ACM Research, Inc. (ACMR) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to ACM Research First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Mr. Gary Dvorchak. Thank you. Please go ahead.

Good morning, everyone. Thank you for joining us on today's call to discuss ACM Research first quarter 2020 results. We released results after the U.S. market closed last night. The release is available on our website, as well as, through newswire services. There is also a supplemental slide deck posted in the investor portion of the website that we will reference during our prepared remarks. On the call with me today are CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, the CFO of our Operating Subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. 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 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 Securities and Exchange Commission. 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 that we will provide on this call will be on a non-GAAP basis, which excludes stock-based compensation. You should refer to our press release for our GAAP results and reconciliations between GAAP and non-GAAP amounts. With that, let me now turn the call over to David Wang, who will begin with Slide 3. David?

Thanks, Gary, and welcome, everyone, to today's call. I hope that each of you and your families are staying safe and healthy in light of the COVID situation. Our heart go out to those who have been personally impacted by the pandemic. I also want to thank all the healthcare workers around the world who are fighting the virus on the frontline and saving lives. To support the effort in February, we donated 30,000 marks and 300 full cover hazarded suits to Wuhan. More recent, we donate 10,000 masks to New York and California. Despite the virus impact, we had a busy and productive first quarter. Our first priority was the safety of our employees. After that, we focus on making progress in growth for the year. We achieved customer acceptances. For demo tools, introduced new products and delivered solid financial results. We are moving forward with key strategic actions that support our mission to become a major supplier of capital equipment to the semiconductor industry. Now some highlights for the quarter on Slide 3. We are pleased with our financial results. We delivered $24.3 million in sales, up 19% year on year. Shipments were $12 million. We delivered double-digit revenue growth, even though some shipments delayed from Q1 into Q2. Spending was up as expected. We invested and focus R&D to support new product introduction. We increased sales and marketing to penetrate new customers, and we had higher G&A to prepare for our STAR Market IPO. We ended the quarter with a solid balance sheet with $52 million of cash and another $59 million in restricted cash from last year's private equity withdrawal. Please turn to Slide 4. During the quarter, we achieved a major milestone with our Tahoe product. On last quarter's call, we reported positive results for Tahoe in a production environment as a lead customer. I'm now excited to report that Tahoe achieved first two acceptance at that customer. Resulting revenue recognition in Q1. This represents a great achievement for ACM and for the industry. Tahoe is a unique platform compared to other single-wafer SPM cleaning tool. Tahoe offers the same or even better performance while using only a fraction of the sulfuric acid. Sulfuric acid is environmental problem for the entire industry. Our tool is one of our 10 solution that delivers good performance, benefits the environment, and reduces operational costs with significantly less chemical use. Even more exciting today, we report that we received repeat order from Tahoe from this lead customer. We plan to deliver tool for revenue in the coming quarters. The environmental advantages of Tahoe put us in a great position to engage with new potential customers in Taiwan, North America, and Europe. We expect more momentum from Tahoe including orders for additional demo tools as the year progresses. Our customers are happy with our current products and are pushing us to provide more tools for cleaning and for other manufacturer steppers. In response to the demand, I have a few exciting new products to share with you today. Please turn to Slide 5. Yesterday, we introduced a latest addition to ACM cleaning product line, three new semi-critical wet cleaning tools for front and backside wafer process. The new tools are first, the Ultra C b for the back side cleaning; next, Ultra C wb for automated wet bench; and the third, Ultra C s for scrubber. These new tools, expanding our opportunity to even more clean steps at our major customers and we estimate to add approximately $800 million to ACM's total available market opportunity. While these are semi-critical cleaning steps, this tool are features the same high-quality that our customers expected from us. We are off to a great start with these tools. We have already delivered a number of these tools as demo tool to current customers with some already recognized for revenue and some still in qualification. Next, turn to Slide 6. For another major announcement, the Ultra Furnace. This broad platform is our entry into dry processing application. This opens another large market for ACM beyond wet processing. In our view, innovation in a vertical furnace technology still required for industry with progress to more advanced manufactured nodes. That is why ACM into the market. We have been hard at work for furnace for more than two years. In a joint development project of our world-class technology teams in China and Korea. The two teams developed a new hardware platform that combine our premium proven software and the proprietary control system. The Ultra Furnace delivers reliable control of pressure, gas blow rate and the temperature. The Ultra Furnace is optimized to deliver high-performance batch processing of up to 100 12-inch wafers that initially supports low-pressure chemical vapor separation process or called LPCVD. With additional development work, the furnace tool can be expanded to address oxidation, annealing process and the for atomic layer deposition process. We delivered our first Ultra Furnace demo tool to a key customer in the first quarter and expect the qualification by the end of this year. Please turn to Slide 7. This represents ACM's view of the market opportunity addressed by full product line. You are all familiar with our core single-wafer wet cleaning product, SAPS, TEBO and Tahoe. We estimate this product represents a $1.5 billion market opportunity for ACM. We estimate our four recent announced products. The ECP, the SFP Stress Free Polishing and Semi-Critical Cleaning and vertical furnace products, extending our reach by another approximately $3.5 billion take us to up to $5 billion in total market opportunity. ACM commits to gaining market share through innovation and new products. We have a multiyear product roadmap, and we are committed to further developing our technology across current and new product line to address technical challenges faced by our customers at more advanced nodes in the future. Turn to Slide 8. We are confident in the opportunity to expanding beyond our current base of five major customers. We believe every major semiconductor manufacturers can benefit from our technologies. We began to broaden our sales team last year with the addition of new sales managers in the U.S. and Singapore. In early April, we announced the appointment of Jim Straus as vice president of sales for North America. Jim brings to ACM near 30 years of sales and business development experience in semiconductor capital equipment. He has a track record of success sell into top five global IC manufacturers. We're excited to have Jim on board. He will lead our effort to expanding adoption of our core technology at a major IC manufacturers in North America. Now an update on two major strategic efforts for 2020. Please turn to Slide 9. First, our land agreement. In December, we announced an agreement to acquire land right in the Lingang Region of Shanghai, 30 mile from ACM headquarters Shanghai. This will be the future site of our fully owned R&D and production facility. Negotiations are in the final stage. We expect to reach agreement very soon. If an agreement is reached, we would expect to start the construction late this year with goal to begin initial production in later 2022. Second, we are making steady progress on the Shanghai STAR Market listing. We are on track to submit ACM Shanghai's IPO application in middle 2020. We are hopeful for a timely review by the Shanghai Stock Exchange, SSE, and registration by the China Security Regulatory Commission, CSRC. If all goes wells, we will be pricing the transaction by end of the year. We are confident that the IPO will raise ACM profile in Asia and improve ACM spending with the local customer and the supply chain. The STAR Market IPO would also inject sizable capital into our China and global operation, and what we believe will be favorable valuation. This will help take ACM to the next level, enable us to accelerate our long-term business plan at a critical stage in our development. Before I turn it over to Mark, I would like to update you the COVID-19 situation and discuss our 2020 outlook. I'm happy to report that all of our staff are back to work at both of the Shanghai facility, as shown on Slide 10 and at our Korean R&D center. The Shanghai regime has stabilized further since our last call with no new local COVID-19 cases. All our production lines have returned to 100% staffing. We are working closely with our supply chain to ensure timely delivers. Most important, we are working hard to expand our capacity to handle additional loading for the rest of the year. Since outbreak, we have been in constant contact with our customers, in particular, YMTC is the first factory and its center of operations are in Wuhan. They are fully committed to scaling production. We happily report that Wuhan has officially opened and we are on track for delivery to YMTC in the second quarter and beyond. Our other customers in less affect city have also returned to work in an ordinary fashion. Operations appear to have returned to normal. Please now turn to Slide 11. As we look ahead, we remain optimistic. Let me share our current outlook, which is unchanged from last quarter. Q1 revenue and shipments expected were impacted by the COVID-19 pandemic where part of our business shift from Q1 Q2. Our internal forecast for repeat orders and first tool remain largely unchanged for the full year. Our visibility is supported by firm orders, customer forecast, and tool awaiting acceptance. Accordingly, we reaffirmed our full-year 2020 outlook. We expect revenue to be in the range of $130 million to $150 million. This will represent 30% annual growth at the mid-point. Our outlook is based on a couple of key assumptions. First, COVID-19 situation further improves in China and stabilizes in the rest of the world. Second, the low end of revenue range, assuming muted DRAM recovery, and limited revenue contribution from new customers. To conclude, I would like to thank our customers, partners, and shareholders for their continued support and confidence in ACM Research. I also want to thank our employees for their hard work and their dedication in this challenging time. We are executing on our strategy. We are investing in R&D to enhance current products and to develop new products. We are building our global sales and marketing resource to penetrate new customers in new regions, and we are scaling production capacity to support our long-term growth plan. I will now turn the call over to Mark, who will discuss financial results in more detail.

