squeeze one more question in, GSS jumped a lot this quarter, is that sustainable level and $37 million or is it just a more one-time some used to sell..

I think GSS is going to continue to be 1B. It was driven this quarter by used tool sales although we had some strains and spares and consumables as well.

So we said that it's an area that we're focused on growing and we should see that the slope of that increase over time based on the fact that our Purion install base is growing and we're working very hard to make sure that we do get the spares and consumables in an aftermarket business associated with that growing install base..

Okay. Great. That's all I have. Thank you..

Thanks Edwin..

Thank you. And our next question comes from Craig Ellis from B. Riley. Your line is now open..

Thanks for taking the question. I just wanted to follow-up on one of the gross margin points and acknowledging that just down the line it looks the execution in the quarter, I hear what you're saying about improving Purion gross margins, but when I look at gross margins on a year-on-year basis, we're not yet up year-on-year.

When do you think the improvements that you're making will translate into gross margin expansion on a year-on-year basis?.

Yes, so the first thing Craig this year is I think we've always said is that our GSS gross margins are very accretive. So what you see in this year is that we have a very large mix of systems driving the overall revenue.

So just by fact that the margins are remaining flat when we're putting in a much higher mix of things that are not as accretive gross margins as we're making continued improvement in gross margins. So we'll say that the system is what's driving a lot of the revenue this year.

I believe as we get into 2016 and that's kind of what the model shows, as we continue to realize the improvements that we're seeing on the Purion platform, the system margin will continue to be higher and they will get to the point where we can drive a very large increase in systems revenue against the GSS mix and still improve gross margins to now that mid $30 to upper $30s and then get into that low $40 and beyond gross margin range.

So for modeling purposes starting in 2016 and out through 2017, you should start to see year-on-year comparisons getting a little bit better..

Thanks for that Kevin. The next question is regarding some of the comments earlier around induced mix in systems in the second half.

I think it was 61% memory, 39% non-leading edge foundry and logic, was the point that in the back half, the mix will be at about those levels or is the overall -- or is the point that you think that in 3Q and 4Q, the mix will track pretty consistently?.

Yes, I think what we're saying is that we're pretty evenly balanced between those two segments and have been throughout the year. For the year we're about 42% on non-leading edge and the remainder in memory and so we think that will continue through the year..

And then lastly Mary, follow-up on your comment on calendar '16 market share the decider to grow, as you look at the business next year, what are the top three of four share gain opportunities in calendar '16 for Axcelis?.

Well we need to continue to grow our Purion footprint and so far this year we've actually doubled the number of our Purion H customers. So continuing to grow at a rate like that is going to be very important.

We think we have a very good opportunity at that third memory customer we just picked up and as I think about the pipeline that we have for Purion next year, not just the Purion H, but also the M, which Doug mentioned has garnered some recent interest first from some new customers and then continuing to penetrate with the Purion XE, particularly in the image sensor market I think we have opportunities really across all of the products to grow market share as well as all the segment that we’ve talked about.

The leading edge foundry and logic is certainly a segment that we plan to penetrate. As I mentioned the evaluation unit for that segment for the Purion H may actually push into 2016, but we don’t necessarily see that as a negative.

In fact we see it as a positive because of the delay in 10 nanometer development along with some of the sluggishness in CapEx in that segment. It gives us more time to work with some of those critical customers to actually get an evaluation unit in.

So I think it's just a broad -- it's broad growth across all products, across all segments that are really going to drive continued market share gains..

Thanks everyone..

Thank you. And our next question comes from Patrick Ho from Stifel Nicolaus. Your line is now open..

Thank you very much and also congratulations on a very nice quarter..

Thank you..

First off your GSS business has always historically had pretty good margins and we're seeing that again, given the commonality the Purion platform and the traction you've got, can you give a little bit of color on how I guess that part of the business or particular on a going forward basis will help the overall gross margin, are their incremental improvements on the GSS side because of that Purion commonality..

Well, obviously as we get a lot more volume on spare parts and consumables that will help the common to drive volume. So as we worked to suppliers and negotiate volume agreements that will helped the GSS side of business. We also continue to work on upgrades.

