Q2 2022 ACM Research Inc Earnings Call

August 5, 2022

Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Gary Dvorak, Managing Director of the Blue Shirt Group. Mr. Dvorak, you may begin.

Thanks, Harmon, and good morning, everyone. Thank you for joining us on today's call to discuss second quarter 2022 results. Your release results before the US market open today. The releases of Elbana website as well as your newsletter services. There's also a supplemental slide deck post to the investor portion of our website that will reference during our prepared remarks. On the call with me today are our CEO , Dr. David Long, our CFO Mark McKecney and Lisa Fawn, the CFO of our operating.

Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements.

Certain of the financial results we provide in this call will be on a non-GAP basis, which excludes stock-based compensation and an unrealized gain or loss in trading securities. For our GAP results and reconciliations between GAP and non-GAP amounts, we should refer to our earnings release, which is posted on the IR section of our website.

With that, let me now turn the call of David Long who will begin with slide three. David.

Thanks Gary, good afternoon everyone. And we're coming to ACN Research, second quarter 2022, Ernie Conference call. Second quarter 2022, Ernie Conference call.

Please send to slide 3.

Our second quarter results represent a solid recovery following the Shanghai COVID restriction this spring. We deliver strong revenue and profitability as our facilities return to normal operations.

as we had expected on the Q1 call, the decision to not be temporary. The decision to not be temporary.

The Sniper facility was reopened on the closed loop production process in later April . As of July 1st, operations in Shanghai were largely back to normal. I want to sincerely thank our employees, business partners and the customers for their dedication as we navigated the COVID pandemic.

Let me share some financial highlights for the quarter.

Revenue of $104 million was up 94%.

Revenue include the shimmen of tools in the second quarter that could not be delivered in the first quarter due to the later much restriction in Shanghai.

A strong product cycle from ECP and incremental business from new customers also contribute to their growth.

shimmings were 112 million compared to 82 million last year. Gross margin was 42.4% within a normal range of 40 to 45%.

Operating margin was 21.1%.

We end the quarter with 469 million of cash, equivalent and time deposit. We end the quarter with 469 million of cash, the you

For the first half of the year, revenue grew by 50%. Coneignancy was growing 27%, while ECP was growing 490%, and it contributed 20% of the sales.

Demand from our top China customer remains strong. We believe many of our customers are in the early tomato stage of multi-year expansion plants. And we see good growth of opportunity for next several years. And we see good growth of opportunity for next several years.

We had a growth share of China market with our convenient tools based on our technology, good execution, and new products.

We had incremental revenue contributions for ECP product cycle, for the both front-hand and back-hand, and with the multiple customers.

We are gaining market share in China with both ECP and advanced packaging products.

Over time, we targeted 50% of market share in Beijing, in China, and 25% in China.

Sheer gob.

We target a similar trajectory for our furnace product cycle in the coming years, and we are building a longer term opportunity with the instruction of two new product categories which are on track for later this year.

I will now highlight a few recent announcements.

April 21st, we announced that our 18 chamber, three out of<|zh|><|translate|> the meter, I'll just see six senior weaver tool, what's qualified for mass production by a mainstream memory chip manufacturing China. by a mainstream memory chip manufacturing China.

The tool provides 3% more throughput than our clock chamber tool, but with a similar footprinter and is an important tool to support higher volume production, line and one of our key memory customers. The tool provides 3% more throughput than our clock chamber tool,

We expect the 18-chumper Canadian platform to play an important role with this customer and others for 3D Matt and DREP. We expect the 20-chumper Canadian platform to play an important role with this customer and others for 3D Matt and DREP.

On July 12 we deals a new post-cmp canine tool for syiticon and cityin kabat weafer substror manufacturingrs.

This tool expands our Canadian product portfolio by serving as a Canadian step following chemical mechanical polishing. This tool expands our Canadian product portfolio by serving as a Canadian step following chemical

CMP is used in manufacturing high quality substrates.

I will now provide some highlights of a major customer initiative.

I will start with the US.

We recently delivered two ultra-C staffs, five, 12 chamber community tools to their FAF of a major US semiconductor manufacturer. In the correct way we see these are some of the newest manufacturers and nano Spect??em, with include other kits that have a Thank you.

This is a great achievement for ACM. Our technology and our North American sales and marketing operations.

We deliver the first tool in June , which our customer is evaluating based on its unique technology feature. We also deliver a second SAP 5 tool in the middle of July .

Our target is to quantify both tools and put them into production by the end of the year.

We have a staff of four science service team in the US and we now have a visiting team of engineering from Shanghai to support installation and evaluation.

We believe a success. Here could be to follow our...

with this customer at several sites and perhaps need to interest from other major customer in US and Europe .

Next, we remain engaged at the China-based facility of three larger international semiconductors.

The first is a global IDM with a China-based packaging facility. We deliver the first ultra-CTR web streaming system in Q4 2021.

followed by a second tool in Q1, and we will receive additional order for delivery later this year.

We're hopeful that a success with our first product could lead to a broader adoption of other WAP product and it's the important customer. We're hopeful that a new product could lead to a broader adoption of other WAP products and it's the important customer.

The second is a regional Asia-based semiconductor player with a China-based FAP. We deliver an ultra-ECP map, developed into two in Q1.

and the customer has began his evaluation with our service and process team.

And the third is a major global semiconductor manufacturer with China Fab. We deliver Ultra-C SAP 5, 12-chamber cleaning tool in Q2 and we are moving forward with the evaluation.

Look into second half of the year, demand for our tour is strong, and we have good visibility through year and, and we are starting to receive orders for the first half of the next year. For the first half of the next year.

We expect to start in the growth in 2020 and beyond from our core Canadian products.

The ramp of our ECB photos and increased shimms of our furnace products. The ramp of our ECB photos and increased shimms of our furnace products. The ramp of our ECB photos and increased shimms of our furnace products. The ramp of our ECB photos

We are committed to gaining additional cheer in a BDM market, addressing by all current products. ASC will use A-ROMII, to create a full camp. The Kane offers a golf stand and joint with a full sign asking a middle home for a 2x. Stingsähn sports lineup. Opening is an area of

We have two important new products.

expansion.

In Canadian, we have a sub-subacredical steel-to-try tool. And in furnace, we have ARD. Both are on track to be delivered in the second half of this year.

Furthermore, we are on track to double our addressable market opportunity with upcoming introduction of two new product categories also in the second half of this year.

Now let's discuss our capacity expansion plans.

We continue to add capacity to our trans-up facility. We move our path inventory to our third building.

friends of facility. We move with our path, inventory to our third building, which

free up additional 5,000 square meters as our second ability for final assembly.

We remain committed to grow our production capacity to $625 million this year. And our Lingdong construction project is on track.

We plan to complete the first production building in the beginning of 2023.

with initial production to start by middle year.

We are also planning on the center in Ushii and Beijing to support the several key customers.

and we are considering a more meaningful investment with the potential production facilities in South Korea.

We currently have about 100 R&D engineers supporting staff together with the production facility.

A larger presence in South Korea with meaningful production capacity will establish a local footprint near two major players.

and provided our global customer with a secondary production center, the insure continuity. With the secondary production center, the insure continuity.

Before I provide our look, I'm pleased with the progress with our new auditor.

On May 19th, we appointed PCLB compliant auditor, Amanino, as our independent public accounting firm for our first year 2022 audit. On May 19th, we appointed PCLB

On June 30th, this was ratified by our shareholders.

Following our 2022 annual auditing and finding of a 10K, we expect to be removed from lists published by the SEC pursuing to the US holding foreign company accountable actor.

I will now provide our outlook.

Web a strong order through year and

Due to a tight supply chain environment, we're keeping our outlook unchanged that the range are both physically fine to four, five million. the range of the aircraft, physically 5 to 4 or 5 million.

The range of al-Urlu consider among other factors, continue expansion of production and shipping operation in Shanghai, the recess of our unexpected interruption of our supply chain and continue demand by our customers.

Now, let me turn the call over Mark, who will reveal detail on first quarter results. Thank you very much.

Thank you, David. Good day, everyone. Please turn to slide 5.

Less I note, otherwise, I would have heard a non- GAAP financial measures, which excludes duck-based compensation and unrealized loss on trading securities.

Reconciliation of these non- GAAP measures to comparable GAAP measures is included in our earnings release.

Before I provide the normal review, I wanna address the impact of the COVID restrictions shown high on our business. Hello.

As a result of the restrictions for the first half of the year, we experienced a negative impact on revenue and shipments, and overall results were below the original plan established prior to the restrictions.

In addition, 13 tools that could be not shipped could not be shipped to customers in the first quarter of the subsequent leaf shipped in the second quarter. The subsequent leaf shipped in the second quarter.

To quantify these 13 tools amounted to $24 million in shipments and $12.9 million in revenue.

Qualitatively, we had higher operational costs and some inefficiencies across different groups during the restriction.

The restrictions did also impact our operating cash flow, primarily with the relatively high percentage of shipments in the latter half of the quarter are counts receivables.

But the easing of restrictions, we are now focused on delivering tools to meet the demands of our customers.

I'll now provide financial highlights for the second quarter.

Revenue for the second quarter of 2022, there's 104.4 million, up 93.8% from the second quarter of 2021. Up 93.8% from the second quarter of 2021.

