Guido Pickert - VP, IR & Corporate Communications Felix Grawert - President & Member of the Executive Board Bernd Schulte - President & Member of the Executive Board Charles Russell - VP of Finance and Administration

Uwe Schupp - Deutsche Bank Veysel Taze is - Oddo Andrew Gardiner - Barclays Juergen Wagner - Main First Bank Günther Hollfelder - Baader-Helvea Malte Schaumann - Warburg Research

Ladies and gentlemen, welcome to AIXTRON's Q1 and 2018 Results Conference Call. Please note that today's call is being recorded. Let me now hand you over to Mr. Guido Pickert, VP of IR and Corporate Communications at AIXTRON for opening remarks and introductions.

Thank you, operator. Let me start by welcoming you all to AIXTRON's Q1 2018 results conference call. I'd like to welcome our Executive Board, represented by Dr. Felix Grawert; and a Dr. Bernd Schulte; as well as our VP of Finance and Administration, Charles Russell. As the operator indicated, this call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without express permission. Your participation in this call implies your consent to this recording. Please note that our Safe Harbor statement at page of two our result presentation applies through out this conference call. You may also wish to have a look at our IR presentation, which includes the additional information on AIXTRON's markets and its technologies and is available on our website. We will place an audio file up for recording or a transcript on our website at some point after the call. I would now like to hand you over to Dr. Bernd Schulte for opening remarks. Bernd?

Many thanks, Guido, and welcome from my side as well. Let me start by giving you an overview of the key developments in Q1 before handing over to Charles, who will lead you through the financials. This will then be followed by Felix who will discuss how we managed the operational challenge today and ahead of us. I will then do a wrap-up before handing over to you all for Q&.A. Let me start by saying that we had a strong first quarter, as a result we can certainly confirm that 2018 full year guidance we gave at the end of February. And I will give you more details to this guidance at the end of the call. We have a strong foundation with a robust line of products as well and resilient cost-effective and flexible business model, which enabled us to benefit from the current strong market environment that Felix will explain to you later. Secondly, we have gone through a successful reorientation of our technology portfolio, and now have a durable and focused product portfolio in growth areas, such as the specialty LEDs, lasers and power electronics. Certainly, we have a comprehensive technology and product development growth net in which we continue to improve the performance of our opto electronics and MOCVD systems. And secondly, we are currently enhancing our silicon carbide, power offerings to make the most productive solutions in the market for volume manufacturing. And finally, we are developing disruptive technologies in the OLED area, as well as next generation car material such as [indiscernible] all of which have significant end market opportunities and will support our growth in the medium and longer term. Let's now return to Q1, which was our strongest start to the year since 2011. Our business enjoys a positive momentum with strong interest for our full range of products, but in particular for all manufacturing solutions for the productions of lasers such as vertical-cavity surface-emitting lasers for 3D sensing and optical Datacom applications. This is reflected in the higher than originally expected order in take in Q1, which at €79 million was 27% ahead of the same quarter last year and 20% ahead of the previous quarter. The quarter was strong in terms of revenues, which came in at roughly €62 million, which was a 16% ahead of the same quarter last year. In terms of profitability, we were both EBIT and net income positive in the first quarter. With EBIT of close to €8 million and net profit of slightly above €12 million, both were, of course, ahead of the same quarter last year, when AIXTRON was loss making. This earnings increased is largely a reflection of an improved product mix and the various strong gross margin performance, which reached 43% in the quarter, supported to a certain degree by lower U.S. dollar denominated revenues. This was above the 39% we achieved in the previous quarter, and the 25% we achieved in Q1 2017. As the product mix varies quarter-to-quarter and order behavior can be lumpy, this gross margin profile will also fluctuate going forward. At this point, let me hand now you over to Charles for more details overview of the Q1 2018 numbers.