We’re actually on a couple of these EVAL tools relatively on Purion H right now we’re developing some things that are going to be upgrades and upgrades are typically a very high margin area for us.

So we can drive gross margin from those upgrades and we can get some leverage from the Purion commonality and along that theme Patrick, the commonality because we have the commonality a lot of these upgrades can go across all the products. So it will definitely help the GSS side of the business having the Purion commonality..

Great, that’s helpful.

Going back to the non-leading edge or the more mature technology note business that you’re seeing, are there opportunities to kind of migrate up and say like the 28 nanometer node where that’s becoming more of I guess a more mature technology note today, but also one when where there is still a lot of demand and a lot of capacity that’s still out there.

Is that something say over the next couple of years you see opportunities kind of migrating off that non-leading edge curve..

Well, absolutely Patrick, that’s a key target within our non-leading edge group and right now that’s kind of where we draw the line between leading edge and non-leading edge is 28 nanometer.

There is a substantial amount of interest in the Purion products at that node and I think everybody in the industry believes that node has a very long life in it ahead of it so..

Great and maybe final question Mary, in terms of the overall market environment, obviously there is a lot of noise out there, whether it's in the foundry logic and even in the memory space, based on your travels and your talks with customers particularly in the memory space, how do you see overall spending trends in the second half of '15 and whether they're at a I guess rational level versus historically in the past where we've seen a lot that excess in, excess buy, how do you see the overall environment in terms of their move to spending?.

So I don’t think there what we’re seeing as any different from what most of our peers have reported. Right now DRAM certainly looks to be slightly less robust in the second half of 2015 then it was in the first half. However we’re very optimistic that we will see that come back sometime in early 2016.

From a Flash standpoint, that’s definitely picked up and we’re seeing strength in that segment and we believe that that will continue not only through 2015, but into early 2016. So the good news for us is that again we continue to expand our footprint. We have the Purion H now that has an opportunity with the memory customer in 3D NAND.

We have a very strong footprint at another memory customer in DRAM and then a third customer we actually have an opportunity for both DRAM and flash.

And there is a large project that will be coming up and the timing on that isn’t quite clear yet end of this year, early next year that we have again a very good opportunity not only for the Purion H, but for the Purion M and the Purion XE.

So I think we are feeling pretty about the fact that the memory market is it's rationale, but it's going to continue on probably steadily for the next 6 to 12 months..

And I think Patrick the other thing I would like to add on that is the memory market is the most capital intensive market for implant. It's much more capital intensive than the leading edge logic and the DRAM market is the most capital intensive and both are very heavy users of Purion H with high current..

Great, thank you very much..

Thank you..

Thank you. Our next question comes from Dave Duley from Steelhead Securities. Your line is now open..

Yes thanks for taking my questions. Congratulations on a nice quarter..

Thank you..

Kevin I think you mentioned that you want the inventory balance to come down in this upcoming quarter or the next couple of quarters..

Yes..

What's the target for dollars, how much would you like to pull back down?.

Well I would like to get the year ending inventory back down to somewhere close to the $100 million mark plus or minus a little bit, but what I do know right now based on what I’m looking at I feel pretty comfortable that in Q3 we can probably at least get ourselves back down to about $115 million and then we'll continue to make improvements in Q4.

What's going to drive that is there is a couple of things in this quarter just because of kind of the timing of Q3 shipments and the timing we had to get material into Q2 to start building, it was a little bit top heavy on the quarter. So let’s start the flush on ours.

We do the shipments and then we've got a lot of things we are working with suppliers, setting up bonds and various factory lean initiatives that help move that.

I guess the other thing I will point out too, I am continuing to look at the turns now too and although the turns quarter-over-quarter for the overall business are a little bit flat right now, the Purion product is turning significantly higher than the rest of the business, because of the commonality.

And as we kind of change the model so it continuous to lean more towards Purion, in a lesser way from some of the other products we do deliver, that should help us also in the future would improve inventory turns. So that's a little bit more color I think in inventory for you Dave..

Okay.

And just a follow-up, if you are going to bring inventory down like $7 million and you make money in this upcoming quarter, why would your cash balance only go up like $2 million?.