Total shipments were 112 million versus 82 million in a year ago period.

Revenue for single wafer cleaning tools, which include SAPs, PBO, Toho, and semi-critical cleaning of 72.6 million, up 59.7%.

Cleaning mix is a percentage of total revenue with 69.5% versus 84.4% last year.

Revenue for ECP, furnace and other technologies is 20.5 million or 19.6% of sales compared to no contribution in the year ago quarter.

Revenue for advanced packaging, including ECP services and spares, was $11.3 million, up 34.6%, or 10.8% of sales, versus a mix of 15.6% last year. Growth margin was 42.4%, up from 40.5% in the prior year, which is in line with our normal expected range of 40 to 45%.

We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization.

Operating expenses for 22.3 million versus 16.1 million in the second quarter of 2021.

The majority of the increase was from R&D personnel for new product development and other factors. The majority of the increase was from R&D personnel

and increased SDN ACOS to scale the business in China and new global markets. and new global markets.

Operating income was 22.0 million versus operating income of 5.7 million in a year ago period. The large increase in operating income was due primarily to leveraging our top line. Operating margin was 21.1%, and we prayed to 10.5%

Unrealized loss on trading securities was $0.4 million in the second quarter of 2022 versus an unrealized gain of $3.8 million in the year-ago quarter.

This non-cache item is excluded from our non-gap results.

Income tax expense was $7.7 million. As described in our earnings release, the change in the US internal revenue code section 174 that went into effect on January 1st, 2022, has caused a meaningful potential increase in ACM's effective tax rate for the full year. We're still evaluating the impact of the new tax provision for 2022, and we note that Congress is considering legislation to defer the capitalization requirement to later years.

Net income attributable to ACM research was $14.6 million versus net income of $4.1 million in the year-ago period.

Net income for deluded share was 22 cents compared to net income for deluded share of six cents in Q2 of 2021.

I will now review selected balance sheet items.

Cash and cash equivalence restricted cash in time to deposit was 468.9 million at the end of the second quarter versus 533.1 million at the end of the first quarter. Total inventory was 288.1 million at quarter end up for 271.5 million at the end of the last quarter.

This included finished goods inventory of $103.4 million, work in process of $45.7 million, and raw materials of $139 million.

Next cache used in operations with $33.6 million with net income offset by an increase in accounts receivables and inventory. As mentioned previously, our receivables were higher due to the relatively higher percentage of shipments made in the latter half of the quarter as a result of the Shanghai COVID restrictions. As a result of the Shanghai COVID restrictions.

In closing, demand for our tools remain solid and our operations have returned to a more normal level. We will continue our investments in new products, new customers and capacity, as we continue forward on our mission to become a major player in the global semiconductor industry.

Now let's open the call for any questions that you may have. Operator, please go ahead.

And as a reminder, to ask a question, simply press star 1 1 on your telephone keypad. We'll be back in a moment while we compile the Q&A roster.

Our first question comes from Quinn Bolton with Neenham and Company. Please go ahead.

Hey guys, congratulations on the nice results and the strawberry recovery imaging order. David or Mark just wanted to ask my first question around the 2022 guidance. I know you're keeping it unchanged to 365 to 405. But it sounded like you said, part of the reason you're keeping it unchanged was due to supply chain constraints. And so I guess my question is, do you have the demand that could actually lead to upside and you're not changing it because of the supply chain or did I miss here your comment?

Okay, uh, Queen?

Hello? Yes.

Okay, I mean, we said that as there, you know, everybody wear that as a separate chance to continue.

I should say, still very tidy. That's the reason even we have very strong demand and OTO from customer because I was certainly of this... OTO from customer because I was certainly of this...

supply chain, that's why we're still keeping $365,000 and $405,000 of our projection for this year.

But it sounded like David, you might have actual demand that could... Would allow you to exceed that level, but you're keeping the annual target mostly because of concerns around the supply chain. Well, as I said, if a supply chain, you know, it's really a good a better, or if we have a landing item, come and deliver as we expected.

and probably can reach a high site of our projections, right? And so it's really this moment we still have some surprising, sometimes they can deliver next month, but when the time coming, they say delay. So there's a certain path holding us. Yeah. So there's a certain path holding us. Yeah.

put it this way. That's why we're still keeping this number no change.

Got it. Understood. David, second question for me, you've got a number of new platforms coming out in the second half. You've announced two of those, which are the supercritical dry and the ALD furnace tool, and then the complete new platforms. Can you talk to us, as you introduce those tools, when do you think you'd actually be able to start to rev-rec those tools? Could the supercritical dry and ALD furnace rev-rec in 2023?

or do you think the evaluations for those tools, as well as the new platforms that you haven't announced yet? Do you think that RevREC on those platforms really are gonna start to kick in for you at more in 2024? Just trying to think about the timing of these additional growth drivers. Thank you.

Actually, those tools, as I mentioned, will come on second half this year. So normally, like for this ALDE, also we have the supercritical CO2 dry, including also two new category products. And when we put in the customer side, normally take about a year, eight and a half, right, for their fully qualification. So I should say we're probably expecting real revenue to come out.

at 2024. Now you're said, thank you David. Thank you Mark.

Understood. Thank you, David. Thank you, Mark. Thank you.

One moment for our next question, please.

Our next question comes from Asujie the Silva with a Ross Capitol Police go ahead.

Hi David, I'm Mark. Congratulations on the execution challenging advice. Hi, it's really. Yeah, so just to kind of maybe elaborate on Quinn's question a little differently. I want to ask about the visibility in the sense that you had backlog you were catching up from in the first quarter that dropped in the second quarter. Is any of that still remain for the third quarter or have you kind of worked through the tools you couldn't ship during the COVID lockdown?

Okay, Margie, you want to cover that? Yes! for assembly.

There were two factors for the first half of the year. I mean, one is, you know, we had, and we did deliver all the tools we couldn't deliver in Q1, we delivered in Q2. But certainly in the first half of the year, our overall production output was impacted. Our overall production output was impacted.

You know, so no, we have not caught up with all the demand, you know, for the tools that we have from our customers, you know, the lead times for our deliveries are longer than normal. And so really if you look at the back half of a year, it's going to be about our execution on the supply chain side and our suppliers. Yeah.

Okay, thanks Mark. That helps me in a picture there. And then David perhaps, the foundries in China, SMIC and some others, are starting to be able to deliver leading edge nodes, maybe with or without EV, and they have obviously a mix of trailing and leading edge they're trying to grow into. Is there an uplift potential for your addressable market as the foundries in China try to target the leading edges more, or is that kind of nascent and maybe less of an opportunity versus what you're shipping today?

Yeah, and actually...

You're a leading-in-adjet product, right? And at this moment, I think we're real focused on the 28-nanon growth, right? A lot of the product we're seeing right now is a 45 and 28-nanon, and you know, put this way as a lot of market exists in China here, you can still use a 45-nanon and 28-nanon technology to make it a product. So we see that potential is still...

It's including cover our Canadian product, for example, where we announced AutoBench, that's mostly using for the 45-knot above. And obviously, 28-knot only allows for single wave equity. So I still see the potential going there, and our products can keep going as this fat builds up for those 28-knot and above.

Okay, great. Maybe if I could say one last quick question. On your US-based semi-cap equipment partner, any update there on the, I guess the development effort you were working with. Okay.

Yeah, as we said, we have a two tool has been delivered right to their you know, one of the major US customers and we're respecting those two tool and what we qualify publicly by end of this year and which also were dealing additional P.O. Also additional other kind of product, the interest.

Meanwhile, we're also working closely with other customers in the US and also in the Europe . I think our goal is really a global market and there is our target. So with our differential product, not in the Canadian, in the corporate team and also in the future furnace by special ARD, what's developing right now. So we see still a lot of potential.

market, you know, get the artificial product and to be, you know, penetrate into their global market.

Okay, thanks, David. Thanks, Mark. Congrats again.

Thanks for seeing. We will move on to the next question. One moment for our next question. Please.

Our next question comes from Donnie Tang with Namura. Please go ahead.

Hi, Dave and Mark. Thank you for taking my question. Can you hear me?

Yes.

I think previously our impression is like the second quarter sales may be

less than 100 million US dollar or not as high as today. But you elaborate more on it, it was mainly due to just the tools should be imposed upon from first quarter to second quarter and we probably miscalculated a couple of tools in the second quarter or it's because of some customers who want to pull in.

First in the second quarter just want to have an idea what's the mismatch in the second quarter sales result in the previous impression. Thank you.

And Mark, do you want to me cover or? Yes, I can cover that, David. Thanks, Tony, for the question. So really the.

You know, the upside in Q2.

I'd characterize that as just good execution by our factory. It really, as we discussed earlier, the customer's demand for our tools was pretty high. So we quantified how much move that we couldn't shift from Q1 into Q2. But we had pretty good output, and also on the customer acceptance side, the combination of that drove the upside for Q2.

on the stool. So sounds like it's mainly due to demand-driven, just a redden like a plaque for dic eine

Yeah, I don't really really was the demand was was there and it's there for the back half of the year. So to be clear, it was it was really the execution of our factory and we need watching.