Thank you, David, and good day to everyone. We're off to a solid start here in 2020. Unless I note otherwise, I will refer to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release. Turning to Slide 12. For the first quarter, revenue was $24.3 million, up 19%. Q1 revenue and shipments were impacted by the COVID-19 related shutdowns. Revenue growth was driven by an increase in front-end equipment, partly offset by a decrease in back end assembly and packaging equipment. Total shipments were $12 million versus $14 million in the year-ago quarter and $25 million in the fourth quarter of 2019. Total shipments included deliveries for revenue in the quarter and deliveries of systems awaiting customer acceptance for potential revenue in future quarters. We expect shipments to rebound in Q2 and Q3. Gross margin was 42.2% versus 43.2% in the prior-year period. Gross margin was within our long-term target of 40% to 45%. Gross margin varies on a quarterly basis due to a variety of factors such as sales volume and product mix. Operating expenses were $8.4 million, up 43%. The increase in operating expenses was related to higher R&D on new products, sales related activities, preparation for the China STAR Market IPO, and COVID-19 related spending to ensure the safety of our operations. Operating income was $1.9 million versus $3 million in the year-ago period. Operating margin was 7.8% versus 14.6%. Net interest income was $0.2 million versus a net expense of $0.1 million in the year ago period due primarily to increased interest income earned on larger cash and restricted cash balances. Net income attributable to ACM Research was $2.4 million versus $2.6 million last year. This included a net benefit of $0.6 million in Q1 of 2020 versus the net expense of $0.1 million in Q1 of 2019. That factors a normalized tax rate of 12% and removes the realized operational income or loss from foreign exchange fluctuations in each period. Net income per diluted share was $0.11, compared to $0.14 in the same period last year. This includes a net benefit of $0.03 for the tax and foreign exchange items for the quarter versus $0.01 expense in the same quarter last year. Now, I'll review the balance sheet items for the end of Q1. Cash and equivalents were $52.3 million, down from $58.3 million in Q4. The decline was primarily due to a reduction of short-term borrowings, offset by positive cash flow from operations, and other items. Restricted cash was $58.7 million, down slightly from Q4 due to exchange rate fluctuations. Restricted cash reflects the proceeds from ACM Shanghai's private equity rounds and it will be released when we submit our China STAR Market IPO application, which is expected by the middle of the year. Short-term borrowings were $3.9 million, down from $13.8 million at the end of Q4. Total inventory was $45 million, finished goods inventory decreased to $11.6 million from $19.3 million at the end of the last quarter, and $13 million in the year-ago quarter. The quarter on quarter decline reflects the net effect first tool of shipments and customer acceptances in the period. Cash flow from operations was $3.8 million for the first quarter and capital expenditures were $0.1 million. To conclude, we are participating in the growth of major new IC fabs, we're ramp production, and we continue to develop and deliver innovative products. We're optimistic about our opportunities in China and expansion outside of China in spite of the disruptions caused by the COVID-19 pandemic, and we remain committed to achieving our mission to become a major player in the semiconductor equipment market. So, let's now open the call for questions that you may have. Operator, please go ahead.