It's basically the timing of shipments and when we receive the pay. We recognize revenue when we ship all but what we carve out for install and warranty but customer payment terms some are 30, some are 45 days. So depending on when they're shipping in the quarter is kind of a timing issue.

I will say that continuing to look throughout the year, we'll continue to generate positive cash and at some point, some of those tiny things do catch up..

Okay.

And you've talked about this new memory customer, I think it's a Purion H win, when would you expect that to turn into orders or revenue or when can we see this add to the puzzle?.

Hey Dave. That customer has a solid project plan for the first half of 2016. So we would expect to participate in that. It's probably more Q2 type of timeframe, but that we feel will be our first target with that customer..

So revenue would in Q2 or something like that..

Yes right, that will be a good way to model it..

Okay.

And would you expect that customer to -- since you’re really good at the XE, would you expect that customer to perhaps adopt that product line as well over time or do you have visibility into that?.

Well at this point we haven’t discussed that, but the commonality of the Purion H and the productivity advantages that the Purion XE bring, is certainly something we'll certainly be discussing with that customer and hopefully there will be some interest.

We've seen that other customers, it's one of our key goals is migrating the product line from XE to H to M from H to XE and so forth as a result of the commonality. So we would hope to discuss some value in that as well..

Okay. And just as a clarification, do you expect to pick up more major Purion customers this year or is that more of a next year event? We think we'll see more customers this year..

Yes, continue to watch for those press releases..

Okay. Thank you very much and congratulations again..

Thank you..

Thank you. Our next question comes from Mark Miller from the Benchmark. Your line is now open..

I would like to add my congratulations also..

Thank you..

You're welcome.

Just was wondering as you said that there has been some well-known pushback on the 10 nanometers by a leading logic foundries, but looking at that as a longer term opportunity, I've heard from some other management and equipment firms that they feel the size of that opportunity will be bigger in terms of equipment shipments and the size in the 16-14 nanometer node.

I am just wondering what's your take is on that?.

Yes, so Mark the number of implants in the logic space between 14 and 10 nanometers is kind of still in definition. Implant is often used to make adjustments in the parameters of the device to make adjustments in the process flow.

So the exact number of implants for 10 nanometers is kind of still under development and so it's a little bit hard to say what the difference will be between the 14, 16 and 10 nanometers node at this point.

What we do know is that the uniformity capability of the spot beam is very likely to play a major role in that node and we think that will help customers be able to achieve the yields that have been difficult to attain which has caused some of the push outs.

So that's why we feel that there is an opportunity as a result of the year delay in 10 nanometer..

Okay.

Just if you could address to as we go down the line here at 10 nanometers, does that require -- can we extend tools that were at 28 or beyond into these nodes or do we need more tools that can deal with the high aspect ratios of your tools?.

Yes, so some tools can be extended, but what we've seen especially with Purion H, a lot of the new implants related to material modification, the control around implants around the transistor definition to help tighten up the control of the parametric will require a spot beam capability. So currently they don't have their capability in those fabs.

So they don't have tools, the 28 nanometer that can move to 10 or 7 to be able to do those kind of critical implants. .

You mentioned or someone else mentioned that your margins were just as quite good, what really -- is there any limitation there, I don't want to sound greedy, but is there any limitation because you certainly would be the best one especially in terms of servicing your equipment.

Is there any limitation there for pushing that any further if you wanted to?.

Yes, we're definitely focused on doing that when we talked about used tools, Kevin mentioned upgrades, we've got very aggressive program ongoing right now to try to recapture some of the spares in consumables that we've lost over time.

We're also working very hard to ensure that we get the spares and consumables for the new install base that's going in. So there are a number of different programs right now that are ongoing to try to continue to grow GSS particularly in some of the areas where the margins are very good..

And then finally I apologize if I got this wrong, your sytem sales were $41.5 million in this quarter?.

Yes, $41.6 million..

$41.6 million. Okay. Thank you..

Thanks Mark..

Thank you. [Operator Instructions] And our next question comes from Edwin Mok from Needham & Company. Your line is now open..

Just a quick housekeeping, I noticed that taxes were low this quarter.

How should we think about tax rate as we go through the back half of the year?.