Thanks, Bernd, and hello to everyone. Turning to slide four, Q1 represented a very good start to the year with order intake €79 million, up 20% from the previous quarter and 27% on the €62 million we generated in the first quarter last year. Consequently, we ended the quarter with an equipment backlog of €115 million, up 6% on the year-end backlog and 31% ahead of the year ago figure. This gives us a good visibility for the remainder of the year. We were profitable in both the first quarter as we reached net income level, and this was largely driven by the increased sales and good product mix producing a 43% gross margin. EBIT for the quarter was €8 million compared to the loss of €13 million in the comparable period in 2017. Net income for the first quarter was €12 million, an increase of EBIT being, because we recognize €5 million of deferred tax assets. Moving onto the next slide. Let me go into more depth on the income statement. Total revenues recorded in the first quarter was €62 million, up from the €54 million in both Q4 and Q1 2017. Compared with previous quarters, the mix of sales was much higher in Europe. 38% of our sales were in Europe this quarter compared with 80% in the year ago period and 13% in Q4 2017. We also had a favorable product mix. Gross margin improved from 25% in Q1 last year to 43% in this quarter, which reflects the sales mix and the absence of the Arctic sales, which we had in Q1 2017. Operating expenses of €19 million was less than €26 million in the same quarter last year. Selling and admin expenses are more or less in line with the normal run rate in previous quarters. The major change is in the R&D expense, which is lower because of last year's sales of the memory business and the few of new developments in TFOS. We are now clearly focused on development of opto power and LED. As a result of the increased sales volumes, increased margins and lower operating expenses, EBIT from the first quarter was a profit of €8 million, a significant improvement over Q1 2017. Because of the transition from last year's profitability, we have capitalized €5 million of deferred tax assets, giving an overall tax credit in the quarter of €4 million. Obviously, that's transition effect only. Consequently, the net results for Q1 was €12 million profit. Moving to slide six, which shows our cash flow statement. As expected, last year, because of an agreed payment related to the sales of our ALD/CVD product line, we were cash flow negative in the first quarter. Receivables DSO, also increased from 33 to 43 days, which is a short-term timing effect related to the high level of sales in the month of March. Operating cash flow was minus €21 million in contrast to the previous periods, where cash flow was strongly positive. We do expect the block rate in cash flow will be positive for the year. Cash equivalent was €223 million compared with €246 million at year-end. Turning to the next slide, our balance sheet. The principal changes in AIXTRON's balance sheet since last year reflect the increased levels of business. Inventories have increased because of increased orders, receivables have increased in line with sales, equity has increased because of the profits. And as expected liabilities reduced because of payments related to the memory business sale. Now let me that hand you over to Felix, who will give you some operational insights.

Thank you, Charles. In the last earnings conference call, we had provided you a comprehensive perspective on the markets and on our strategy in core areas opto and power. This time, we would like to discuss some operational topics that are important to us. Our numbers and guidance reflect a strong uptick in revenue and order in the MOCVD business. Our manufacturing model is very well capable of digesting this uptick. It is based largely on output and deliveries and preassembly from our supply. It focuses the in-house work, mainly on production planning, orchestration of the assembly on our shop floor, and test of the assembled tools. With that, we are not running into any capacity constraints with respect to our own stock. However, we have to manage an overall tightening of supply and parts availability along the semiconductor equipment supply chain. In order to do so, we monitored this very closely, and when needed, we pre-order longing items ahead of time to be able to serve customer demand and to avoid running into limitation for our output. We do not expect to risks regarding our inventory level, as this had a small effect compared with the inventory attributable to tools which are built to customer orders. With that, we think, we are well set to deliver the tools according to our customer demand. Furthermore, we will need to install a significantly larger number of tools with our customers in the field, especially in the second half of 2018. Our service team has been sized to cope with the installation level of 2017, such that the increased output cost for additional installation capacity this year. As we do not want to provide this only via an increased headcount, some may needed, we have started a service and installation efficiency program targeted at reducing the installation time per tool. Efficiency gains are a more elegant way to boost output, especially in real time that we are seeing now. Finally, the growing number of customers in the power electronics and automotive industry, as well as some of the laser customers are of different and higher quality standards. We also address this topic with a dedicated quality initiative. In summary, we think we are well equipped to manage the above-mentioned operational topic, as we have the right manufacturing model and the set of initiative in place to address them. Let me also briefly comment on our OLED business at APEVA, which addresses the $50 billion end market opportunity by 2021 with their OLED display technology. The project is progressing as announced in the February earnings call. Our Gen2 has been set up and tested and shipped in Asia and will be soon be installed at the customer facility in order to qualify the technology from that production. Discussions with a joint venture partner intensely ongoing, but has not been concluded yet. With that, let me hand you back to Bernd for a wrap up.