[Operator Instructions] Your first question comes from the line of Quinn Bolton from Needham & Company. Please ask your question.

Congratulations on the results and great to hear that everybody's well and operations are back to 100%. David, I wanted to start with kind of the introduction of the new tools. It sounds like you significantly expanded the product line over the next - over the last quarter or so in the semi-critical clean in the furnace. Can you give us some sense on just timing of revenue acceptance for those new platforms? It sounds like some of the semi-critical clean may have already been accepted as revenue. And I think, you mentioned furnace first eval tool accepted by the end of the year. But just hoping you could share a little bit more color on the new platforms.

Okay. Thank you, Quinn. As we say that this call is a heavy quarter, announced quite a bit of product. And I mean, I'll give you our strategy get the Ultra Furnace. And ACM has been working on the wet process tool for a long time. And however, with our goal to become a major player and that's one major step we get into the dry process step. So this tool, as I mentioned, has been delivered to customers. We're expecting to be qualifying and record revenue probably by end of this year. With further other semi-critical cleaning tool. As I mentioned, some of them, especially backside cleaning tool have been recognized as revenue and some of them still in the qualification. And then with the scrubber tool, we just shipped their first tool in the Q1 of this year. So we hope this will be recognized by the end of this year. And with the auto bench tool, there is someone has been recognized with still some of them is still in the qualification process. So again, all this new tool this year, we hope will contribute some revenue, obviously, and some will be probably beyond in this year. We also expect to continue to receive the repeat order from the customers regarding their semi-critical cleaning product. And for the furnace, and probably we think about either end of this year or next year, with the same repeat order or other new order from customers.

Great. Thanks, David. That kind of leads my second question, perhaps for you or for Mark. If I look at the first-quarter revenue of $24 million, you had shipments of only $12 million. So it looks like you must have had multiple new customer tools or new platforms accepted for revenue. You mentioned the first revenue acceptance for Tahoe. So congratulations on that. Were the - is the difference that the first acceptance on the wet bench and the backside cleaning tool, is that kind of the delta between shipments and what was recognized as revenue in the first quarter?

Yes. I can talk something and maybe Mark add something to that. Actually, yes, Q1, we have quite more acceptance from the tool we're shipping last year. So that's become our first tool record revenue. And then during even the shipping the $12 million new tool, some of them will be record revenue upon shipment, some of them still go to the customer side. So that's probably the number you can feel about this together. Mark, you want to mention anything about there?