Yeah, let me add on the, down in your comment, actually we're not pulling, we're pulling off. You know, we're still not there, we are meeting our demand in Q2 from our customer.

Some of this product had a real deal in the Q3 that's a status because you know we still lost almost April And even back to their you know a 2.1 line production in a May It's a lot of restrictions to happen for their logistic a deliver and also their clearance of the customer of Raim Marchpart

So anyway, that's the real still impact in our Q2 Reminium.

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Understood. And can I have a follow up on the four year guidance again? So it looks like we are facing some supply chain constraint or supply chain uncertainties.

Does it mainly refer to our components supply or the customer's capacity expansion on certainties? Just want to have a more clear view on what exactly means the supply chain on certainties to have some constraint to our four-year guidance.

Yeah, well, actually our customer demands they're very strong, right? And we can see that our PO has fed up this year and some PO can even go to the Q1 Q2 next year. And we can go to the Q1 Q2 next year.

Realism moment is I think the factor real, nibbita is secure some shorting or long leading parts. Of course, we're renting our production and we still need to training our stopping and manufacturing people and increase our efficiency and then deliver to them. So that's the major constraint and for our revenue, I call there...

you know, realisation. On the so could you, let us know what kind of components we are facing maybe have a much longer time. Very fairly hand, yes.

Well, I don't really touch that detail, right? You know, I have a vendor, right? Supply, if I mention what's the product, they may be not happy. Anyway, not a lot, you know, a few of them. And so we're still lacking, you know, I call their secure or their fully production capacity, either, right? I think they also, you know, supply other customers too. So it's really short age.

So we're still working very close with them and we're also working on a second source. Even at some time, we have changed our design and changed the components. And that's the strategy we're taking right now.

Understood and my second question is regarding to our progress with the customer so it looks like we have quite quite good progress in different types of equipment.

But if we want to focus on the priority of these projects or least customers could you maybe give us a more clear view on it.

which new equipment or which customers that we are more confident in winning the orders or to see a more meaningful sales contribution.

In the near term, based on the prepared remarks, you've mentioned about all these projects.

Yeah, okay, well obviously you can see

We have our first tier customer, right? Obviously, you know, this moment, one T.C. and the party hall hall, SMIC and 6MT. I'd also have another second tier jump in Vigua in Sri Lanka, right? IGPT customer in China. And also have a bunch of a second tier customer, right? In there.

That's probably, you know, it's also where I can see their growing and they're building their final line and also their pilot and the production too. So it's a lot of, I call their demand there, but as I mentioned that at the top of the five customers taking roughly probably 65% of our total revenue.

Okay, great. But just, you know, I just want to maybe to see if you could prioritize all the new projects you've just mentioned in your prepared remarks. You know, there are a lot of names there, right, like IBM companies.

Asia-based customers, etc. So just a little bit of distraction. Just want to see if you could kindly prioritize the importance of those projects or wait exactly maybe by the sales contribution time-friend, you know, bring quite the time-friend if you could. You know, bring quite the time-friend if you could.

Yeah, as I mentioned that top customer, you know, take your agent mentioned already, right? But this moment is too early for us to tell you who is number one, number two, because this is the only Q2 timeline. I will say by end of the year, we're going to publish, you know, who will be the number one, number two, right? But probably, you know, changing the ranking by the five top, I already mentioned to you, right?

And as I said, there is a SMSA, one PC, one in one home, and all the 6MT and the slide, that's a bit tough. Maybe, you know, top five top six may change depending on the end of year. So we have to give you the real number by probably end of this year, which is a Q1 and a Q4 earning connection.

Okay, great. Thank you, David. Thank you, Mark. Thanks, Tony.

One moment for our next question, please.

Thank you.

Our next question is from Edison.

Lee with Jeffries.

Hi, thank you. Hey, David and Mark, congrats on the great results. Hey, David and Mark, congrats on the great results.

I have two questions. Number one is more about demand, particularly in light of the recent talk by the U's government to step up their export restrictions of PE to China.

What do you think is the impact if that step up is going to materialize particularly on, for example, the UV, which could impact not just 14 nanometer up below, but potentially 20, 40, 55.

So that was first question.

Okay, well, as you say, we're not just by public information, we heard that is a 49 on envelope, right? We heard that is a 49 on envelope, right?

I really think anybody talked about the 28 alarm at some moment, right?

So you're looking for in the nano

And for those, I call there, they're not used any UV, they're not used any advanced, they're, you know, tool there. So I think 20 nano is still viable technology and for their a lot of application, right? And also if we pass together with advanced packaging together, that's a lot of product can make. So that's why I see a lot of fab still building China and most of them is the 28 and also 45 above.

Also, that's our major revenue come from this moment.

Of course, we also penetrate market also in China. And with that in the mind, so we want our product either, you know, Canadian, type of pretty, and also their FUNOS product for getting the more advanced applications.

in the market outside China.

But as far as you know, what do you think the Chinese customers, your Chinese customers

have started doing in response to this risk of more difficulty in buying SPE from the US? Have you seen any change in your customer strategy? Are they accelerating procurement or expanding faster? What have you seen from your customers?

Well, you know, this is the daily changing information. I really kind of come and come to them right now, maybe too early to say anything right now, right?

So yeah, it's probably I have a real nimby information to comment on my custom right now

Okay, no problem. My second question is about rising cost of materials and components, because obviously given logistic issues, inflation, we think that a lot of components and materials prices have been going up and your gross margin in the second quarter actually is higher than the first quarter. So we wonder if you have been able to pass on some of these material cost increases to your customers or... or... or...

How does that work if the material and component costs suddenly shut up?

Sorry, my sound here, not clear. Okay, repeat the question.

Yeah, it's about material cost increases and component cost increases.

Just we think that because of inflationary pressure and also because of logistical challenges, I think component costs are going up. So we wonder whether you can pass on some of those cost increases to your customers and how does the pricing work.

Great.

Okay, so we do see some parts increase price, right? Because our suppliers say components also their raw materials start changing. We do not, I should say, increase our pricing for the sale yet. Okay, but for a certain portion of their product, if it's really increased a lot, we talk to customers right now, right? Because a component equates pricing.

So this moment, I should say, our major component pricing is still not changing.

You know, we import some parts from Japan, you know, depreciation of Japanese yen, it's really not include too much pricing of their parts. But we do see some parts from Europe and from the US and get increased, right, because of their strong and the dollar. Anyway, so we see minor, I mean, there's still minor impact to us.

It's not a real much significant to our cost.

Yeah, hey, David, if you don't mind, I'd add something here.

Edison, David made a good point. The Remnant B weakened about 5% during Q2. And so a lot of our tools are priced in dollars so you don't see a big impact on revenue. And on COGS, the supply is, like David noted, some of it's in yen, some of it comes from Remnant B. And then we get the Western currency. That's pretty good.

you know, Europe and the US. So there is an impact. But overall, you know, you'd also the weaker RIMN and B, that does help out under operating expense. And B, that does help out under operating expense.

Right, so you know that certainly I'm contributed a bit and big picture are Shantai operation looks cheaper in US dollars, right? Then it would have if the expense was in dollars.

In that case, can I follow up by asking what percentage of your revenue, for example, in the future, to give an example? It's daughter based.

Yeah, it's the substantial majority. I don't think we break out the exact amount, but David, I...

Yeah, I'd say the substantial majority, but we're not going to give a percentage.

All right, okay, so basically all your Chinese customers, or the majority of your Chinese customers are.

basically buying things, you know, denominated in duest tools from you guys.

Yep, that's correct.

Okay.

Okay, that's great. Yeah, thanks a lot. Okay. Okay.

Thank you one moment for our next question, please.

This is a question from Shaoling Zhang with Credit Suisse. Please go ahead.

Thank you, this is Jollin from Credit Freeze. I have one. First is a quiz file of questions to the question that we ask. I'm curious, Mark David, that if in the case that if SEM has to change some equipment design, partial of the design of the component, does it take no time for the customers to qualify and then use your case? And then the usual case. And then the usual case.

Hey, David, are you there? I think we might have. We might have lost David.

Oh, okay. I see David there. David. He's a muted. Please unmute.

Charlie, give me one second. I'll try to call David on the WeChat just as... I'll try to call David on the WeChat just as...

to see if he's...

Is it better though? No!

Give me give me one second. I'll, I'll try to call David on the weekend just to see if

He's a better though. Alright, it's better David yet.

Okay, so can you, Mark, repeat the question?

Go ahead, Charlie, can you repeat your question? Yeah.

Yes, because earlier I think when you answered only of someone's question, you mentioned that in some cases that the company may change the little bit of the equipment design or some components inside because of the component shortage. My question is in this case, would that take all the customer me to take multi to requalify your tools with the new the style component inside? Yeah, good opinion. Can you repeat your questions? Yeah.

Yes, because earlier I think when you answered only of someone's question, you mentioned that in some cases that the company may change the little bit of the equipment design or some components inside because of the component shortage. My question is in this case, would that take all the customer me to take more time to re-qualify your tools with the new design component inside?