Thank you, Felix. Before we finish the presentation, let me summarize the main operational plans we presented to you today and then give you our perspective on the broader business issues we are addressing in the months ahead. In summary, Q1 was solid with strong revenues, higher than expected orders, and margins which gives us increasing confidence for this year. We are addressed the operational topics coming along with strong business, and therefore do not see limitations to deliver as desired. Based on these results, we confirm our 2018 full year guidance given in February 2018 shown on slide eight. We expect revenues in order intake in a range of €230 million to €260 million and EBIT margin between 5% and 10% of revenues. However, due to the positive developments of the business, we expect revenues and EBIT margin to be close to the top end of their guided ranges. Gross margin is expected to be between 35% to 40%. A positive operating cash flow for the year is also expected. With that, I'll pass it back to Guido, and we are now happy to take your questions.

Thank you, Bernd, Felix and Charles. Operator, we'll now take the questions, please.

Thank you. [Operator Instructions] And the first questioner is Uwe Schupp from Deutsche Bank.

Yeah. Good afternoon, gentlemen. Two questions please from my side. Firstly, again on the guidance and the, well basically implied €50 million or so that you are implicitly guiding for the second quarter. Question would be you saw this €50 million as you're kind of co-scenario from today's perspective or are you just trying to be conservative as possible in order to start rebuilding a track record or what is really behind, in other words, are you expecting a serious slowdown in actually [ph] demand because of current nervousness in the market versus potential bid out scenario for 2019 devices coming to the market? Secondly, on the gross margin, could you help us understand a little bit better what's the thinking behind your gross margins scenario really is? We heard you saying that you're expecting sales and also EBIT being at the upper end. Why wouldn't that necessarily be the case for the gross margin? And I heard you saying, Bernd that, you indicated that there will be over some fluctuation, but if there would be fluctuation in the coming quarters, wouldn't that also given the higher end of the EBIT margins, that there is also some relief on the OpEx line as well? So just some background around that would be appreciated? Thank you.

Yeah, Mr. Schupp, thank you for questions. Coming to the €50 million calculated order intake, which is missing to hit exactly the €260 million. We have to see certainly €50 million means this was an order intake, which is shippable this year. And we're seeing definitely a continued interest in terms of requests of various kinds of applications, not just mixes, but also others MOCVD equipments and applications. So I think it's a fair, and I think reasonable and realistic statement to say that we are really close to the upper end of the guidance. And we have also to see what's - what is doable in terms of our production, and what customers really also are able to take with their facilities within this year. So this is - this led us into – to stay with the guidance, however, to refine it - to come to the upper end. Second to your question about gross margin, I think we had a very good growth 43%, we had been higher than the guided gross margin. We - and Q1 was certainly a very strong quarter coming with the several effects. One, I think we mentioned, Charles mentioned that we had at a relatively high sale into euro-based orders. So we have net effect from the exchange rate. But secondly, also, we had significantly high mix into higher margin product. But this varies because going forward we expect more orders to be shipped, which have more related to the LED business, which by nature have a lower gross margin due to the competitive environment. So that leaves us really to say we are between 35% and 40% of gross margin in the average for the entire year.

Yes, thank you. That's very clear. Just to kind of follow-up on your – on the first point. So the.50 million is basically not your basic core guidance in terms of Q2 orders, but basically, the number of orders that would be shippable for this year and the rest would potentially be for next year?