Yes, you bet. No. So Quinn, I think you're thinking about it the right way because we did talk about revenue. We got acceptance for Tahoe and some of the new semi-critical tools. So yes, as David said, we focused our Q1 efforts really on acceptances and new products and firming up the year outlook. So really good acceptance. Tahoe was something we're proud of and we do expect the shipments to rebound pretty substantially in Q2 and beyond.

And then last for me, Mark, on the Tahoe repeat orders. Can you give us some sense? I know that's a pretty high ASP platform. Were these multiple units, any sense of how large that repeat order was on Tahoe? Thanks.

We're not saying much more than just a good repeat order from our lead customer and we do expect some orders and demand for demo tools for Tahoe from current customer base. Yes.

Okay. Thanks, guys,

Yes, I mean, to add on that, is surely, is we do have our two, I call the delivery and from the repeated customer this year. And then, we'll probably have additional we're targeting two additional new tool Tahoe for the new customer, right? That so far, we see right now. Hopefully, we can report more on the next quarter's earnings call, give you more of an update on the Tahoe progress.

Your next question comes from the line of Patrick Ho from Stifel. Please ask your question.

Thank you very much and congrats on the nice quarter, and most like us here, everyone as well. Maybe for you Dave or Mark. As it relates to COVID-19, your gross margins held up very well given the dynamics in the quarter, especially with some, I guess, evaluation tools has been recognized in revenue. Can you just give specifically any, I guess, incurred costs on the gross margin line, whether it was manufacturing innovation, whether it's supply chain, procurement of parts or even logistics. How that may have impacted gross margins and whether that continues into the June quarter?

David, do you want to start and I can finish or - yes.

Yes. Sure, that's good. Okay. Thanks, Patrick. I think as we mentioned before, our gross margin in the range of 40% to 45% and that's still in the range we're talking right now. And also, we think the 40%, 45% for next near term for a few years our goal, right, to reach another margin there. The reason for that is we balance our penetration product to market and also versus profitability. So I should say, after our major leading tool, the x factor by the key customers or more customers, and then, our margin can increase beyond 45% stability. At this moment, you can see that as they get into the semi-critical cleaning tool and there are some of the semi-critical cleaning tool, margin is lower, but some are still good margin. So as I said, that as we more get revenue and go to penetrate the customer, we'll be in the range of 40%, 45% is our current goal. And Mark, anything you want to add on that?

Yes. No, I sure would. So Patrick, related to the COVID related expenses. In our prepared remarks, we pointed out that we had some additional expenses in our G&A line. We didn't call anything specific on our cost of goods sold. So, we there wasn't a major impact on cost of goods sold from the COVID spending. And as David said, we're very confident in the 40% to 45% gross margin range. Thanks.

Great. And maybe as my follow-up question in terms of the ramp through the rest of the year. Obviously, there's likely to be some pent-up demand that's coming out of your customer base. You talked about expanding your manufacturing capacity to meet that. I guess, how much incremental cost are related to that? And also, are you - will you be able to get that expanded capacity in place as fast as possible given probably the demand that's helping?

Okay. Patrick, very good question. Actually, as we reported the last earnings call, we see the Q2 is better than the Q1, also very strong in Q3. Actually, Q3 has recognized revenue shipment and also many new first tool. So, that it gives us a challenging and quickly get the people trained and also get the first facility to the production for this high volume. So the next thing is, obviously, the supply chain. We are very carefully monitor supply chain. At this moment, we have not seen any, I call it, big delay or major concern for supply chain right now. However, we do and very carefully watching the chain changing, especially the COVID, how the impact or later delivery, right, or the components or the subunit system in probably Q3 timeline. So again, we'll be very dedicated working and our procurement guy. We'll work with our partners, supply chain, and make sure those supply and delivery on time and not impact our shipments in Q3 and Q4. Hey, Mark, anything you want to add on that?

Yes. I mean, the only thing I'd add is given the - since the last call, we got through our first quarter and things played out a lot like we had planned. And so, we feel a bit better about the year following than we did when we reported last quarter. We worked to firm of the years. We got some key acceptances. We are doing a lot of work with our supply chain. And so, we feel confident that we'll be able to deliver product. I think, if there's any major disruption by the industry, that's something we'd have to manage around and deal with, but we're confident with our outlook at this point. Thanks. Maybe we'll go - operator, next question.

Your next question comes from the line of Suji Desilva from Capital. Please ask your question.

Hi David, Mark, Lisa. Good to hear the team is doing well and safe, and congratulations on the results here. So the new products you've announced, can you talk about the - if I missed - I thought I missed this, the ASP range for those products relative to the SAPS and TEBO products you already have in the market?

Okay. Well, I mean, again, a different product, different, I call it, the configuration. And looking at the scrubber is much lower than our typical chemical cleaning tool, right? They're only running water base. So as I should say, the every price under $1 million for the scrubbers. And then, the auto bench is anywhere average pricing, $2 million, $2.5 million. That's a range and some is higher as more complicated chemical combination. As a matter of the backside cleaning tool, it's running, okay. Anywhere between $3 million, $3.5 million in terms of each chamber tool.

