Q2 2023 ACM Research Inc Earnings Call

We will reference during our prepared remarks.

On the call with me today are our CEO , Dr. David Wang our CFO , Mark Mckechnie, and Lisa Thank CFO of our operating subsidiary ACM Shanghai.

Before we continue please turn to slide two let.

Let me remind you that remarks made during this call may include predictions estimates and 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 and uncertainties that could cause actual results to differ materially.

Those risks are described under the risk factors and elsewhere in Acm's filings with the SEC.

Please do not place undue reliance on these forward looking statements, which reflect acm's opinions only as of the date of this call.

<unk> is not obliged to update you on any revisions to these forward looking statements.

Certain.

The financial results that we provide on this call will be on a non-GAAP basis, which excludes stock based compensation and unrealized gain loss and trading securities.

Our GAAP results and reconciliations between GAAP and non-GAAP amounts. Please refer to our earnings release, which is posted on the IR section of our website and slide 12.

Let me now turn the call over to David Wang who will begin with slide three David.

Thanks, Joe Hello, everyone and welcome to Acm's second quarter 2023 earnings Conference call.

Please turn to slide three.

For the second quarter revenue was 144 6 million.

Offer a 39% from the same quarter last year.

Human where and if it is $3 million upper 37% from the same quarter last year.

Gross margin was 47, 6%.

And already the margin was 22, 4%.

We achieved record revenue and EPS as our operating and industrial supply chain.

<unk> returned to a new normal.

Following several years of coli related disruption.

This result was driven by strong mature node.

Our China customer.

Market share gain and the penetration of a new product a new customer.

Let me touch on each of this beginning with <unk>.

Mature note investment in China.

Last year following the U S. China trade restriction from in luxury analyst predictor of China.

The market will be declined dramatically.

At the time, we predict a fairly quicker shift to spending our mature nodes in China.

After I expect that the pulse as industrial adjusted to the new.

Explore regularly regulations, our prediction appear to be playing out as we announced the.

Broader assigned that China is indeed speed up is the capacity expansion in mature nodes.

This is a driving by the substantial gap between China's mature nodes capacity.

<unk>.

<unk> market consumption.

We see continuing investment in front Ada mono.

And 45, nano and above front and the fiber capacity.

We also see the ramp up of EV production in China as a driver of China base investment in both power devices and other 10, 8% to 45 nano devices.

This creates a good tailwind for US now that we believe is still in the early stage in China intensifying effort to boost is a domestic or a semiconductor capacities.

Capabilities, we believe we are well positioned to benefit and a further increase our market share due to our strong market position, leading differentiated technology and a broad multi product portfolio.

Moving to products, please turn to slide four.

Single wafer clean Powell and semi critical cleaning grow 55%.

In the last few years, we can still see and we began ramping our sem critical product line, including <unk> and then last year introduced viable edge or on a high temperature SPM tools.

Over past quarter lease deals supercritical seal to dry.

Now <unk> is one of the broadest cleaning product portfolio in the industry.

Nearly 90% of all Canadian process staff.

We believe this.

Part of portfolio will play a key role among mature nodes the available in China and advanced nodes in our international effort going forward.

ECP furnace and other technologies.

<unk> declined 7% due to quarterly fluctuations however for the first six months of 2023, ECP furnace and other technology grow 40% year over year.

Growth in this category was driven primarily by ECB product cycle with some contribution from <unk>.

Our higher temperature, Aneel, and LPL, CVD furnace, including sitting in <unk> and party and <unk> have.

Expanded multiple customer and.

Under evaluation.

Advanced packaging is crude at ECB service and spell grew 14% in Q2 and 58% year over date.

This category includes a range of packaging tools, including colder developer swap scrubber peer schrieber and wet.

And our service and spare parts.

ACM is the only company that offers both a full set of web tools.

And advanced plating tool.

We believe advanced packaging will become more important as the industrial it looks for packaging innovations such as two five D. <unk>.

<unk> in the <unk> and the fan out to drive a higher performance for new applications, such as AI and at GBT.

Finishing up on products, we continue to make good progress on sales efforts with a new track on the <unk> platform.

Well.

Active discussion with a key customer and we have plan to deliver more evaluation tools. This year.