Yes, exactly. And you should also mean this is only equipment. In the chart where we've explained this bit, we assuming typically like 10 million for after sales, which would be then on top of this for the order intake. That’s very clear. Thank you very much.

The next questioner is Veysel Taze is from Oddo.

Yes, hi. Thank you for taking my questions. The first one would be basically, if you look at the Q1, you have - the opto part was very strong, but the rest of the business was indicated in the LED space, particularly that it will not be a year like last year. However, can you explain a little bit on the power and the LED part, the trajectory between the quarters, what we can expect for the rest of the year, because in Q1 seems to be very, very weak on LED and power part?

Let me comment on the LED part. Typically, orders for LEDs are typically quite lumpy. Typically, these orders come from China and are truly coming in the amount of 5, 10s, sometimes in more systems per order. And as such then we’re seeing quite high fluctuation in quarter-to-quarter for the different application. So as you quite rightly seem that effect for Q1 was low. It doesn't mean it will not be different in the future.

And on the power...

And for power electronics, I mean, that market certainly is still a very – it’s a growing market in a moment relatively low level. So most of our customers are in the phase of sampling to their customers, and we are not in the phase where customers are really are strong venting into high-volume manufacturing. I think, this is not to be expected for shipments earlier this year. So we expect this something – the gross really comes maybe in next year or beyond.

Okay. On the...

Hello. Can you hear?

Yes, sorry, that was something in the he line. Just follow-up on Mr. Schupp’s question. On the order momentum in Q2, I mean we are now end of April, so would you say that you could already see in April a slow down, or would you say, okay, the pace has been still okay. And also considering from the semiconductor companies what we heard up to now in the early season was okay, no preproduction in Q2, so for the iPhone X 3D sensing modules. So it looks like there will be still capacities for Q2 needed, or yes, would be color around the laser momentum and on the order momentum into Q2, in general would be very helpful?

You know, we are not guiding on this precise guidance on next quarter's order intake. However, let me say that – that we’ve seen a very healthy continued request from the market for systems and our sales team is very active. But please come also keep in mind, that we're not just selling VCSEL [ph] tools. We have broad range of product in different applications. And seeing that Q1 was very strong for laser doesn't mean that our order intake in the next quarter has to come down. Even though that there are rumors and gossips in the market that there is obviously some slowdown in VCSEL demand for certain end applications.

And then another one. One of your customers last year on the LED site OSRAM, it's a company I am not following. But I was thinking that they might invest in new capacity seen in Germany as well. I mean, I don't know if you could comment on OSRAM. But did this not happen? I mean, that was kind of expectations also for first half to see some LED demand coming from this customer. I mean, what happened on the site?

I mean, you're quite right, we are not able to comment on specific customers. So please, please accept that we cannot make a statement. But I would suggest you may ask OSRAM directly.

Okay, yes. Fair enough. And on the CMS [ph] business, Q1, I think it was 12 million quarterly revenues. Is that a reasonable level for the rest of the year? Because it's a stable business or were there some extra one offs or something?

Well, we have typically in the range between 10 million to 12 million after sales businesses. This is a very typical range here.

Okay. Thank you very much.

And next up is Andrew Gardiner from Barclays.

Hi, good afternoon, gentlemen. Thanks for taking the question. I was interested in some of the comments you made, Felix, regarding the supply chain and the potential tightness of certain components across the semi equipment chain. And just sort of comparing that to how you're framing to 2018 guidance. Are you guys suggesting now that 260 million, the top end of that range, regardless of where orders may be in the next three months or so, that really is a sort of a physical limit, not perhaps so from your manufacturing standpoint, but just in terms of sourcing its components, and so that's how - it wouldn't be prudent for us to be thinking of revenue beyond that, just from sourcing point of view?