Yeah, good question. Actually it depends on the components what you're changing, right? If it's a very sensitive component, you have a real re-qualifying. But for say example, some flow meter, you got different vendor, different manufacturer, if they both is a real well-known manufacturer, you can change their flow meter to another kind of flow meter, right? So it's not necessary you're changing everyone. However, before you change it,

take more long time and then you will give this component now we give you a spec order you know detail I call a function function function functionality order description and when we got permission for customer then you can continue

Of course we'll do some internal tasks first, too.

Thank you.

Thank you, Debbie. My next question is, I am quite curious that for the second quarter finish course about how much for that is clean for these verses, ECP.

You mean.

The components in the EECP that are about all well now. For the inventory finish goods, so for the two customers already, but we have a book grab. I'm just curious about how much is for clean, from EECP event package.

I think most of our inventory or finished goods is still most, you know, convenient tool, right? Almost close to percentage revenue wise, you know, probably close to 70% is a convenient product and also still 20% you know, our ECP of course they have a 10% of our you know package, roughly like this. Of course we have some other new product which is um...

you know, furnace, right? We're not a cabinet right now yet. So some portion were also, you know, into their finished goods, you man got inventory.

Yeah, and my next question is on the furnace side because that's something we've been quite looking forward to since this last year, early this year. So first, would you mind sharing with us how many furnace and copper plating tools were shipped in the second quarter and first, second half of this year, about how many furnace tools would you expect to book in our revenue?

Oh man, I probably cannot give that detail number right now. But I'll tell you what, last year, plenty, plenty of pretty good ship, right? This year, I think we'll project total.

anywhere between 30, around the 30 number range.

Mm-hmm.

Total, this year. Yeah.

Okay, and by now I know there's the COVID-19 lockdown impact in China, but I'm just curious that by now because it's kind of early August already, do you view the furnace progress with multiple customers are kind of on schedule within expectation or do you view their kind of a bit of pace of the delay?

Any Mark, can you answer? I'm slightly, I'll need to bring another question. Yeah, I'm chillin. But if I understood your question, um...

We answered that on a couple of the other previous questions. The demand is still, there's some catch up for us, right? There's more demand that customers, so really, we need to catch up on to relative to the customer demand. We certainly didn't fully catch up in Q2.

And so we've got more work to do. Obviously, I understand that, but I'm just curious on the furnace size. I'm going to turn this side. I'm going to turn this side. I'm going to turn this side.

Oh, on the furnace side. Please go ahead and ask your question again, Shalyan. Make sure we understand. I'm just asking about furnace. For the furnace qualification testing, acceptance, whatever, with our memory or logic function customers.

So I'm just curious, but very nice. Do you think so far everything is on schedule? Do you feel there's a little bit of delay with one or more customers? Hi, Steve. David, did you get the question? So she's just asking if... Oh yeah, I think we're voice here very weak. And I don't know. Can you repeat the question? Yeah. I'll repeat if you can hear it. Can you hear me, David? I can hear it very well. Okay, so yeah, what she asked, she asked if the restriction...

cause any delays on the qualification of our furnace tool.

You mean the restriction for the components? No, no. The COVID-related Shanghai pandemic. Ah, okay. Actually not very much because this moment are furthest and the most portion was made in Korea and some portion made in China. So and also volume not as good as bigger as the Canadian tool, right? So it's something impact but not very much.

Maybe David, I think really she was more asking about like just the evaluation, our ability to have our services team and our customers, that at our customers to help them with the evaluation of the furnace.

So you are saying how we evaluate the tool?

Yes, as I understand it's she wanted to know if

the restrictions.

during Shanghai interrupted.

our ability or our customer's ability to evaluate.

Since you have your engineer or that engineer, you know, under, I call it the console side, right? So there's a lot going on in the past few years.

On line cus and over moment we had a shape from time, the re that maation movement.

So David, we lost your voice a little bit there. Sorry about that. David, could you have a drink? No, it's better. That's better.

lost your voice a little bit there. Sorry about that. Maybe I'm going to have to do it. Yeah. Yeah. Okay. No, that's better. That's better. Yeah. That's better. Yeah.

Now, can you? Can we continue? I think that's it, but David, maybe just answer her question one more time because your earlier answer didn't come through clearly.

Okay, I said during the COVID-19 decision period and all processes and their 70-year cannot free travel from Shanghai. And also some components we're gonna shift from Shanghai. That's why we're impacting some of our poor person's evaluation.

Got it, great. Okay, yeah, that's clear.

Operator, it looks like there are no more questions.

If you wanna pull one more time and...

Certainly, and ladies and gentlemen, as a reminder to get in the queue, simply press star one one.

We have one moment, we have people in the queue, and we have one moment for our next question.

We have a question from the line of Charlie Tan with Morgan Stanley . Your line is open.

Hey, congrats for the strong recovery, not just the revenue, but also the star prize.

So my question is about your view about the

future China K-PACs sustainability.

I know you have a very high backlog to digest, but that's some memory fab or foundry fab that you cut their K-PX recently, right? So, do you expect your new booking to slow down in the coming quarters?

And what would that mean for your maybe coming year growth? That's the first question.

Okay, actually, we didn't see any impact this year, right? I just had even some deals aiming for the Cuban Q2 next year.

And even with that, we're still talking to the key customer in China and even the next year's CEO . So as I said, the key customer are all custom China. So still in a multi-explanation, probably there and other, I should say.

They're in the middle, right? They cannot stop this way. Of course, they'll have a timing in their technology, make sure their yield and their technology is advanced to the certain point and expanding faster. But that expansion trend, I should say, is not changing. So we'll say, the obvious cycle is coming, right? We will talk about the cycle probably next year or start to decline. But I should say, the public cycle in China...

of the delays than a motorcycle. So, I have to say, year two, I feel still pretty comfortable, give it three years from now, right?

Okay, same for David, I kind of agree because there's a local sufficiency driven, right? But one said that, you know,

capacity expansion plan get completed, I think you know the cycle impact will still be there. I agree with you, you would be.

one or two years later. And my next question is maybe to Mark, it should be simpler. How soon can you be removed from the provision list from USPTC? I know you have changed the accountants, but just want to make sure, has it to be the next F10K, 20K, or from the quarterly reporting, you can be removed from the provision list? Yeah, no, thanks for asking. So as you know,

10K filing for 2022, and they're signed as the principal auditor, I guess the way it would work is we would not show up on the list again in 2022. So we can't get removed from the list that we were put on in 2021, but we wouldn't show up on the list for a second time. And that's the way it would play out. So we would not expect to be added to the list for a second time.

Therefore, we don't expect our US stock to be subject to the delisting. That could occur if you are on the list for three consecutive times.

Okay, so that event will happen maybe next April or May when you report that 10K.

That's right. It would be more likely, I guess, for us, an accelerated filer that we would expect to come out in March.

And so the list would come out, you know, folks with your business as a second time on the list, following that. And so we just simply wouldn't show up a second time on the list.

Okay, yeah, maybe just a small follow up about your new Proline is that a post at CMP Quentin is the so called a new proline or just kind of a pan that's over your current Quentin tool

Yeah actually that's the tool we have put their data variables for their substrate manufacturer company. And what do that is normally they have a CMP of the wafer and however cleaning performance from the typical CMP machine not a satisfied customer requirement. So what they do is they probably do their just simple cleaning either in July or in the West and we're connected with a community as well.

So now further we're coming in the wafer, and then the dry, whatever else. That's a possibility for the, yeah, obviously we're also designed for those 12 inch spinning away, spinning in the substrate, and also sitting the carbide substrate, right? So moving forward, give time for whether to return back as much darkness like it will eventually come back to an early very later extent, right, or that something solid on this is arriving up implementing andiff to carry on on, right? and looking down here now there, you

That's our product or any market.

So it doesn't belong to the two new power lines.

No, no, no, not just a real expansion of our own cleaning for moist.

Okay, great. It's typically the one. It's not the NB. Only the Canadian. Record there are both the NB communication. So it's a phenomenal Canadian part.

Yeah, just a wish, I mean...

Management has been saying that in the second half, you will announce a new power line. We are literally in the second half. So do you think the next quarter result, meaning three months later, you will announce that? Or in between, you probably will announce at least one of the new power lines?

Yeah, well, I mean, we really have a lot of part of the valve, right? I just make sure that I couldn't be a child who announced it first. But, you know, we have about a full part on our mind. And then we go back again. Why is the supercritical CO2 clean? Right? That's the one that's going for the DRAM, I mean, the capacity cleaning process.

And second of all, in real estate, ARD, partners, vertical partners, ARD. Then we also have a two new category, as we, you know, well, not a team name yet, but this of, you know, market their address or market, $80, as a new, new category product. And that will be all it's going to have this year.

So, okay. Yeah, it's a real, you know, exciting moment.

Okay, okay, we will be patient to that and also looking forward to the announcement. And also looking forward to the announcement.

So I will be there's an detailed housekeeping staff in our follow-up call. Thank you. Thank you. Thank you.

And thank you and that would conclude Q&A for today. I will turn the call back to David one for final remarks. I will turn the call back to David one for final remarks.

Okay, thank you operator and thank you all for participating on today's call and for your support.

And with that, we conclude our conference. Thank you for participating and you may now disconnect.

you

I have.

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ACM Research Second Quarter 2022 Earnings Conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Gary Dvorak.

that we'll reference during our prepared remarks.