Similar to our meaning <unk> and <unk> product line or track on the <unk> platform.

Proprietary technology that we believe we're making them when there was a major customer in both in China and outside China.

Moving onto customer please turn to slide five.

We continue to make progress on customer both inside China and internationally.

In China, we believe ACM tools are now used by nearly all of the semiconductor manufacturers.

Our sales and service team are working to expand there.

The deployment of each of our major product lines across our growing customer base.

In addition to our current customer we're also seeing a good number of were founded or new entrants.

Our.

Team has done a good job of getting good traction for our product with this the customers.

Is this a new customer.

Ill be reflect in our shipment this year.

<unk> customer acceptance at a later date.

Also as some of you may have heard on.

On July plenty of FERC was 103 haul home semiconductor a greater strategic customer announced their pricing, obviously, Shanghai star market IPO unexpected to have started treating assume that.

Total proceeds were $21 2 billion RMB or approximately the 3 billion U S dollar.

In the U S operation at our key customer is progressing well and we remain optimistic for qualification later this year.

In Europe , we announced an order for our first evaluation tool from a major semiconductor manufacturer in the first quarter of this year. The tool is a plan to deliver in early Q4.

And we are beginning to build a local service team to support effort.

To support our growing in each agents will continue making progress.

The facility expansion in China, and other regions. Please turn to slide six.

In China construction of a lean down production and R&D Center is nearly completed and expected to begin initial production later this year.

In Korea as noted in prior calls we have increased our commitment in this region. We believe our strong commitment to Korea will improve or reduce ship with our key customer SK hynix and others in.

In Q1 of this year, we completed the purchasing our land in the high Tech area all of that in China as a site for our new R&D and production center.

In the U S is lower than last quarter released a facility in Oregon to add to our service support and the demonstration capability for R&D and customer activities in the region.

As a reminder.

For 2023, we expect to spend about 300 million Capex. This includes continued investment in income facility re modeling for a new headquarters for ACM, Shanghai and all other investment in Korea, and the U S.

I will now provide our outlook for the full year 2023.

Turn to slide the mine.

We are.

Firm R 22023 revenue outlook to be in the range of 515 to 585 million U S. Dollar.

The range of our outlook reflects among other things management's current assessment of the continuing impact from their international trade policy together with <unk> expect our spending in a scenario of a key customer supply chain constraint and the timing of acceptance for the <unk>.

First tool on the evaluation in the field.

Now, let me turn the call over to our CFO , Mark who are revealed detail our second quarter results Mark. Please.

Thank you David and good day, everyone. Please turn to slide 10, unless I note, otherwise I will refer to non-GAAP financial measures, which exclude stock based compensation and unrealized losses on trading Securities reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.

Also unless otherwise noted the following figures refer to the second quarter of 2023.

Comparisons are with the second quarter of 2022.

I'll now provide financial highlights for the second quarter revenue was $144 6 million up 38, 5% total shipments were $153 4 million up 37% revenue for single wafer cleaning tools of semi critical cleaning was $112 5 million up 55%.

For ECP furnace and other technologies with $19 1 million down six 7% for the first six months of 2023. This category grew by 39, 6%.

The prior year period revenue for advanced packaging, including ECP service spares was $12 9 million up 14, 3% gross margin was 47, 6% up from 42, 4%. This exceeded our normal expected range of 40% to 45% the increase in gross margin was primarily.

Due to a favorable product mix.

Improved gross margins for specific product lines, and a favorable impact from fluctuations in remnant beat to U S. Dollar exchange rate, we expect gross margin to continue to vary from period to period due to a variety of factors such as sales volume product mix and currency impacts.

Operating expenses were $36 3 million up from $22 3 million. The increase was due to higher R&D sales and marketing and G&A costs in support of our new customer and new product activities and a boost in the post COVID-19 trouble.

Operating income was $32 4 million up from 22.1 billion operating margin was 22, 4% up from 21, 1%. We recorded a realized gain of $3 9 million from the sale of trading securities for the quarter recall that realized gains are included in the non-GAAP earnings.

Income tax expense was $7 6 million down from $7 7 million recall that as a result of the change in section 174 of the U S. Internal revenue code our effective tax does remain elevated primarily due to the requirement to capitalize and amortize previously deductible research and experimental expense.