Okay. Thank you. That's very helpful. And -

Hey, Suji, sorry to cut in. So that's for the VM, the new semi-critical tools. But David, if you look at the portfolio of the furnace, the SFP, the ECP products, maybe, David, you could say a little bit about the prices on those, too. Yes.

Okay. So again, our other product, at this moment, we're still in the market, ECP, you do have a front end, back end, right? And again, some tools still in the qualification in a range. Front end, we still talk about $4 million and the back end is really hard to tell because they have different chamber different combinations. And lower from $2 million and higher to probably $4 million and depend on the configuration of the plating chamber. As a matter of SFP tool, so far, we only sold to the back-end application and that's about roughly about $3 million range average sale price.

Great. Okay. Thanks. Thanks, David and Mark. And then also, just looking at the shipments, I think you talked about it a little bit, or just the linearity of the last few years, the first quarter seems to be lower than the third and March quarter seems to be low and the September quarter seems to be at peak. Can you just explain if that dynamic still applies for this year, or whether because of COVID, there's a different sort of linearity to the shipments this year?

Yes. David, do you want me to answer that? I can give a good answer there.

Yes. Actually, in the fourth quarter, obviously, in China, there's a Lunar New Year, right? Associate that. That's typically the workforce, go home and come back again, even, I call normal year, right? That you can see, typically, Q1 it's kind of light. And also, customer locally in China or some in Korea, same thing. The both ask to deliver end of last year, and then, they can go Lunar New Year preparation. So that's may be the nature of the business here with the culture related. Then I can say, normally, the last year, same thing, Q2 is higher than Q1. And then, Q3, Q4 really depend on market, all the customer requirements. So, like, you're right. Typically, Q1 is a light quarter.

Okay. Very helpful. And have your lead times - and last question, have your lead times to the tool deliveries to customers stretched out at all with the COVID disruptions?

So far, we're still okay, right? And if a repeat order, then, we still talk about four months and some new tool, we may be, I should say, four to five months. That's a typical, our delivery time. And as I said, we so far have not seen any supply components of seasonal delay, but we are very carefully watching that delivery time in this, especially, in the two quarters beyond.

Your next question comes from the line of Christian Schwab from Craig-Hallum. Please ask your question.

Thank you. Congratulations on a great start to the year and the new products. David, could you tell us on the Tahoe repeat order? Was the customer excited about that? Was the customer more excited about the better performance of the tool or the environmental positive impacts?

Okay. Actually, Christian, they're both, right? And first, obviously, outperformance is number one, right? They are more of a concerned. But I mean, they're more of an expecting performance. So we reach the equivalent performance, as their single-wafer SPM process in line. And so, they are very high above data and also in line data and some are in the process, I call, the yield data. And furthermore, is the real chemistry consumption reduction, right? And as we said about before, so far, we confirm more than 80% reduction in the sulfuric acid usage. And that's real, they love it, right? Because of not just cost and per tool whole year, just fuel saving, no inconvenient environment pressure, their relief from the local government. So both of the reasons you can see that is, they want us to deliver two tools this year and for this first customer. So they are very happy about this data and also performance.

And in the data that they have, sometimes new customers like this would be willing to let you use that to show to new customers outside of them. Is that the case with this customer or not?

Well, I mean, customer give me two repeat order, deliver, right? That's not the easy, anybody spend bigger billion and million dollar, multi-million dollar to show new customer, right? So I mean, again, they're very happy with the performance, first. Second, I also mentioned, another thing is we did do even 90-nanoparticle data for their production line and probably not immediately required right now. However, they want ensure, the technological extend into future, 40 nano or even beyond a manufacturing process. They did also intensive future particle portfolio looking. So our 90-nanoparticle data looks great. They are very happy with the data. And they're comfortable with this tool expandability to the future advanced manufacture nodes.

Perfect. And then, my last question has to do with the recent Department of Commerce regulations. Is there any chance that any of that will impact you guys?

Well, Okay. It's a good question. So far, we have not seen any impact for us. We sell to our customers, either in domestic or in China or outside China, in Korea, so far right now. Obviously, we're going to follow regulations, right? Both inside China, also we'll follow U.S. export law requirement. But the one thing I can tell that is, we're in a very good position. And as you will see that we're a U.S. company and has operated in China, so we both have a flexible structure. We also add our Korean manufacturer and enter in future possible to be manufactured to in Korea, too. So that gives us a lot of flexibility to maneuver with our capability to deal with any dynamic or any future, I call this, trade intension. So very good structure and good position compared with other local guys, and also other, I call it, a big guy in terms of this trade situation. Hi, Mark, anything to add on that?

Okay.

Yes. I mean, and I think you answered that well. I mean, we expect the trade war tension to be with us for a while. We expect it to be volatile, but we'll do our best to plan around it. But as David said, it's dynamic. We'll follow all the regulations. We don't see anything immediate to impact our outlook.

