Good day, ladies and gentlemen. Thank you for standing-by. Welcome to the ACM Research Third 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 Mr. Gary Dvorchak, Managing Director of the Blueshirt Group. Mr. Dvorchak, please go ahead.

Thanks, Lisa, and good morning, everyone. Thank you for joining us on today's call to discuss third quarter 2022 results. We released results before the U.S. market opened today. The release is available on our website, as well as through Newswire Services. There's also a supplemental slide deck posted to the investor portion of our website that we'll reference during our prepared remarks. On the call with me today are our 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 the remarks made during this call may include predictions, estimates, 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 to differ materially. Those risks are described under 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 provide on 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 and the Slide 12 in the supplemental deck. With that, let me now turn the call over to David Wang, who will begin with Slide 3. David?

Thanks, Gary. Good afternoon, everyone, and welcome to ACM's third quarter 2022 earnings conference call. I will start with the new China trade restriction issued by the U.S. Department of Commerce Bureau of Industry and Security in October. The updated export controls cover equipment and parts subject to U.S. export controls, including items from U.S. and the activities in U.S. persons. Based on our preliminary assessment, the new policy restrict export U.S. parts for tools delivered to advanced node facility or for tools that meet the certain ECCN parameters. Some of our shipment will be impact as our tool currently have 5% to 10% of the components sourced from U.S. and reproduced some tool in certain ECCN categories. Let me provide more detail. First, some of our customer have advanced node of facility. Shipment to this facility may be impact due to U.S. export restriction. As advanced node, the facility defined as POD (ph), where production and their restricted technology level occurs. The policy does not apply to other customer POD with mature nodes. However, even when they are on the same campus. Second, from ACM Shanghai products need a parameter of a certain export control classification number or ECCN number, on the commerce control list. Shipments of this tool may also be impact, if those tool need a parts from U.S. This may include our ECP tools and specifically support copper metal printing. Server first product and one of the new platform products that we plan to introduce. It does not include our cleaning tools, most of our ECP tools, or WLP tools, or other new platform products we plan to introduce. Third, the policy is strict in U.S. process from facilitating shipment and servicing products involved with advanced nodes or at least the new ECCN number. We have…

Thank you, David, and good day, everyone. Please turn to Slide 5. Unless I note otherwise, I'll refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized loss on trading securities. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. I'll now provide financial highlights for the third quarter. Revenue was $133.7 million, up 99.5%. Total shipments were $163 million versus $99 million in the year ago period. Revenue for single-wafer cleaning tools, which includes SAPs, TEBO, Tahoe and Semi-Critical cleaning was $99.7 million versus $49.5 million. Revenue for ECP, furnace and other technologies was $24.5 million versus $8.2 million. Revenue for advanced packaging, excluding ECP, services and spares was $9.5 million versus $9.4 million. Gross margin was 49.4%, up from 44.5% in the prior year. This exceeded our normal expected range of 40% to 45%. The increased gross margin versus the prior year period was primarily due to a higher mix of ECP, front-end packaging, furnace and other technologies and a positive impact due to a change in the renminbi to U.S. dollar currency 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 $32.6 million versus $16.7 million. Higher R&D due to tools built for product development, additional engineers and other factors together with higher sales and marketing due to promotional tools and personnel costs contributed to the growth versus the prior year period. Operating income was $33.5 million versus operating income of $13.1 million. The large increase was due to higher gross margin and leverage in our top line. Operating margin was 25.1% compared to 19.5%. Unrealized loss on trading securities was $5.3 million. The loss reflects…

Thank you. [Operator Instructions] At this time, the first question will be coming from Quinn Bolton of Needham and Company. Your line is open.

Hey, David and Mark. Congratulations on the strong near term shipments. Obviously, big questions, I think for a lot of us on the line are the impact of the export controls and it looks like it's certainly having an impact on the fourth quarter as you take the midpoint or the range for 2022 down. I guess a couple of questions. One, as you look at 2023, I know you haven't given ‘23 guidance, but could you give us some sense what your -- what the impact of the new export controls might be on 2023? Is that $50 million? Is it $100 million of potential business that could be affected? And then the second question is just, can you give us some sense of the split between what percent of revenue is affected from shipments to advanced facilities in China, the DRAM, the 128-layer NAND versus how much of your -- how much of the impact is due to parts that contain -- or sorry, tools that contain U.S. parts and/or the new tools that are affected by the ECCN classifications? Sorry for the long questions, but hopefully, you get sort of what I'm driving at?