Yes.

Net income attributable to ACM research was $31 3 million up from $14 6 million.

Net income per diluted share was <unk> 48 up from 22.

Now I'll review, some selected balance sheet items cash and cash equivalents restricted cash and time deposits were $376 1 million at the end of the second quarter versus $381 7 million at the end of the first quarter.

Total inventory was $471 1 million at the end of the second quarter generally flat versus the end of the first quarter.

Capital expenses for the second quarter were about $6 7 million.

I will now provide an update on our auditor on July 21, 2023, our Muni no informed us that it will resign as our independent auditor effective as the earlier of a when we engaged a new auditor or beat the filing of this year's third quarter 10-Q report. They advised US this was due to their decision to exit from the practice of providing.

<unk> financial statement audit services to all public companies as a result, our audit committee has begun the process to select and appoint a new auditor.

We filed an 8-K with the full details on July 27, 2023, and I would note that we've also seen a number of similar filings from other <unk> clients.

Regarding the search for a new auditor and we are considering several options, including U S and China based auditors.

That concludes our prepared remarks now let's open the call for any questions that you may have operator. Please go ahead.

As a reminder to ask a question. Please press star one one on your telephone.

<unk> for your name to be announced.

Please standby, while we compile the Q&A roster.

The first question comes from Quinn, Bolton with Needham and company. Your line is open.

Hey, guys. Congratulations on the very strong second quarter results I guess kind of a big picture question for the second half of the year I know you are not.

Increasing your 2023 guidance, but.

Since youre not increasing the guidance it looks like revenues may flatten out or at least grow at a much much slower rate in the second half how are you thinking about the second half, which was the second quarter really that sort of COVID-19 supply chain catch up and do you see more normalization now or just any thoughts you could share on that on the second.

Half.

Or the shape of revenue in the second half would be helpful.

Yes ill get clean in general actually in looking at the last couple of year or second half year or has joined in their first year first half of the year.

And that trend would probably continue.

And regarding to the.

Supply chain I should say is much better than last year, while still feel some won't components get a constraint.

I'm thinking maybe the second half of this year are going to improve further and for our supply chain.

Mark anything you want to add on.

Yes, you bet.

Quinn.

Our overall outlook, obviously, we factor in.

We're looking at a flattish overall capex for overall, China I think there's a lot of debate about that but we see better growth from our new products share gains in new customers.

A first half second half I mean, you can look at the numbers, but it's about 40%, 60% and so.

So we'd expect Q3 to be up.

Pending on where the year plays out that Q4 could be down which is a normal type seasonality for us yes.

Got it so sort of perhaps a return to more of a.

Down fourth quarter.

Post a couple of years of Covid, where I think seasonality, which was largely at the window.

Got it second question just more for you on the Auditor I know that this has been a thorn in your side for probably a couple of years now to the extent that you select to China based auditor.

Can you just sort of walk us through I believe theres now.

A process in place where.

<unk> has oversight of Chinese based auditors and so just like China that shouldnt have any impact on your listing status in the U S.

I know it's been a.

Subject to raise lots of questions. So can you just walk us through that the latest.

Implications, Steve to the extent you do.

Select to China based auditor. Thanks, Yeah, you bet. Thanks for that question.

So I think as you know last.

Last year, we did.

The cutover to our menino as a U S based auditor they completed a good audit for our 2022 signed by.

Officially a U S auditor.

Yes, the rules.

There was a positive development late last year.

<unk> was able to inspect the China auditors.

And so the so called <unk> Act, which would result in a delisting. If you were on a certain list three consecutive years in a row.

And that became moot at.

At least for the.

Foreseeable.

That we believe.

The <unk> has been granted the inspections in China. So.

That's why we pointed out in terms of.

Our possibilities range U S. Auditor, we could that we could certainly go with a China based auditor as well and maintain our listing.

At this point.

Okay, Great and then a final quick one from me, David you mentioned sort of expanding placements of track and P/e CBD. This year can you give us sort of any sense. How broad you may be able to go with what those devaluations to an expanding customer base.

Or to an expanding base within your existing customers with tracking P. CBD.

Yes, actually as I mentioned, we do have also differentiated technology with a P of CBD right. So now we're actually ever to model a windfall.