No, that was not quite the message. So the message was, first of all that will be close to the top of the guidance. That was the first message. And the message I was giving regarding the operational topics was that we do not have limitations with respect to output, neither with respect to our manufacturing capabilities nor with respect to our supply base. But rather, that we are managing very carefully in order to be able to deliver according to the guidance that we had given. And we have we this on our radar and therefore we are able to ship despite the strongly increased outputs. That is the message.

Maybe, Andrew, let me add here and this is I think Felix presentation was just to say the opposite of what you just listening. We have been asked of where our limits are and please keep in mind that 6, 7 years ago when we had the LED boom, we were shipping 100 to 150 reactors per quarter. And so the capability of our flexible, very flexible manufacturing strategy and concert I think allowed us to ramp as need to the market. Of course, there are challenges and that's I think also to give a credit to our operational team. We are able to manage those challenges.

Understood. I certainly appreciate on your site, your people, you clearly have that capacity, as you suggested, you've demonstrated that in the past, I was just interested in the tightness in the supply chain and how much room for flexibility you have, if you guys are catering to some interesting markets at the moment, if orders indeed were indeed there over the next quarter so, what is the theoretical revenue number for this year that you could deliver?

It is being monitored, its being managed through message to you is that whatever orders come, the orders will be shipped.

Okay. Fair enough. So another one just on opto. What are your lead customers? IQV have been pretty clear about there. So ordering and installation pattern, I think we can assume that they’ve taken a reasonable number of sort of revenue you guys are recognizing in the quarter. I was just wondering beyond that, sort of elsewhere within the opto space, can you give us a sense as to sort of regionally, where the shipments are. There's a lot of noise about Taiwanese or Chinese customers trying to ramp their own capabilities in this area, perhaps initially R&D, but ultimately for commercial volumes. Can you give us just sort of a comment on the breadth of demand that you're seeing there? Thank you.

Yes, this is - thank you for the questions. So for opto electronics application, we have a very - from regional perspective, a very broad stretch. So we're seen orders request et cetera and sales into Europe, as you mentioned one customer, but certainly also the United States, but also into Taiwan, as well as China. And certainly, they are on different levels. So as far as we can see, different level of qualifications with end customers, but definitely, the interest and our business goes in these very broad regional space.

Thanks very much.

And the next questioner is [indiscernible]. Over to you.

Hi, good afternoon. Thanks for taking my question. Just to go back to your potential peak revenues for the year, again, maybe I ask it or one last time in a different way. If theoretically you were to take orders of, let's say, another 70 million of equipment orders in Q2. Would it - is it theoretically possible that you would exceed 260 million of the revenue for the full year this year?

I think in principle, I think Felix tried to mention this. From what is - from what we see in terms of order, which is a reasonable assumption, we have no concerns that we can serve these orders and shipments this year.

Understood. And then just moving on to your OLED business, can you just give us an update if you could give us quite a bit of an update on your capital markets day recently. But are we still on track that if the customer is happy with the way the Gen2 system is going, we're looking in order for a larger development system by the end of the year. And if so, would that also be included in your order trend or because it's a development system, will you keep it out of that?.

Its mentioned yeah, the [indiscernible] unchanged, yet making good progress since we last met and since also the last earnings call in February, which is the Gen2 tool has been set up and tested. And we expect this tool to be used in the customer facility and then, it's about the tool to pass the qualification, it will be thoroughly tested based on those test we will then - the customer will make its decision.

And if it is a decision for another system, would that be included in your order book in the same half year, if does comes in the second half?

I think we are - have not considered the order – ordering forecast of 230, 260 for the OLED system, what ever size it might be.

Understood. And just lastly, can you give us on guidance for your tax rate going forward. You took a tax benefit in the quarter, but what should we be modeling as an ongoing tax rate for the business?

I think it's an ongoing tax rate for the business. We should be modeling somewhere in the range 15% to 20%. Because we have tax to pay in some of the other countries apart from new Germany, as well we also have tax pay in Germany, and so 15% to 20%, maybe at the lower end of that range.

Understood. Thank you very much.

And next up is Juergen Wagner from Main First Bank.