Okay. Well, let me cover first one and maybe Mark handle (ph) it, right? I mean, our revenue projection for the next year forecast normally give a January timeline. At this moment, I think it's still too early probably we can't give it too much detail at this moment. I want to mention there, looking at this restriction, actually I can say that definitely some of advanced nodes production plan will probably get slowed down. However -- and as I mentioned in the script, China has a lot of mature nodes and chip, consumption in the market. China imports almost 60% kind of global of their chips. So for this mature nodes, I think what we gave the potential and also a lot of this electrical car and also a lot of commercial products using the 28-nano and 45-nano, right? So we see the added, what is still continue to grow even possibly speed up and there's a potential fab build up. So also our technology, mostly at this moment, real service for those who know to be proving (ph) and where position this kind of market. So therefore, I would see that the mature nodes will continue to grow and even speed up. And that revenue is some – advanced node will get sold down. So combination put together, I still say ACM is still in a growing pace and in a channel market, right? That's I view there for the market that we're talking here. Then at the same time, we have to also increase our two new products online and that's probably introduced very soon and by end of this year. So with a new product add on to our product portfolio, we have also modern product in the market. That's why we give us the more of our -- I call it revenue stream probably in 2004 and for the two new product. And also recently announced this ARD of the -- I call, the furnace product and that's also keeping – giving us revenue in the 2023, ‘24. So what's the key for confidence and what do you have in the market in China? We have very high record and for R&D engineer and also together with the Korea engineer and also very preparation for the real this matures nodes participation and [indiscernible] to grow. But meanwhile, we also -- we are trying to expanding our -- on advanced node, right, in the international market, right, especially we have building our Korean fab and Korean R&D facility. So for that reason, I will say, we are still can do R&D and for their service global customer. And we want still a differentiated product and the servicing for the entire industry. Did I' give you the first question. Okay, Mark, you want to cover second question or you want anything to add on that?

Yeah, I can -- No. Thanks, David. Yeah. I think Quinn's second question was about what percent of our tools were going to advanced nodes in them. I might -- it's hard to measure, but it's a pretty small percentage, right? And so the majority of our business has been the more mature nodes. But I think as everyone knows, ACMs in a good position where we've got some flexibilities we can ship a lot of products where others can't. But we're going to be impacted by the overall spending at our customers, right. So for instance if they can't get certain tools from other players. Their spending, we would expect it to pause for a bit, as David mentioned in the prepared remarks. So I guess kind of bringing it all together, looking out to 2023 as David noted, we're not -- we'll give the guidance like we always do it at the beginning of the year, but we're planning for some growth. And we'd expect there to be a bit of a pause in the first half as the industry adjusts and works to get their licenses in. As the customers work on, for instance, fabs that buildings that don't have the mature nodes, right. And so they can have them with what you would call a compliant fab. So we're watching that closely, but we'd anticipate kind of a pause from some of the bigger customers, some of it hitting this quarter and some of it carrying through into the first half of the year. But as David noted, we'd expect the spending and the industry to start being able to support the mature nodes that those customers as we move through the year next year.

Great. And just as a follow-on. Okay. Go ahead.

Yeah. Let me add on the -- our U.S. parts, right, ratio. We are proud that normally have a 5%, 10% U.S. components, right. So clearly, if we're not, wherever actually our convenient (ph) product is not the ECCN category. So for our major revenue and we still can use in U.S. parts and also U.S. firstly involve to stay out of the parts with a mature nodes customer, right. As a matter for those property, our Chinese engineer or Chinese staff as their activity to building tool for advanced nodes and then we have to, this moment, cannot get any parts on U.S. So they probably have to choosing to other compliance with supplier, can be any other area. And we do have found some parts in China locally. Yeah, something will take time. But as I said, this can be taking probably a year, maybe a year or two. And however, it really depends on how their vendor and also there is common supplier, how they fast or quickly reaction to this changing. As you say, as you can see the U.S. parts impact is -- it's kind of a compare -- other guide that were pretty much minimized, but we'll come back.

And one final clarification, Mark and David. For the parts that are under the ECCN classifications those are the tools where you cannot source U.S. components. Is that right? So it would only be, for instance, the cobalt (ph) ECP tool, not the rest of the ECP line. And then I think you mentioned one of the two new platforms may also fall under ECCN. I'm just trying to get a sense what shipments for ACM are affected and where you are free of restrictions?

Yes. Actually, like, you said, this is a copper plating cobalt, right. It's really targeting probably 7-nano, right. In this moment, I do not expecting higher revenue in China, obviously. So a lot of like 80 -- 20-nano and above, those nodes is all copper plating, right? Even in the 60-nano, 40-nano [indiscernible] is still copper plating in other words. So I should say, our copper plating is still okay, another ECCM. And all can be not in there, right? Our new product we can introduce does in ECCN, right. So in this case, we have really saw the other U.S. parts out. And as I said again, even in our new product, we talk about ECCN. Our U.S. parts probably, I would say, probably 10% range, right, almost like that. So it still can be possibly found other term of choice. And obviously, either qualified needed to be and working with the vendor and gather those terms to be qualified, right, it will take time. And however, we think [indiscernible].