Memory application and none of them for their real logic.

Your application.

So.

This year, we're working with them probably in both side of the customer and we try to gather evaluation going on and obviously revenue will come in next year.

So <unk> is a huge market and also has there.

Really.

Second the dry product other than <unk>.

We have a really high expectation and also the.

A lot of effort and put a bow on this product and also expecting.

Very good outcome for the future and the driver ACM continued growth next few year in the high growth rate. So it's an exciting product.

Thanks, David Thanks, Mark.

Thank you agree.

Please standby for the next question.

The next question comes from its Tsuji Silva with Roth Capital. Your line is open.

Hi, David Hi, Mark Congrats on the progress here so just.

Thinking a little bit on the ECB, Mississippi furniture category I want to make sure. Its decline here what was the furnace product uptake.

Let's take still ramping and or within as Theyre, just supply chain catch up across that category.

Great great actually our phones and by end of last year, and we will only have half of the customer.

This year, we're really.

We expect to increase the more customer probably by end of this year, we're hoping our customer base become double digits. So revenue wise, yes, now there as quickly as contribution as a comparability however, our customer base increases quite dramatically.

Dramatically right now we also have other Hyatt entitlement here, Neil and also <unk> CVD.

And there are nine try and party the party.

And also we have two of them.

<unk> process.

Tools.

The qualification process and assure there is data so we're seeing that it will be great and from next year more of a contribution to revenue.

This is also quickly growing market for us.

Okay, Great. That's good progress there and then.

So the Korea operations, David could you give us a sense. What's the next milestones are as you start to get the land there and try to build that out just give us give us some kind of things to look for the next several quarters.

We track of.

Great actually in our Korean end.

SK hynix become <unk> customer in 2011, right is really long term relationship with several other tools also the Wuxi fab.

And obviously now the building. Moreover, there probably view the factory more advanced nodes, most lagging there couldnt probably focus on a great insight.

It's really because the offer more.

Folks on the Korean market and Thats why were can be increased investment in the west due to new higher more R&D people.

And then <unk>.

<unk> and also their track is real joined <unk> team in Shanghai and in Korea. So.

We're now really fully engage with with.

Hynix regarding not only cleaning Canadian actually will have about 90% of the process that we can cover and also engaged with a cover prady.

Further we're going to also obviously in front of us.

<unk> CBD and also track will also try to.

We're probably become there.

A major supplier in the future for Hynix.

Meanwhile, we'll be in a strong R&D and also their manufacturer based in Korea, we're really helping us expanding our technology and further too.

And.

On the <unk> and <unk> and also Europe market.

So wherever we want to do.

<unk> R&D manufacturing center is really will make ACM to be.

In real flexible dynamic here.

Patterns.

Penetration.

Okay, Great and then it sounds like.

It sounds like a good option and then lastly, just for me.

One last question.

Just thought here on your advanced packaging with the talk in the market of AI and high bandwidth memory cost at TSMC.

And tells you may have all of these areas I was just curious.

See an exposure there to the growth in AI and AI or.

Is that an advanced node versus trailing nodes or just give me a sense of the advanced packaging opportunity you may be able to lever <unk>.

Third you there, yes actually good in the Acs real good their product lineup for the advanced packaging and we have a really flat.

The shape.

<unk> of their tools will probably also wherever wider cover where the process tool, including colder developer, whether azure and our streeper and cleaning right. So it's real and welcome cooperation also we do have a S.

<unk> just a non issue and also for advanced.

Advanced packaging applications. So we are well positioned and yes, we are fully engaged with other pump year customer and also where most engaged with there.

In our customer and then China too so it's really.

See the very growing in the market.

Like I say AIG BD Devin driving high.

High end of the advanced packaging and applications, though our product in a really true.

For this application.

Okay. Thanks, David.

Please standby for the next question.

The next question comes from Christian Schwab with Craig Hallum Capital Your line in sight.

Great. Thanks for taking my question.

In the prepared comments, we talked about market share gains you know inside of China.

Do you think that can you give us some elaboration on that are we gaining market share across all product lines or is it more.

No targeted at cleaning and ECP and furnace any.

Any color there would be great.

Yes, if you look at the Canadian <unk>.