Yeah, good afternoon. Thank you for taking my question. A follow-up on OLED. I mean, you have two discussions on this with your customer that you said is progressing well. And the second one is with your potential joint venture partner, and how is this going? And when should we expect a new position?

Yes. This discussion is also progressing, progressing well. But not concluded yet. And also as Charles mentioned the discussions need to cover many aspect. And these aspects, if you really want to discuss it out, that simply take some time. So this is why it continue, but also again on this one, we do not want to get it forecast now when it is concluded, it will be done when both sites have achieved a good or an excellent win-win results that makes this business together successful.

But you could serve this follow-up R&D order with your customer without having concluded joint venture talks, is that right? Or do you have a Plan B thing, and you do it on your own or?

There is no dependency on the operational follow-on order on having concluded by them the joint venture discussion. However, for the longer term, the objective is to close the joint venture and come together with a partner. But it's not a limiting factor for anything in the near term.

Okay. And the second question on, as you mentioned in your prepared remarks, VCSEL is driving sales closer to 260 million this year. How much of that revenue number will be VCSEL equipment?

Certainly, we did not specify this in detail. I think what we have said is that we have a very, very good sales in Q1. And with this, I think, we have the confidence in having particular strong order intake in Q1, which was dominated by laser applications. We are having now this confidence that we'll be closer to the upper end of the guidance. But we do not give now a breakdown of the applications. We spare this for the end year results in February next year.

Okay. Thank you.

And the next questioner is Günther Hollfelder from Baader-Helvea. Günther Hollfelder: Yes, just some follow-up questions, actually. One on the - what you just had dominated by opto the order intake, so disclose that sales opto accounted for around 70% so it's – in the first quarter it was similar then also in the order intake level that was what you were indicating?

Sorry, can you get it again. I haven’t cathed your exact question, so you said… Günther Hollfelder: You said, you disclosed that opto accounted for 70% of sales, and so I was asking in over there a similar level, it's also reflected in your intake in the first quarter from opto?

Yes. Yes. That's our way. Günther Hollfelder: Okay, great. And given the size of the orders and the number of tools, can you comment on what was the largest order you had in the first quarter and then how many tools it was to get an idea how this structure is behind this large order number?

Yes. We mentioned before in previous call, that in laser, you have a different orders behavior than in LED. Laser typically customer order, smaller, single digit amount in orders, sometimes order one by one, other maybe up to five business, the maximum we have been so far in terms of individual order. Günther Hollfelder: Then one follow-up on the - on your comments on the gross margin in second quarter. I mean the - if you're saying this higher share of opto also in the order intake, I mean, shouldn't this probably impact on the gross margin continued than in the second quarter or other shipment pays more in the second half of the year?

The point what I try to make is that we will see fluctuations quarter-to-quarter. It depends where is the majority of shipments into what application are going. And as Q1 was strongly influenced by shipments into the laser's business, we had a very favorable product mix, and therefore, a very – with 43% we’ve been clearly above our guided range. Nevertheless, by saying we will still say guide range you can assume that there will be quarters which will be less than the first quarter. And that's all we want to say. So don't expect 43% for the rest of the year. There will be quarters where we will be below that. Günther Hollfelder: Yes. And the last question on the OLED, the last question. What's your visibility regarding the timing of the OLEDs tool being moved to customer facility? Is it - what's - is there a technology trigger or is it more timing? Thanks.

It is essentially technology trigger. As we mentioned in the February earnings call, the tool is being set up and tested, and it's tested together with our customer together, that also we mentioned before. And then when these test and modifications reach a certain maturity level, that is than the trigger point, the technical trigger point for the tool to move into the customer's facility. Günther Hollfelder: Great. Thanks.

And now we come to the next questioner, it is Malte Schaumann from Warburg Research.

My questions have been answered. Thanks.

Thank you.

So as there are no more questions in the line. This would conclude our Q1 2018 results conference call. And we're looking forward welcoming again on July 26, our next result conference call for H1. Thank you very much. Bye.