On the call with me today are our CEO , Dr. David Wong, our CFO , Mark McKechnie, and Lisa Fong, the CFO of our operating subsidiary, ACM Shanghai.

Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks on certain needs that could cause actual results to differ materially. Replace for review and ?????? daughters Heh? Further surveille, and to prepare for review on the new Irwin Poteau form. From later forge a test result, First, select the?? gave our commentary.pei setting up comment suitable on 2013 We're going to open forum and review these ways to advance create all the questions So Glue Obsource will share all the ideas of true meaning that lived in previous videos until year Jesus Christ. Peace be upon us. you

Those risks are described under risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission.

Certain of the financial results we provide in this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain or loss in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website.

With that, let me now turn the call over to David Wang, who will begin with slide three. David. Thanks, Gary. Good afternoon, everyone, and welcome to ACM Research, second quarter 2022 Ernie Conference Call.

Our second quarter results represent a solid recovery following the Shanghai COVID restriction this spring. We deliver strong revenue and profitability as our facilities return to normal operations.

As we had expected on the Q1 call, the restriction turned out to be temporary.

The Chant-Twinestar facility was reopened on the closed loop production process in later April . As of July 1st, operations in Shanghai were largely back to normal. I want to sincerely thank our employees, business partners and customers for their dedication as we navigated the COVID pandemic. Let me share some financial highlights for the quarter. The revenue of 104 million was up 94%.

Revenue includes shipments of tools in the second quarter that could not be delivered in the first quarter due to the later March restriction in Shanghai.

A strong product cycle from ECP and incremental business from new customers also contribute to their growth.

Shimmons were 112 million compared to 82 million last year.

Gross margin was 42.4% within our normal range of 40 to 45%.

operating margin was 21.1%.

We end the quarter with 469 million of cash, equivalents and time deposit.

For the first half of the year, revenue grew by 50%. Continuous rules grow 27%, while ECP tools grow 490%, and it contributes 20% of the sales. And it contributes 20% of the sales.

Demand from our top China customer remains strong.

We believe many of our customers are in the early to middle stage of multi-year expansion plans, and we see good growth of opportunity for the next several years. We had a growth share of China market with our convenient tools based on our technology, good execution, and new products. We had incremental revenue contributions for ECP product cycle for both front-end and back-end, and with multiple customers.

We are getting market share in China with both the SAP and of the wrong packaging products. And of the wrong packaging products.

Over time, we target a 50% of market share in play team in China and 25%

share globally. We target a similar trajectory for our front-end product cycle in the coming years. We are building a longer term opportunity with the instruction of two new product categories, which are on track for later this year.

I will now highlight a few recent announcements.

April 21st, we announced that our 18 chamber, three out of even a meter, I'll just see six, single wafer tool, what's qualified for mass production by a mainstream memory chip manufacturing channel.

This tool provides 3D percent more throughput than our 12-chamber tool, but with a similar footprint and is an important tool to support higher volume production, lying at one of our key memory customers. We expect the 18-chamber cleaning platform to play an important role with this customer and others for 3DNet and DRAM.

On July 12, we introduced a new post-CMP cleaning tool for silicon and zinc carbide wafer substrate manufacturing.ARDIS cleaner

This tool expands our cleaning product portfolio by serving as a cleaning staff following chemical mechanical polishing.

CMP is used in manufacturing high quality substrates. I will now provide some highlights of a major customer initiative.

is used in manufacturing high quality substrates. I will now provide some highlights of a major customer initiatives. I will start with the US.

We recently delivered two Altru C-SAPF-FIND, 12-chumper-conditioning tools to their FAP of a major US semiconductor manufacturer.

This is a great achievement for ACM. Our technology and our North American sales and marketing operations.

We delivered the first tool in June , which our customer is evaluating based on a unique technology feature. We also delivered second, step 5 tool in the middle of July .

Our target is to qualify both tools and put them into production by the end of the year.

We have stopped a four-site service team in the US, and we now have a visiting team of engineering from Shanghai to support, inspiration and evaluation. The team is now in the US, and we have stopped a four-site service team of engineering and evaluation. We have stopped a four-site service team of engineering and evaluation.

We believe a success. Here could be to follow our orders with this customer at the server site. And perhaps we need to introduce from other major customers, the US and Europe . From other major customers, the US and Europe .

Next, we remain engaged at a China-based facility of three larger international prowess whenever they encounter some of the people solely and not having a manufacturers.

The first is a global IDM with a China-based packaging facility. We've delivered the first ultra-CPR web stripping system in Q4 2021.

followed by a second tour in Q1, and we receive additional order for delivery later this year. and we receive additional order for delivery later this year.

We're hopeful that a success with our first product could lead to a broader adoption of other WAP product and it's the important customer. We're hopeful that a success with our first product could lead to a broader adoption of other WAP product and it's the important customer. We're hopeful that a success with our first product and it's the important customer.

The second is a regional Asia-based semiconductor player with a China-based fab. We deliver an ultra-ECP map, developed into tool in Q1.

and the customer has began his evaluation with our service and process team. And the third is a major global semiconductor manufacturer with ChinaFab. We deliver Ultra-C SAP 5.0 12-chamber cleaning tool in Q2, and we are moving forward with evaluation.

Looking into the second half of the year, demand for our tool is strong and we have good visibility through year end and we are starting to receive orders for the first half of next year.

We expect solid growth in 2022 and beyond from our core cleaning products.

The ramp of our ECB photos and increased shimms of our furnace products.

We are committed to gaining additional share in a billion market, addressing by our current products. We have two important new products.

extension.

In Canadian, whether it's a supercritical steel-to-dry tool, and in furnace, we have ARD. Both are on track to be delivered in a second half of this year.

Furthermore, we are on track to double our addressable market opportunity with upcoming introduction of two new product categories also in the second half of this year. Now let's discuss our capacity expansion plans. We continue to add capacity to our trends of facility. We move with our past inventory to our third building, which free up additional 5,000 square meter.

as our secondary building for final assembly. We remain committed to grow our production capacity to $6.25 million this year. And our lean-down construction project is on track.

We plan to complete the first production building in the beginning of 2023.

with initial production to start by middle year. We are also planning R&D center in Wuxi and Beijing to support several key customers.

and we are considering a more meaningful investment with a potential production facility in South Korea. We currently have about 100 R&D engineers and supporting staff together with the production facility.

A larger present in South Korea with a meaningful production capacity will establish a local footprinter near two major players. A large present in South Korea with a meaningful production capacity will establish a local footprinter near two major players. A large present in South Korea with a meaningful production capacity will establish a local footprinter near two major players. A large present in South Korea with a meaningful production capacity

and provide our global customer with a secondary production center, the insure continuity. With a secondary production center, the insure continuity.

Before I provide our look, I'm pleased with the progress with our new auditor.

On May 19, we appointed PCAOB compliant auditor Amanino as our independent public accounting firm for our first year 2022 audit. On June 30, this was ratified by our shareholders.

Following our 2022 annual auditing and finding of the 10K, we expect to be removed from lists published by the SEC pursuing to the US holding foreign company accountable actor. Following the annual auditing and finding of the 10K, we expect to be removed from lists published by the SEC following the annual auditing and finding of the 10K,

Following our 2022 annual auditing and finding of a 10K, we expect to be removed from lists published by the SEC pursuing to the US holding foreign company accountable actor. I will now provide our outlook.

We have a strong order through year end.

Due to a tight supply chain environment, we're keeping our outlook unchanged that will range our boat feeding of 4-5 billion.

The range of al-Urlu consider among other factors, continue expansion of production and the sheep-peeing operation in Shanghai, the recess of our unexpected interruption of a supply chain and a continued demand by our customers. Now, let me turn the call over Mark, who will reveal detail on first quarter results. Second quarter results, Mark, please. Thank you, David. Good day, everyone. We've turned this slide five.

Lest I note, otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized loss on trading securities.

Reconciliation of these non- GAAP measures to comparable GAAP measures is included in our earnings release.

Before I provide the normal review, I want to address the impact of the COVID restrictions in Shanghai on our business.

In addition, 13 tools that could not be shipped to customers in the first quarter were subsequent lace shipped in the second quarter. In the second quarter.

Dequantify these 13 tools amounted to 24 million in shipments and 12.9 million in revenue.

Qualitatively, we had higher operational costs and some inefficiencies across different groups during the restriction.

The restrictions did also impact our operating cash flow, primarily with the relatively high percentage of shipments in the latter half of the quarter are accounts receivables.

With these easing of restrictions, we are now focused on delivering tools to meet the demands of our customers. We are now focused on delivering tools to meet the demands of our customers.

We'll now provide financial highlights for the second quarter. Revenue for the second quarter of 2022, was 104.4 million, and we'll provide about 93.8% from the second quarter of 2021. We'll provide about 93.8% from the second quarter of 2021.

Total shipments were 112 million versus 82 million in a year ago period. Revenue for single way for cleaning tools, which include SAP's Pibo Tahoe and semi-critical cleaning of 72.6 million, up at the 9.7%.

Cleaning mix of the percentage of total revenue was 69.5% versus 84.4% last year. Revenue for ECP, furnace and other technologies is 20.5 million or 19.6% of sales compared to no contribution in the year ago quarter.