Canadian product, where we include the 55%.

I mean, three years ago, we only have a single wafer or semi critical tool.

A single wafer side.

Over the last year to three year introduce Aldo bench would you really major corn market for their 45 nano technology and above by also including power device. So that's really driving our cleaning tool continue increase and obviously cover Brady also increased quite a bit.

Quite a lot right now one seven number one.

In there like a local buyer Clini number one also in a couple of <unk> number one.

And also RSA.

Photos wise as I mentioned, we're going to increase the customer base.

And that's what we'll be also there.

Look in the next few year will also become bigger driving for the revenue to.

More than that he has also announced spread our cleaning and cooperating and also China man, that's really big.

We see that the gang their intention or gain the interest and from their top tier customers outside China.

Great.

A question for Bart.

Given the supply chain issues.

And COVID-19 costs are kind of behind us.

Or at least.

<unk> greatly diminished.

Is it time to potentially raise the gross margin.

Target range for the company on a consistent basis or is there just still too much volatility and mixed to raise it at this point.

Yes, I'll take that so on the gross margin you are correct I mean, we've come in at the upper end of our range or maybe a little better.

Past few quarters or so.

Christian I think.

E.

Our gross margins are quite dependent upon product mix, new products and old products, and we have a range across them.

I think for now we're going to keep our 40% to 45% range and of course, we always like to do as well as we can but we're not we're not ready to move that said that range higher.

Okay, great no other questions, thanks, guys great quarter.

Thanks Rajiv.

Please standby for the next question.

The next question comes from Charlie and same with Credit Suisse. Your line is open.

Yes.

Hey, Devin.

Alright, and my question the first question.

Solid custom menu all the momentum.

<unk>.

The recent.

Pat to manual.

You'll see.

<unk> with that first help this year and can you talk about the other.

Order momentum byproduct.

Because we are thinking that.

Equally malhotra.

Correct.

And that as of now the backend of that May have some improvement, especially from the Chinese customers. Thank you.

Okay.

Actually as you see our waterfront and in customer existing customer obviously.

And their casinos mendy right and that's driving a growing also we see significant number of second tier third tier customer or the coming right not really also become there.

As you've been driving our shipments.

Also driving our revenue too.

That's right.

And and and also banking.

So defense some customers deal Echo pausing and some come through.

Okay.

Investment too right.

USA.

As you say.

This year, obviously not good as last year right.

So looking forward I should say still keep going but maybe maybe some customers deal slow down, but there are some causing mess with backend worthy.

Okay.

So far.

We understand that there are many many tier two tier three in markets that in China.

They'll talk about let's say in a few weeks ago.

If we do get shrunk.

Strong and.

Revenue is apologize to you would you say that right now.

<unk> contributions.

On the.

<unk> momentum would you say, it's about maybe one third from these tier two tier three customers already are EBIT, maybe health of new orders from tier two or three customers. Thank you.

Yeah, I really cannot give you their real breakdown I mean this is real dynamic moving further end of this year. We can give you really wants the top pan whatever 10% of our customer alright, I can say, some second tier and third tier customer will be become obviously, adding to a 10% customer end of this year.

Right now as you can see the people or the second tier grow.

But at this moment I really cannot breakdown percentage wise, but significant over I can see human revenue come from there.

Two thirds of your customer there or drive even for the mature nodes.

Okay.

Can you just kind of wrapping line shipments following.

Increased rate from Bell Creek.

Okay.

Do you think they can eat revenue shipments from the tier two or three customers or do you mean, the significant increase in inquiries.

The increase includes all came Tuesday.

And next question.

Is the bar for you.

You can call to your product.

Clean the Copa team for need.

They will have any tools that with all of our stake mouthy tile, even say 10 till about the tie build we're still here.

A small number of Ah.

International equipment suppliers that there remain some chuan sale with over six months lead time. So I'm just wondering if the fed for ACM. Thank you.

Yes, actually last year, and we do have a real experience along leading time range.

Prana 10 months, sometimes even more than 10 months.

This year actually that it hasnt been shrinking right.

Every still between five to seven months depends on product. It also depends on specific or components.

Getting the hand so.

<unk>.

And.

We're expecting continued to improve.

Okay.

And think of that the next question is that when I look at the revenue by region.