Your next question comes from the line of Donnie Teng from Nomura. Please ask your question.

Thank you everyone for taking my question and congratulations on good results in first quarter. My first question is a housekeeping question. So, if we look at your shipment sales and actual sales. It's like the first-quarter actual sales was better than our previous expectation, but apparently, the gap between shipment and actual sales is quite big. Can we say that the second-quarter actual sales may be relatively flat or it's not going that much compared with first quarter? And what kind of shipment growth magnitude we should expect into second quarter? It looks like the shipment growth could be pretty strong in the second quarter.

Okay. Donnie, good question. Normally, at this moment, we do not give guidance for the quarter, next quarter, right? Because as I mentioned, the scale and also the quantity would deliver this moment, one, two or even missed a shipment and end of the quarter can be big impact the ratio of our projection accuracy. So normally, we do not give precisely, I'll call the projections. However, I can come to see that Q2 is better than - much better than Q1 in terms of revenue and also shipment. And also, we're looking even stronger, much stronger Q3 on the line. And so, as I mentioned to a previous analysts, we'll try to prepare for our capacity really to be able to ship in Q3, a bigger order, not just only the, I call the repeat orders. Also, we have a bunch of tool, if the first tool - first order or first tool, when you do the shipment in the Q2, Q1, Q3 timeline.

Sure. Just a quick follow-up on the numbers. So you mentioned about the new products, right? Can we have a rough idea what kind of gross margin would be compared with our current corporate average level for the new product?

I think our new product and, I call it, the new product average of new product gross margins is still within the range of 40%, 45%. And obviously, depending on customer configuration and also customer requirement, that started varying of their gross margins, right?

Okay. Thank you. My second question is regarding to the customers' order. It could be a little bit long question. So I break it down your customers into three categories. One is China customer, second one is the Korea customer, and the last one is the maybe potential global leading customers. So for China customers, are you seeing any early pull in for their orders due to the potential restriction from the U.S. commerce? And also for your Korea customer, are you seeing any early sign of maybe the DRAM capacity expansion in the near future? And for the global potential leading customers, could you give us an update on your progress there? Thank you.

Okay. Good, a long question. Okay. Let's go one by one. And so as of Mark, you can add on more. Okay, for the domestic customer, I do see the demand strong, right? And as I mentioned, domestic customer in China is more of a - they have a long-term strategic investment plan going on. And also, most of them in half of the expansion for their manufacture fab. So this COVID-19, whatever, didn't impact they're - I should say, didn't impact. They still follow their plan as they - even the year before their study and their investment keeps going. And so, I think the most impact by the either market demand or market situation. The second one you mentioned about is our customer in Korea. And again, the market, you know that the DRAM is still new to recover. And we do see that they have demand for technology migration because our tool as go to the small geometry advanced nodes, they have added more process steps. So, we see that the demand for better applications. We have not seen any capacity expansion yet, right? So again, we're carefully watching. And hopefully, something will be changing in the Q3, Q4 timeline that is restarting their - if situation is going well, they're going to restart expansion in their production line. A last one, for the Taiwan customer, again, yes. And global, I see that is Taiwan is the next major, I call the penetration. And also, we try to also penetrate the U.S. customer, probably they have a fab in China, too. So we are working very closely with the top-tier customers. And again, it's hard to real tell what time breakthrough. But we're expecting maybe we can breakthrough one any of this top-tier customer in the year - in this year. And if we're lucky, maybe you can break two, right? So again, that's our strategy to pull our technology into the top-tier customer. We have a strong confidence. They need our technology. And also, we have company has been into the, we call it, critical stage, right? Where we have a very good balance sheet and also have a relatively about 340 people 350 people right now in the reach of their - they call their critical sites. So we can support them with large volume with multi-system repeat order. So we're going to propel. Again, we try to working also hard and get into the top-tier customer. It's a really matter of time.

Your next question from the line of Jeff Su from Morgan Stanley. Please ask your question.

It's Charlie Chan from Morgan Stanley. So first of all, yes, great to hear everything goes well. And first question is really about the opportunity of your new product. In your slide, Page 7, you said SAPS and the TEBO is around 50% of your kind of total addressable market. So with those new products, what would be your total addressable market now? Is it still a $3 billion or more than that?

Yes. Okay. Actually, we have our new products right now, and maybe, I go give the certain point here. Obviously, there's semi-critical cleaning product, three products together, we estimate at about probably $800 million total value market for us and then beyond that is we have our ECP. ECP, we have a front end, back end, and they all add together, roughly about $5 million for their ECP. And our SFP, actually, at this moment, we're most focused on right now is the front end, I think, in the back end right now. However, they do have a potential to get in front end, right? So if we can add all together, our estimation, almost about $500 million for copper polishing. And the furnace, right, is actually huge, right? It's almost by their market data, almost $1.5 billion. Obviously, they have different kinds and neo, oxidation, LPCVD, and ALD. As our plan, at this moment, regarding LPCVD, however, as going on, we definitely will get into their - another three new process. Eventually, we'll get into ALD process too. So you put it all together, that's almost about $3.5 billion. And then, add with our cleaning original - our leading-edge technology cleaning is about $1.5 billion. So that's about $5 billion market we're targeting right now. Again, with our plan to get to market and with more funding, we believe that we can support our growth and to become the multi-product company and cover both wet process and dry process.