Revenue for advanced packaging, including ECP services and SPIRS was 11.3 million, up 34.6% or 10.8% of sales versus the mix of 15.6% last year. Growth margin was 42.4% up from 40.5% in the prior year, which is in line with our normal expected range of 40 to 45%.

We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses for 22.3 million versus 16.1 million in the second quarter of 2021. The majority of the increase was from R&D personnel for new product development and other factors. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses for 22.3 million versus 16.1 million in the second quarter of 2021.

and increased SGA and ACOS to scale the business in China and new global markets.

Operating income was 22.0 million versus operating income of 5.7 million in a year ago period. The large increase in operating income was due primarily to leverage in our top line. Operating margin was 21.1% for greater 10.5%. Operating margin was 21.1% for greater 10.5%.

Unrealized loss on trading securities was 0.4 million in the second quarter of 2022, versus an unrealized gain of 3.8 million in the year of quarter. In the year of quarter.

This non-cash item is excluded from our non-GAAP results. Income tax expense was $7.7 million. As described in our earnings release, the change in the U.S. Internal Revenue Code Section 174 that went into effect on January 1, 2022, has caused a meaningful potential increase in ACM's effective tax rate for the full year. We're still evaluating the impact of the new tax provision for 2022, and we note that Congress is considering legislation to defer the capitalization requirement to later years.

Net income attributable to ACM research was $14.6 million versus net income of $4.1 million in the year-ago period.

Net income per diluted share was 22 cents compared to net income per diluted share of 6 cents in Q2 of 2021.

I will now review selected balance sheet items. Cash and cash equivalents restricted cash in time deposits was 468.9 million at the end of the second quarter versus 533.1 million at the end of the first quarter. Total inventory was 288.1 million at quarter end of 271.5 million at the end of the last quarter. This included finished good inventory of 103.4 million working process of 4.45.7 million raw materials of 139.9 million. raw materials of 139.9 million.

Net cash used in operations with $33.6 million with net income offset by an increase in accounts receivables and inventory. As mentioned previously, our receivables were higher due to the relatively higher percentage of shipments made in the latter half of the quarter as a result of the Shanghai COVID restrictions. In closing, demand for our tools remain solid and our operations have returned to a more normal level. We will continue our investments in new products, new customers and capacity as we continue forward.

on her mission to become a major player in the global semiconductor industry. Now let's open the call for any questions that you may have. Operator, please go ahead.

And as a reminder, to ask a question, simply press star, one, one on your telephone keypad. One moment while we compile the Q&A roster.

Our first question comes from Quim Bolton. We need him and company, please go ahead. Well, we got... Hey, guys, congratulations on the nice results and the strawberry recovery imaging recorder. David or Mark just wanted to ask my first question around the 2022 guidance. I know you're keeping it unchanged to three times.

65 to 405. But it sounded like you said, part of the reason you're keeping it unchanged was due to supply chain constraints. And so I guess my question is, do you have the demand that could actually lead to upside and you're not changing it because of the supply chain or did I miss here your comment?

OK.

Okay, Queen. Hello. Yes.

Okay, I mean, we said that, is there, you know, everybody where that is the subject chance to continue?

I should say, still very tighting. That's the reason even we have very strong demand and OPO from customer because uncertainty of this supply chain, that's why we're still keeping 365 and therefore five of our protection for this year.

But it sounded like David, you might have actual demand that could, what allow you to see that level, but you're keeping the annual target mostly because of concerns around the supply chain. Well, I said if it's a supply chain, it's really get a better, or if we have a land in the item, come and deliver as we expected, and probably can reach a high site of our...

projection. And so it's really this moment we still have some surprising, sometimes they can deliver next month, but when the time comes, there's a delay. So there's certain parts holding us this way. That's why we're still keeping this number no change.

got ununderstood. David, second question for me. You've got a number of new platforms coming out in the second half. You've announced two of those, which are the super critical dry and the ALD furnace tool. And then the complete new platforms. Can you talk to us, you introduce those tools. When do you think you'd actually be able to start to rev-reck those tools? Could the super critical dry and ALD furnace rev-reck in 2023? Or do you think the evaluations for those tools?

as well as the new platforms that you haven't announced yet. Do you think that RevRec on those platforms really are gonna start to kick in for you more in 2024? Just try to think about the timing of these additional growth drivers. Thank you. Yeah, great. Actually, those two, as I mentioned, you know, will come on second half this year. So normally, like for this ALD, also we have the supercritical CO2 dry, including also two new category products. And when we put in the customer size, normally take about a year and a half, right?

Hi David, I'm Mark. Congratulations on the execution challenging advice. Hi, it's me. Yeah, so just to kind of maybe elaborate on Quinn's question a little differently, I want to ask about the visibility in the sense that you had backlog you were catching up from in the first quarter that, trouble the second quarter. Is any of that still remain for the third quarter or have you kind of worked through the tools you couldn't ship during the COVID lockdown?

Okay, Margie, you want to cover that? Yeah, sure do, hey, 3G, sit, phone.

There were two factors for the first half of the year. We did deliver all the tools we couldn't deliver in Q1, we delivered in Q2. But certainly in the first half of the year, our overall production output was impacted. For more information, visit www.potterybarn.com

You know, so no, we have not got up with all the demand, you know, for the tools that we have from our customers, you know, the lead times for our deliveries are longer than normal. And so really if you look at the back half of the year, it's going to be about our execution on the supply chain side and our suppliers. Yeah.

Okay, thanks Mark, that helps me in a picture there. And then David, perhaps the Foundaries in China, making some others are starting to be able to deliver leading edge nodes, maybe with or without UV, and they have obviously a mix of trailing and leading edge to try and grow into. Is there an uplift potential for your dressable market as the Foundaries in China try to target the leading edge more or is that kind of nascent than maybe less of an opportunity versus? And then maybe less of an opportunity versus?

Okay, thanks Mark, that helps me in a picture there. And then David, perhaps the Foundaries in China making some others are starting to be able to deliver leading edge nodes, maybe with or without UV. And they have obviously a mix of trailing and leading edge to try and grow into, is there an uplift potential for your dressable market as the Foundaries in China try to target the leading edge as more or is that kind of nascent and maybe less of an opportunity versus what you're shipping today.

Yeah, and actually, you're a leading edge product, right? And at this moment, I think we're real focused on the 28-nanon graph, right? A lot of product. We're still right now in the 45 and 28-nanon. And you know, put this way as a lot of market exists in China here. You can still use the 45-nanon and 28-nanon technology to make it the product.

So we see that the potential is still tremendous. It's including our convenient products, for example, where we're not on the bank, that's mostly using for the 45 amount above. And obviously, 20 and not only a lot of single wave of cutting. Right. So I still see the potential going there. And there are products that can be, you know, keep going as this, you know, fat build up and for those there.

tiny amount on the bus. Okay great maybe if I could take it one last quick question on your US-based semi-cap equipment partner any update there on the I guess the development effort you were working with? Thanks.

Yeah, as we said, we have a two-two has been delivered, right? To their, you know, one of the major US customers. And we're respecting the two, two of, and we'll be qualified, publicly by end of this year, and which also were dealing with additional PO, also additional other kind of product, the interest. And meanwhile, we're also working closely with other customers in the US, and also in Europe , right? I think our goal is really...

a global market and there is our target. So, without the official product, not in the Canadian, in the corporate team and also in the future furnace, by special ARD, what's developing right now. So, we see still a lot of potential market, get our official product and to be penetrated into their global market.

Okay, thanks, David. Thanks, Mark. Congrats again. Thanks, J.C. One moment for our next question, please.

Thank you, Mark. Congrats again. Thanks, Tissue. Thank you, Mark.

Our next question comes from Donnie Tang with Namura. Please go ahead.

Hi David Mark, thank you for taking my question. Can you hear me? Yes. Yes.

I agree on the strong results. I think first question is still regarding to the second quarter result. I think previously our impression is like the second quarter sales may be less than one remaining your salary or not as high as today. But you elaborate more on it was mainly due to just the force should not be postponed from first quarter to second quarter and we probably miscalculated.

You know, the upside in Q2.

You know, I'd characterize that as just good execution by our factory. And really, you know, as we discussed earlier, it's, you know, the customers demand for our tools was pretty high. So we quantified how much, you know, put in a move that we couldn't shift if you wanted to cue two. But we had pretty good output and also on the customer acceptance side, and the combination of that.

that drove the upside for Q2. On the stool. So sounds like it's mainly due to demand-driven red and just red and like the noise and the contam ?? because it's real communication.

No, yeah, I don't he really really was the demand was was there and it's there for the back half of the year so um to be clear it was it was really the execution of of our factory and we need watching.

Yeah, let me add on the Darni your comment actually will not pull in will pull off, you know We're still not there real means our demand in a Q2 from our customer

Some of this product had a real deal in the Q3 that's a status because you know we still lost almost April And even back to their you know a two-point one-line production in a May It's a lot of restrictions to happen for their logistic a deliver and also their clearance of the customer of the East ??. of the Intordapart.

So anyway, that's the real still impact in our Q2 Reminium and the Shimmond.