It's very good.

Glad to see that the revenue from China grew quite decently in second quarter, Although that's still just <unk>. So I'm. Just wondering is this increase mainly from the from and I'll begin.

Kidney.

You mean outside China.

Yes.

Yes.

About the Emerald card revenue.

Our majority in steel you know come from.

And in China, right, now, but we see that either.

There are are outside China.

Activity growth and.

More and more attention from the customer.

As I mentioned in the.

Korea and.

Korea, so far we have a major customer and also we.

We see the attraction for other packaging and customer in Korea.

Interest in operating dwell and the same thing. We're also however customer phone U S continue.

Interesting other application tool and also we have also.

European customer right so <unk>.

Hey.

An extra few year, we are expecting a lot of her happen for our international efforts in the floor cleaning.

And I was expecting and photos when he also play another revenue.

Driving in.

Our international efforts.

Okay.

Thank you and then if possible may I, just ask Brian is because I was I.

They expected.

Revenue growth from the furnace, but I'd say in second quarter <unk> seen that.

Still not yet a lot of new revenues for any so I'm just thinking okay, I'll share a bit more about those burn needs I mean.

You talked about this already already but I'm just thinking from the revenue perspective will be the major revenues new revenues cloud for needs coming from.

For this year or maybe follow ups on your telephone.

I will say.

We will have.

<unk> customer base increase right and as I mentioned earlier and by end of last year. When you have a free customer for us and this year, probably will hold deemed by end of this year, we can increase the total customer number to double digits.

Alright, so again revenue wise.

Apparel brand new customer.

Time, so our say Moreover, revenue, we expect is kind of a next year.

<unk> contribution.

Okay.

Please operator.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced please standby for our next question.

The next question comes from Mark Miller with the Benchmark Company. Your line is open.

Congratulations on a very strong quarter. Thanks. My question is about the eval tools.

In Europe , and also U S. One would you expect them to be revenues would that be next year probably.

Good question actually we have reduced.

Two two.

In our evaluation.

We are expecting.

Wow.

The true organic quarter, beginning end of this year right so either.

And of this year or beginning next year are you expecting it to become recognized revenue.

Are there any other tools.

Outside of Europe and U S.

Especially in China that are eval tools.

Outside of China inside China inside China.

We also have a EUR two array and inside China in there.

I mentioned about there.

Foreign company.

They have they're manufactured in China, and we are a cover Brady.

Ever Canadians rule those out.

Among the packaging tool right in there in those.

Foreign company, which has a factory in China, our continuing expecting expanding another phase III. Obviously also however.

Evaluation tool into the.

Chinese customer to right, which is a.

Quite a bit in front of us and some breeding tool and also our.

Variety of a Canadian right.

For instance, we have available at churn and also so recruiting casino too.

Those tools in the customer for evaluation.

Just a couple of housekeeping questions, what was stock based comp and cash from operations.

Yeah, Hey, Mark stock based comp was about doing that.

Press release, but about $2 million for Q2.

And then.

Cash flow from operations.

Q2 was positive about $6 million.

Thank you.

Okay.

Thank you Mark.

Please standby for our next question.

The next question comes from Robert <unk> with <unk>. Your line is open.

Hey, Mark Thanks for taking my question I wanted to ask about our inventory levels are getting a little bit high for a couple of quarters.

And I was just kind of wondering.

What's the reason for that is and.

If we can expect to see that come down in later quarters.

Hey, Mark you want to take care of that question.

Yes, I didn't hear the question.

We really cant speak louder I think his question regarding inventory.

Neither higher he said in the next few quarters is going to read reduction went out of his questions. Okay. Yes, we did not can you hear us.

We didn't hear that question.

Yes, I can hear you I can hear you. Okay, yes, okay. So David repeated the question. So it's about about the inventory is that correct.

Yeah, exactly so just wondering why.

A little bit higher.

Okay. So.

Again, I didn't hear the question well, but I think I can address it if it has to do with the inventory.

Our inventory at the end of the June quarter.

There were three factors to it so it's $471 million.

It was split between raw materials about 192.

Work in process was 109, eight and then finished goods inventory was 168 nine so.

We did the finished goods inventory a lot of that is.