Yes taxes Edwin will remain low because of all the NOLs we have. So the only taxes we're paying is foreign tax and some of the service type businesses, but because everything ships out of here for the systems level from the U.S., they will continue to remain low.

I think this quarter we did have a slight pickup, but typically taxes have been running in about the 200 to 250 range, 250K very small..

Great, that's all I have..

Okay. Thank you..

Thank you. And our next question comes from Christian Schwab from Craig-Hallum Capital. Your line is now open..

Great. My congratulations on a good quarter as well.

As you guys look to your memory portion of spending in Q3 and Q4, do you expect that to be a more 3D NAND driven or more mobile DRAM driven?.

It's still going to be a mix. The nice thing about having Purion H out there is even when the memory customers aren’t building 10s or 15s or 20,000 wafer starts there is high current requirement. So we would expect we will see a mix from both of those market segments in Q3 and through the rest of the year..

Right. And your largest customer in the mix of taking capacity they have been for a while as you know off of standard DRAM and moving it to mobile DRAM because they're getting positioned for increased content or a doubling or DRAM and all the cell phones that are going to be released here in the back half of the year.

And if I back into the math on what we think that they're going to do as far as capacity changes, could your estimates prove conservative there?.

Well I think our guidance is -- our guidance is the guidance that we give, so….

Right and there is nothing on Q4 yet..

I think Christian the memory, we think the memory opportunity in DRAM remains good through the year for us and part of that is the fact that if you're in HF there, so as they do covert their older process flows over, they do need Purion H to do that.

We also think that right now the DRAM market is there is a lot of people making decisions on how much capacity and when they want to add it and we personally believe that it's going to be more and sooner than later..

On your 3D NAND customer announcement in Q2 of '16, is that going to ship to that customer's fab or is that going to ship to their joint venture fab?.

I don't think we can answer that, but the tool is already shipped. It's already at where it's going..

Okay. So you don't want to -- you don't want to answer the question of whether it's going directly to their customer and to the joint venture of you can't say or you maybe you don't want to….

To customer..

That would sound like you. So okay, but that's fine.

And as we look at Applied Materials at their Analyst Day a few weeks ago, throughout a very larger expectation of what they are thinking about as far as the install base capacity of 3D NAND over the next three years and looking for a number approaching $850,000 wafer starts a month being added which is quite enormous, what is your thoughts on that type of backdrop which would be really good news for you especially on the high energy?.

We have no reason to disagree with the numbers that Applied has talked about or [Lam] [ph] has talked about in terms of 3D NAND. It looks like there is very large demand and there was one customer significantly ahead in terms of the technology.

We would guess that they will push to take as much share as possible and we would expect the other NAND suppliers will move very aggressively to make sure they get plenty of their share. You're right, for us that's really an important market.

There is an opportunity of about 37 implanters per 100,000 wafer starts there and 10 of them are high energy and 20 are high current. So the more 3D NAND, the better for us..

My last question, your 35% to 40% market share goal, is that a 2017, 2018 goal or is that something that you really think without any macroeconomic disruption is something could happen in 2017? In other words could we potentially double our market share in the next few years exiting '15?.

Yes, the model that we've built by the end of 2017 we expect to be able to get to the 35% to 40% market share. So that's the goal that we have and we're going to continue to work towards it.

If it's six months earlier or six months later, hopefully you won't hold that against us, if it's on the later part of it, but I think we're on a pretty strong trajectory.

As I mentioned before in terms of gaining market share within existing customers and also gaining new customers who -- where we have the opportunity to actually sell all three types of Purion products..

Great. Well, keep up the good work. Thank you..

Thanks..

Thank you. And this does conclude the question-and-answer portion of our call. I'll now turn the call back over to Mary Puma, who will make a few closing remarks..

Thank you, Crystal. We will be attending the Craig-Hallum Alpha Select Conference in New York City on September 17 and the UBS Global Technology Conference November 16 through the 18 in San Francisco. We will also be on the road during the upcoming months and we look forward to catching up with all of you. Thank you..

Thank you. This concludes the presentation. Thank you for your participation in today’s conference. You may now disconnect. Good day..