I'm just... and cannot have a follow-up on the 4-year guidance again so it looks like we are facing some supply chain and a constraint or supply chain on certainties

Does it mainly refer to our component supply or the customer's capacity expansion on certainties? Just want to have a more clear view on what exactly means the supply chain on certainties to have some constraint to our four-year guidance? Yeah, well actually our customer demands they're very strong, right? And we can see that our PO...

as a fade-up this year and some TO even go to the Q1 and Q2 next year. Really this moment is I think the factor that really inhibits us is you know, secure some shorting or long-living parts. Of course, we're renting our production and we still need to train our staffing and manufacture people, increase our efficiency and then deliver it to them. So that's a major constraint and for our revenue. I call the

you know, realisation. On the so could you, let us know what kind of components we are facing maybe have for much longer time. So, could you give us some examples.

Well, I don't really touch that detail, right? You know, I have a vendor, right? Supplier, if I mentioned what's the product, they may be not happy. Anyway, not a lot, you know, a few of them, and so we're still lacking, you know, our quarter secure or their fully production capacity either, right? I think they also, you know, supply other customers too, so it's really shortage.

So we're still working very close with them and also we're also working with second source. Even at some time we have changed our design and they're changing the components and that's the strategy we're taking right now. Understood and my second question is regarding to our progress with the with the pastime so it looks like we have quite quite good progress in different type of equipment.

But if we want to focus on the priority of these projects or these customers, could you maybe give us a more clear view on?

which new equipment or which customers that we are more competent in winning the oldest or to see a more meaningful sales contribution.

in the near term, based on the preparing marks, you mentioned about all these projects. Thank you.

Yeah, okay. Well obviously you can see we have a first-tier customer, right? Obviously, you know, this moment, one T.C. and the party hall hall SMIC and the 6MT. I don't have another second tier jump in big one in Sri Lanka, right? I GPT customer in China. And also have a bunch of a second tier customer, right? In there, that's their property.

It's also where I can see their growing and they're building the final line and also their pilot and the production too. So it's a lot of, I call their demand there, but as I mentioned that at the top of the five customers taking roughly 65% of our total revenue.

Okay, great, but just you know, I just want to maybe To see if you could prioritize all the new projects you You you've just mentioned in your preparing marks, you know, there are lots of the names They are like IDM companies, Asia-based customers, etc. So just just a little bit distraction just want to

see if you could kindly prioritize the importance of those projects or wait exactly maybe by sales contribution time-time friend, you know, rank by the time-friend if you could. Yeah, well, as I mentioned at top customer, you know, take your, I just mentioned already, right? But this moment is too early for us to tell you who is number one, number two, because this is the only Q2 timeline. I will say by any year, we're going to publish, you know, 4v1, number two, right?

Thank you.

Okay, great. Thank you, David. Thank you, Mark. Thank you. Thanks, Diane. Thank you. Thanks, Diane.

Okay, great. Thank you, David. Thank you, Mark. Thank you. Thanks, Diane. One moment for our next question, please.

Our next question is from Edison.

Lee with Jeffries? Hi, thank you. Hey, David and Mark, congrats on the great results. I have two questions. Number one is more about demand, particularly in light of the recent talk by the US government to step up their export restrictions of SPE2 China.

What do you think is the impact if that step up is going to materialize particularly on, for example, the DUE, which could impact not just 14 nanometer up below, but potentially 20, 40, 55.

The impact step up is going to materialize particularly on, for example, DUE, which could impact not just 14 nanometer or below, but potentially 208, 4055. So that's my first question.

Okay, well, as you say, we're not just by public information, we heard that is a 14-nanon envelope, right?

And I really, I think I've talked about 28 anomalies a moment, right? So you're looking for an unknown.

And for those, I call there, they're not used any UV, they're not used any advanced, they're, you know, tool there. So I think 20 nano is still viable technology and for their a lot of application, right? And also if we pack together with advanced packaging together, that's a lot of product can make. So that's why I see a lot of fab still building China and most of them is the 28 and also 45 above.

And also that's our major ruminial come from this moment.

Of course, we also penetrate market also in China. And with that in mind, so we want our product either, you know, Canadian, type of treaty and also their furnace product for getting the more advanced application.

in the market outside China. But as far as you know, but what do you think the Chinese customers, your Chinese customers have started doing in response to this risk of more difficulty in buying SPE from the US? Have you seen any change in your customer's strategy at the accelerating procurement or expanding faster? What have you seen from your customers? Well, you know, this is the daily change in information.

the first quarter. So we wonder if you have been able to pass on some of these material cost increases to your customers or how does that work if the material and component cost at least share them. So

Sorry, my sound here is not clear. Can you repeat the question? Yeah, it's about material cost increases and component cost increases. Just we think that because of inflation, the rate pressure.

And also because of not just the gochadenges, I think component costs are going up. So we wonder what do you can pass on some of those cost increases to your customers? And how does the pricing work? Great.

Okay, so I would do see some in parts increased price, right? Because of the, you know, our supply say components, also their raw material start changing. We do not their, I should say, increase up pricing for the sale yet, okay? But for the certain portion of their product, if it's real increased a lot, then we're talking to customers right now, right? Because the component is increased pricey. So this moment, I should say, are in major.

Components prices didn't do no changing You know what import there are some parts from Japan, you know Deficiation of the Japanese again. It's real not include too much pricing of their parts But we do see some parts from Europe have front US and get increased right because of their strong and the dollar Anyway, so we see minor I mean it's still minor impact class

It's not a real much significant to our cost. Yeah, hey David, if you don't mind I'd add something here. Yeah, hey David, if you don't mind I'd add something here.

Edison, David made a good point. The Remnum B weakened about 5% from Q2. So a lot of our tools are priced in dollars, so you don't see a big impact on revenue. On COGS, the supply is, like as David noted, some of it's in the end, some of it comes from Remnum B. and then we get the Western current, the Europe and the US. So there is an impact.

But overall, you know, it also, the weaker RIMN and B does help out in our operating expense. The RIMN is a very important part of our operating expense. The RIMN is a very important part of our operating expense. The RIMN is a very important part of our operating expense.

So, you know, that's certainly, I'm contributed a bit. And a big picture, our Shanghai operation looks cheaper in US dollars, right? Then it would, if, you know, if the expense was in dollars.

In that case, I'll follow up by asking what percentage of your revenue?

For example, in 2Q, 2Q as an example, is stored up based.

Yeah, it's the substantial majority. I don't think we break out the exact amount, but David, yeah. Yeah.

I'd say this is a standard majority, but we're not gonna give a percentage. All right, okay. So basically all your Chinese customers, all the majority of their Chinese customers are. All right.

Basically buying things, you know, denominated in US dollars from you guys.

Yeah, that's correct. Okay. Okay, that's great. Yeah, thanks a lot. Okay.

Thank you one moment for our next question please. Come from Shaolin, Sang with Credit Twist please go ahead.

Thank you, this is Dalian from Credit States. I have one. Our first is a quiz file of questions to the question that don't we ask? I'm curious, Mark David, that if in the case that if SEM has to change some equipment design, partial of the design or the component, does it take no time for the customers to qualify and then the usual case?

David, are you there? I think we might have a little lost David.

Oh, okay. I see David there. David. He's a mute it. I'm not a mute. I'm not a mute.

Carl, give me one second. I'll try to call David on the WeChat just as...

to see if he's there. Is the better though. Call you give me one second. I'll try to call David on the weeks ahead just to see if he's there. I'll try to call you. Call you.

He's a better now. All right, it's better, David yet.

Okay, so can you, Mark, repeat the question?

Can you, Mark, repeat the question? Go ahead, Charlie, on to the...

Can you repeat your question? Yes. Because earlier I think when you answered only of someone's question, you mentioned that in some cases that the company may change the little bit of the equipment design or some components inside because of the component shortage. My question is in this case, would that take all the customer me to take more time to re-qualified your tools with the new textile component inside? Yes.

Yes, because earlier I think when you answered only of someone's question, you mentioned that in some cases that the company may change the little bit of the equipment design or some components inside because of the component shortage. My question is in this case, would that take all the customers to take more time to requalify your tools with the new textile component inside? Yeah, good question.

actually depends on the components what you're changing, right? It's, it's a very sensitive component. You have a real, re-qualified, and but for the example, some follow-meater, you got different vendor, different manufacturer. If the boss is a real well-known manufacturer, you can change their, you know, follow-meater to another kind of follow-meater, right? So it's not necessary you're changing everyone. Before you change it, you have to be a talk to customer.

And also, customer has also their experience about the components or the parts we're gonna change. So when we reach the agreement, then we're gonna change it. That's the normal process we do. So actually, before we change, we need to get there kind of up. Yes, we have to know how to, right? We tell them, hey, if this component you want it, it's taking more long time. And then if we give this component, then that would give you a spec or the detailed.

I call a function function function, functionality or the description. And when we got permission for customer, then you can change it. And then you can change it. then you can change it.

Of course, we'll do some internal tasks first, too. Thank you, Debbie. And my next question is, I'm quite curious that for the second quarter finish goods, about how much for that is clean, for these verses, ECP. Thank you for your new verses, ECP.

We'll do some internal tasks first, too. Thank you, Debbie. And my next question is, I'm quite curious that for the second quarter finish goods, about how much for that is clean, firmly versus ECPP. You mean...