Okay, David. Thanks. And I think for your current liquidity is quite differentiated, I would say, given the megasonic technology. But for those new business furnace and also the Ultra C. Do you have kind of specific technology differentiation and who are the main competitors in this area?

Okay. Obviously, great. At this moment, you can see that semi-critical cleaning Ultra Furnace, there's quite a big player there, right? And maybe, I don't need to mention four names here. Look in the furnace, major ones are Dell and Kokusai and Hitachi. So the reason, as I said, is that we get into the Ultra Furnace. We do believe there's innovation continually needed when the people go to advanced nodes. So that's the real major reason we're getting this business. At this moment, and we're working on carefully, and also, we are working on the innovation side there, which will deliver something different to the market. And with the semi-critical market and that probably, I should say, it's more like a customer, one that get in the market. And the reason for that, they want one-stop shopping, and also, they want to gather - they like our tool quality. So - and it's kind of how do we fill customer demand? That's really getting through there. So as the future going on, we believe we're still focused on our innovation product and especially penetrate the first-tier customer. However, with other non-critical or semi-critical products, we still try to meet other customer or second-tier customer requirement for those products. And Mark, anything you want to add on?

No. Nothing to add. Go ahead, Charlie, with your next question. Thanks, David.

Thank you. Yes. So -

Go ahead, please. Hello?

Yes. Operator, maybe you can try getting Charlie back on. It looks like he dropped and came back. I - actually, let's go to the next question and bring Charlie back later.

Okay.

He's back. He's back. I'm sorry.

New customers in Taiwan or U.S., my question is whether you are aiming for the kind of the legacy production line? Or are you guys aiming for the new geometry, new generation?

Yes. Actually, I think for the top-tier customer and definitely, their interest in ACM's differential technology, right? And so, it's not a legacy tool. It's more of our SAPS, TEBO, and Tahoe. And this moment, they are most interest for our major products. And maybe, as time going on, maybe SFP, Stress Free Polishing can be another targeted product. So, we are going to penetrate the top-tier customer with our, I call it, differentiated proprietary technology. That's our strategy.

Your next question comes from the line of Mark Miller from Mister - please ask your question.

Let me just extend my appreciation that seem to be doing well and there were no serious problems with the COVID virus for your staff. And just wanted to - could you kind of more quantify, you said some shipments were delayed into 2Q. Is there a figure you can apply to that?

Yes, David, do you want me to answer that? He's asking a little bit for -

Yes. Go ahead.

Yes. So Mark, yes, I just - there's a number of tools, a couple of tools, a couple several tools from - got delayed from Q1 to Q2. That's - we're not going to give a lot of detail, but it was a number of tools. Yes.

Okay. They'll be revenued in the second quarter then, those tools?

Yes. We'd expect that in the majority in the second quarter. Yes.

I think you also have last quarter's -

Yes. Some of them will be revenue.

Okay.

- and some of them probably the first tool, right? Also delayed from Q1 to Q2.

Yes.

Because of reason of this Wuhan situation.

Yes.

You also had some slippage into the third quarter, I think in YMTC, has there been any more slippage in YMTC?

Most our tool - actually, what we try to deliver in Q2 time line, and again, maybe the end of Q2 or beginning of, I call it Q3. But most like the mid of the year, that's our delivery for the YMTC.

Because of our -

Again, we're working with them, other new products. And some other new product would be delivered maybe in the Q3 and Q4 timeline.

Okay. Because of the new - the virus, there was a spike in purchase of certain type things like laptop, PCs, which really produced a strong quarter. We've been looking at DRAM and also NAND pricing for some time and that has steadily been rising for both types of chips since late October. But over the last several weeks, we've seen kind of a flattening of the increase. In fact, DRAM prices have come down, I'm just wondering what you're seeing at your customers in terms of capacity utilization. Has that continued to stay up? Or has there been some slackening off of capacity utilization?