Tools that are under evaluation being evaluated by our customers.

And so that is an important metric for us.

In terms of our overall inventory levels, we are working on bringing them down a bit.

We built some inventory one based on our forecasts.

But also given the supply chain tightness, but as David noted some of the supply chain is loosening up so we're looking to.

To bring those inventories down to more normalized levels.

Got it got it Super clear I don't know if you can hear me now.

So you're right.

On the steel line can you close to the speaker.

I'm on I'm on my headset.

I'll speak of a lot of ICANN.

I was wondering if there's kind of any information you can share on the orders from.

While home on its new expansion this year.

Are you already factoring that into our revenue guidance.

Yes actually.

It has been.

We've had this year.

Baidu.

The IPO of <unk> right. The reason about the property.

U S dollars. So they are also molecule.

Fab.

The Odeon in different locations right.

We already.

Our strategic customers.

Let me real.

<unk>.

Quite a bit of contribution for our revenue in the future.

This year some gap in north of you know a lot of it is coming in next year next two years.

Greater greater customer and also wherever strategically reduced relationship or can you.

Indians more lenient.

<unk> alright and wider.

Chapter evaluate and then quantify.

Our own group.

Okay, that's great.

We're looking for customer continue to grow.

Also we'll continue.

You have better service the boarding.

With our portfolio product sort of home group.

Got it got it very clear.

Again, sorry for my microphone quality I just wanted to follow up a question on the revenue guidance I think revenue guidance is still quite wide.

And I was just wondering.

Why it remains so wide.

Yeah.

I mean, probably you are right and then a wider.

This is due to the uncertain rate. So we're probably in the Q3 time line give you a more narrow.

Our guidance and at the moment I think important.

We'll be keeping no change.

Got it.

Some uncertainty about.

Some orders with customers.

The wide range.

Can you repeat the question.

The two small can we grow again.

Yes, I just wanted to know.

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Helpful.

About.

Some customer orders or.

What kind of information.

Our guidance for the year.

Yes.

Probably you are right some of the orders on the steel component shortage right. Both together, that's probably give us kind of wider projection right now.

Got it got it great and then the last question I'll ask maybe I'll go back in the queue after that.

The dividend I think we are.

Shanghai subsidiary is quite a large dividend and I was wondering what we are what our plans are for that dividend. According to the investment.

What we are planning to do with that yes.

Great actually and as we announced a dividend right and they're going to order.

Holder ACM, Shanghai Company, which is 82, 5% will come through the USA.

We're going to use your money.

Rusty Youre marketing work.

We will also continue.

Other R&D.

<unk>.

Then with vendor in the U S and also we're playing on the reasoning.

So we're going to put the money into the mill.

Our sales and marketing.

Marketing and sales capability.

<unk>.

Alright.

It goes to their.

Firstly, a customer in the world.

Got it got it thank you very much.

I'll go back into the queue. Thank you and congrats on a good thank you.

Please standby for next question.

Our next question comes from Mark Miller with the benchmark company.

Thank you for the second question, how should I think about modeling R&D for the remainder of this year.

Okay.

Mark I'm, sorry can you repeat the question.

How should I think about modeling R&D expense for the rest of the year.

R&D expense, yes, let me.

Is there some thoughts on that.

R&D overall was about 12, 7% non-GAAP in 2021 15, 3% in 2022. So yeah. We're looking at for the year about 14% to 15% would be the right range for R&D.

Thank you.

Yes, thanks Mark.

I show no further questions at this time.

I would now like to hand, the call back over to David Wang for closing remarks.

Yeah.

Again I show no one does.

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Thank you operator, and thank you all for attending the BD.

For this call and a full year supporting.

Before we close UGI is going to mention our upcoming Investor relations events.

Events UGI. Please.

Thanks, David from August 22nd to third.

Google.

The annual semiconductor.

Conductor incentive cap conference.

[music].

In August 2019 third yet.

Yeah.

<unk> annual Jefferies Semiconductor conference in Chicago.

On September 13th we will produce.

The 10th annual Benchmark TMT Conference in New York City.

A reminder, attendance at these events.

And by Ono or interested in losses. Please contact your respective sales representative registering scheduled one on one meetings.

Alright. This concludes the call you may now disconnect.

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