The components in the EECP, you thought about all that? Well, for the inventory finish goods, so for the two customers already, but we have a good wrap. I'm just curious about how much is the clean, furnished EECP advantage? I think most of our inventory or finished goods is still most, you know, convenient for, right? Almost a curse of percentage.

Our revenue wise, you know, probably close to 70% is a convenient product and also still 20% are ECP. Of course, they have a 10% of our package, roughly like this. Of course, we have some other new product, which is, you know, furnace, right? We're not a cabinet revenue yet. So some portion were also, you know, into their finished goods, you know, inventory. downtown Washington, same to our time, Thank you.

And then the next question is on the furnished side because that's something we've been quite looking forward to since last year, this year. So first, what you might share with us, how many furnished couples that are in the second quarter, and first second half of this year, about how many furnished tours, would you expect your book in our revenue?

Oh man, I probably cannot give that detail number right now. But I think last year, 20, 20, a pretty good ship, right? This year, I think we'll project total.

Anywhere between 30, around 30 number range?

between 30, around 30 number range. OK. Right there. Yeah.

Okay, and by now I know there's the COVID-19 infection in China, but I'm just curious that by now because it's kind of early August already, do you view the furnace progress with multiple customers, kind of on schedule within expectation, or do you view the other kind of a bit of data of the delay?

Once again you now are campus. motivo question. you

We answered that on a couple of the other previous questions. The, you know, the demand is still, there's some catch up for us, right? There's more demand that, you know, customers, so really, we need to catch up on, to relative to the customer demand. It's, we certainly didn't fully catch up in Q2. We've got more work to do.

Oh yes, Mark, I understand that, but I'm just curious on the furnished side. On the furnished side, please go ahead and ask your question again, Charlie, on the link, make sure we understand. So I'm just asking about furnished, so for the furnished qualifications, testing, assessment, whatever, with our memory or logic or function, so I'm just curious what furnace, do you think so far everything is on schedule?

Do you feel there's a little bit of delay with one or more customers? Hi, Steve. David, did you get the question? So she's just asking if... Oh, yeah, I think we're voice here very weak. And I don't know. Can you repeat the question? Yeah. I'll repeat if you can hear it. Can you hear me, David? I can hear it very well. Okay, so yeah, what she asked, she asked if the restriction caused any delays on our, you know, the qualification of our furnace.

of our furnace tool. You mean the restriction for the components? No, no. The COVID related Shanghai. Ah, okay. Actually not very much because this moment are furthest and the most portion was made in Korea and some portion made in China. So and also volume not as good as bigger as the Canadian tool, right? So it's some impact but not very much. Maybe David, I think really she was more asking about like just the evaluation.

You know, our ability to have our services team and our customers, that at our customers, seeing it to help them with the evaluation of the furnace. So you are saying how we evaluate the tour?

to have our services team and our customers, that are customers, seeing it to help them with the evaluation of the furnace. So you're saying how we evaluate the tool? Yes, as I understand it.

She wanted to know if the restrictions during Shanghai interrupted...

Our ability or our customer's ability to evaluate.

You know, I hope it comes to a tie, right? I hope it comes to a tie, right? Because there's a lot of people here and a lot of people here. I hope it comes to a tie, right? I hope it comes to a tie, right? I hope it comes to a tie, right?

on live and the question and also we want to perform a sheet on top of the back of the information movement. David, we lost your voice a little bit there. Sorry about that. Maybe Dave, could you add more again? Okay, now it's better. That's better. Yeah, not real.

Can we continue? I think that's it, but David, maybe just answer her question one more time because your earlier answer didn't come through clearly. Because your earlier answer didn't come through clearly.

Okay, I said, a junior COVID-19 decision period and all processes and their second year cannot free travel, right, from Shanghai. And also some components we're gonna ship from Shanghai. That's why we're impacting some of our tool of foreign evaluation in carbon fiber. Got it, great. Okay, yeah, that's clear.

Operator, it looks like there's no more questions. But if you want to pull one more time and...

Certainly, and ladies and gentlemen, as a reminder to get in the queue, simply press star 1 1.

We have one moment, we have people in the queue, and we have one moment for our next question.

We have a question from the line of Charlie Tan with Morgan Stanley . Your line is open. Hi, David. Hey, Mark. I'm not in. And, hey, congrats for the strong recovery. Not just the revenue, but also the start price. So my question is about your view about the future China care packs, sustainability.

I know you have a very high backlog to digest, but some memory fab or foundry fabs have cut their capex recently, right? So do you expect your new booking to slow down in the coming quarters?

And what would that mean for your maybe coming year growth? That's the first question.

Okay, actually we didn't see any impact this year, right? I just said even from the CEO's thinking for the Q1, Q2 next year, and even with that we're still talking to their key customer in China and even the next year's CEO . So as I said, the key customer all comes from China. So still a multi-year expansion. Probably there are not there, I should say.

They're in the middle, right? They cannot stop this way. Of course, they have the timing, the technology, make sure their yield and their technology is advanced to the certain point and expanding faster. But that expansion trend, I should say, is not changing. So, we'll say, the obvious cycle is coming, right? We can talk about the cycle of poverty next year or start to decline. But I should say, the poverty cycle in China will be delayed, then it will work back.

So, I think, you know, year two, I feel still pretty comfortable, even three years from now, right? Mm-hmm. Okay, same state of it, I kind of agree, because it's a local sufficiency driven, right? But one said, you know, capacity expansion plan gets completed. I think, you know, the cycle, cycle in table will still be there, but I, I, I, I, I, every would do you

one or two years later. And my next question is maybe two to mark, it should be simpler. How soon can you be removed from the provision this from USAID? I know you have changed the accountants, but that's one to make sure happy to be the next 10-K , 20 K, or from the query reporting you can easily move from the...

full of each and each. Yeah, no thanks. Thanks for asking. So as you know, we were put on the list, the conclusive list actually, following the filing of our 2021 10K. And so we showed up on a list for the first time as a result of that. Now that we've appointed a US-based auditor, PCOB compliant, and after they've...

you know, we've completed our 10K filing for 2022, and you know, they're signed as the principal auditor. I guess the way it would work is we would not show up on the list again in 2022. So we can't get removed from the list that we were put on in 2021, but we wouldn't show up on the list for a second time. And that's the way it would play out. So we would not expect to be added to the list for a second time. And therefore we don't expect our.

US stock to be subject to the delisting that could occur if you're on the list for three consecutive times.

Okay, so that event will happen maybe next April or May when you report that 10k. Okay, so that event will happen maybe next April

That's right. It would be more likely, I guess, for us, accelerated filer. We would – the 10-k UK would expect it to come out in March. And so the list would come out. Folks would show up as a second time on the list following that. So we just simply wouldn't show up a second time on the list.

Okay, yeah, maybe just a small follow up about your new Proline is that a post at CMP? Qwennian is the so-called a new proline or just kind of a pan Deathieldly-O samma ch Hope Evil

Yeah, actually that's the tool I have put their data available for their Substriger manufacturer company like and what do that is normally they have a CMP of the wait for and however a Performance from the typical CMD machine not a satisfied Requirement so what they do is they you know probably do their just simple community Either in the trial in the west

Then we connected the community as well. So then further we couldn't even, the way for a man to drive, whatever hours. That's a possibility. Yeah, obviously we're also designed for there's 12 inch sitting in the substrate and also sitting the carbide substrate, right? 16 inch eight inch. That's our product, you know, Amy Mach.

So it doesn't belong to the two new power lines. No, no, no. That's just a real expansion of our cleaning portfolio. Okay, great. It's not CMB, only Canadian. We call it post-CMB cleaning application. So it belongs to Canadian Power.

Yeah, just that would be sure. I mean, I mean, measurement has been saying that in second half, your announced a Q and E product were literally in the second half. So do you think the next quarter result I mean in three months later, your announcement or in the between you probably will announce the... Or in a between you will probably will announce the...

Yeah, just a wish. I mean, I mean, management has been saying that in the second half, you announced that two new power lines were literally in the second half. So do you think the next quarter result, meaning three months later, you will announce that or in between you, you probably will announce at least one of the new power lines.

Yeah, well, I mean, we really have a lot of part of the valve of my engine, make sure that I couldn't be a a little bit of a nonsense person. But, you know, we have about a full five on the line. And then we go back again. Why is the super critical CO2 plea? Right, that's the one thing we go for the DRAM, I mean, the capacity of the community process. And second of all, in real, the ARD, for the vertical for the ARD. Then we also have a two new category. And we, you know, I'm not a human in yet.

but this market they're addressing, market, $80 as a new, new, new, category product. And that will be all it is going to have this year. And that will be all it is going to have this year.

So, okay. Yeah, it's a real, you know, exciting moment. Okay, okay. We will be patient to that and also looking forward to the announcement.

So I will leave that on detail housekeeping stuff in our follow-up call. Thank you. Thank you. Thank you. And thank you. And that would conclude Q&A for today. I will turn the call back to David Wan for final remarks. OK. Thank you, operator. And thank you all for participating on today's call and for your support. And with that, we conclude our conference. Thank you for participating. Thank you.

Q2 2022 ACM Research Inc Earnings Call

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