Okay. Well, a good question, right? And again, there's a - we have both customers, one in the DRAM, another one, most in the 3D NAND business. Look at their 3D NAND in China, obviously, they're in the capacity increase and they're trying to increase their capacity go to 50,000 per month level. And also, the reason now they're 128-layer of the 3D NAND process with even better driving speed and also better of the intensity compared to other guys, 128-layer because they put the drive circuit and also the cell circuit in two different wafers, right? So I think in that sense, is they're in the regular shape, expanding their strategy, and deliver their milestone goal. And so far, I saw they're doing very well. Every time they commit to something, they meet it, right? So we have very good confidence. And that's why also they have become our major customer, our revenue stream for their - for this year, will continue next year. Regarding the DRAM customer, as I mentioned, they do have some demand. And as I said, the most is technology migration, right? Because there's a [indiscernible] whatever they are doing, that migration do need our product, right? So there's demand for that tool. But we have not seen any capacity expansion at this moment. And I think in changing time going on, we just at a moment, watch carefully.

Your next question comes from the line of Krish Sankar from Cowen and Company. Please cut - ask your question.

So I had a couple of questions, and maybe, I'll just target it to David. On the Ultra Furnace project, is this mainly competing against like Dell or Kokusai? And is this a customer tool? Or is this more a function of you for trying to diversify the business from wet to dry? And then, I have a follow-up.

Okay. Well, again, right? This is a real, I call, the high concentrated customer base. I mean, the vendor base, right? This is a major player as a pop tool, a real Japanese player, and which they are doing very well. I'll put it this way. However, we do believe there's opportunity going on because of the rising market in China. And our customers are more like close supporting and they want to also R&D engineer, very localized to their the fab. So they can give their demand or their special requirement. And therefore, we can build a tool and also do the R&D even need their future requirements. So that requirement come out. And again, that's a huge market first. And also, we see the market potential there. We are doing a lot of wet process tool. However, that wet process tool will be followed by the dry process, right? So when we get in the dry process, also help our wet process tool to be take a lot of innovation. So with that in mind, is that way we get into the dry process and we're very, I should say, excited and get into the dry process. And we're prepared for continuing innovation, which is we're building it in our DNA. We try to also innovate the product as the customer migrate more geometry, there's also a bunch of new requirements come out. So that's our intention.

Got it, David. And then just along with that, clearly, on the batch furnace side, it's mostly the memory customers who use it. It looks like the advance logic and foundry the customers already move to single wafer. Is there a risk that the memory companies also move a single wafer? Or do you think they're going to stay a batch for a long time?

Good question. Actually, a lot of people thought a single-wafer process, right? Is it new or is it a LPCVD, and there's always a benefit single part wafer, right? The more better uniformity and better, I call, quality. However, there's still some good advantage for their batch process because of the throughput, right? So even consider ALD, there's a lot of slow process ALD, right? That's really the painful for the single-wafer process. So there is certain processes step, which can be on done in the batch process, too. So again, I continue, as I said, it was - we believe, there's still big potential market in the batch process there. And that's why we gotten this product.

Got it. And then David, if I could just squeeze in one last question from my end. You spoke about working with advance logic and foundry customers who are in outside China and outside Korea. What metric or what specification are they looking for? Like is there a certain magic bullet you need that convince them to buy you - buy tools from you? Or is it just a process there to go through?

Okay. Great. Actually, let's look at our wet process equipment, right? We do have a fab as a megasonic cleaning. Especially for the flat wafer, and especially for cleaning monoparticle, especially particles as 90-nano. We did have strong data, strong correlation and from customers, we are the best in terms of removing small parties in flat wafers, compared with typical water gas gel spray technology. With also our TEBO megasonic technology, we do too, we can do the patent wafer cleaning without damaging, without this air bubble burst or we call the cavitation a nonstable cavitation and generally the microjet to destroy the patent wafer. So our TEBO technology real fundamentally solve the other bubble burst, I call it, a problem or difficult. So, we can do the stable cavitation without their burst. That way we put megasonic in the new of the application. We can do patent cleaning with either finfab or future any 3D structure. And that is today knowing your solution that can do their physical cleaning by a small geometry patent wafer. So that's the second technology, right? With Tahoe, we also mentioned about the sulfuric savings, a big 80% more savings. So with the three key technology, we have a strong confidence. Our customers, especially even existing customers also future potential top-tier customer, they need the technology. Why? They have to improve their product yield, right? Also have reduced the environment concerns, and obviously, sometimes the costs related there. So that's our strong point and penetrate our product into the top-tier customers. Also, we do have a plating and also have a polishing tool. And that's also underlying and we believe they also can offer special innovation and also special performance, which were needed for the customer in advanced nodes.

Yes. There are no further questions at this time. I would like to hand the conference back to Mr. David Wang for closing remarks.

Okay. Thank you, operator, and thank you all for participating on today's call and for your support. Before we close, Gary is going to mention some upcoming investor relations' events. Gary, please.

Thanks, David. On May 27th, ACM will attend the 17th Annual Craig-Hallum Institutional Investor Conference, which will be a virtual conference. And then on the 28th, we'll participate in the Cowen and Company 2020 Virtual Technology, Media, and Telecom Conference. Attendance at those conferences is by invitation only. So please contact your respective sales rep if you want to schedule one-on-one meetings with us. This concludes the call. You may now disconnect. Thank you.