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

Yes. Thanks, Quinn.

Thanks, Quinn.

Thank you. [Operator Instructions] Our next question will be coming from Suji Desilva of ROTH Capital. Your line is open.

Hi, David. Hi, Mark. Congrats on executing in a obviously very tough environment here. Can you guys talk about the Korea footprint for R&D and tools? What are the remaining steps in the timetable there for readiness or is it already ready? And will the mix of tools shipping out of Korea, is it planned to be similar to Shanghai or is it leaning more toward that leading edge nodes?

Okay. Good. Actually, the Korean, we started Korean or subsidiary 2017, right. And since that we can hire the people and today we have almost 110 employees in Korea, in which 60% was R&D. So Korea have about 3,000 square meters facility. Actually can manufacture well in our convenient rule and future but we can also manufacture in a copper plating tool. And also we have a dryer, let's say, the furnace, right, ARD tool and most portions also made in Korea and some portion made in China. As time going on, we do have our two new introduced products. And I have not given them yet. And those two new products also can be manufactured in Korea. So I think Korean R&D manufacturer base or by the way, we also -- also finding the one land in the final phase for the government [indiscernible] for license. Of that, we're building also another secondary manufacturer center in Korea, right. So with this the preparation, I think we're well positioned to have a Korean to make a tool, of course, can sell back to China and will also prepare -- the tool made in Korea to the sell to the Taiwan and also sell to the, I call it, U.S., or European market, right. So at this moment, I think we have our two manufacturing vendor, one in China, one in Korea and also we have to more of a product more effort and to work with the Korean top player and their customer here and also to do the R&D research and advanced nodes, right. So that's going to be the real second center and for us expanding their global market. Mark, anything want to add on that?

No. I think you hit it there. I mean, I guess maybe I'd mentioned that, you just have an second production center, I think is pretty attractive to some of our international customers and so that'll help us drive our international business.

Okay. Thanks, Dave. And my second question is around I think in the prepared remarks, you spoke about first tools taking longer for acceptance. Is that simply an off-shoot of the kind of reassessment with export controls or is there something else going on there right now more generally?

Suji, I don't think we've said anything specific about first tools taken longer for acceptance. I think when David commented on the outlook, he attributed it to supply chain constraints and the new U.S. policy, but we didn't mention anything about delayed acceptances, yeah.

Okay. I may have misheard that. All right. Thanks, guys.

Thank you, Suji.

Thank you. [Operator Instructions] Our final question will be coming from Christian Schwab of Craig-Hallum (ph). Please go ahead.

Hey. Good afternoon or good morning. Can you just -- Mark, can you just tell us where all the cash is, and the use of funds and whether we can bring some of that back to the United States. Is there a way to do a meaningful stock buyback and some program? Can you just refresh us on the use of the significant cash balance?

Yeah. Hey, David. Maybe I'll -- he's asked, Christian. Hi, Christian. Yeah. Go ahead. [Multiple Speakers]

It covers something, maybe you can stay away with cash, right. Okay. Well, basically, the cash we have in most are well proceed. We have some market IPO last year, right. And those money is belong to the subsidiary and you do have other tempered 17.5% of minority investing there. So we cannot directly put this cash back to their major shareholder as USA, right. So we cannot do that. However, as time going on, we have a profit generating in China and we do can -- well, we can bring some dividend back to U.S. And last year, we didn't do anything, but we were still considering in this L1 (ph) option and put it in cash back to U.S. not necessarily we want to buyback share, really important when we're trying to enhance our R&D and also sales effort and to exploring further U.S. and European market. And that's what we will consider. Anything else? Mark, you want to add on that?

Yeah, I can. Christian, so we break out our cash by geography in our queues. And so at the end of June, we had almost $30 million in the U.S. It was $240 million in Mainland China. We also had some cash in Hong Kong and South Korea. But as David noted, the U.S. cash we plan to use that to grow our business. We're evaluating a couple of tools and a pretty major potential customer. And so we've got a small services team in place, but that cash is good to allow us to run some pretty long term marketing and customer development programs and so we're not planning necessarily to do anything different with that cash. That's it. Thanks, Christian.

Great. Those are my questions. Thanks, guys.

Thank you.

Thank you. [Operator Instructions] Our next question will be coming from Robert of Blue Lotus. Please go ahead.

Hi, David. Can you hear me?

Yes.

Yeah. Hey, Robert.

Okay. Great. Yeah. Thanks for taking my question. And yeah, congratulations on the good results. I just want to get some clarification on the percentage of U.S. parts and your different types of equipment. Would you able to clarify that? Like, for example, what percentage of U.S. parts are in your wafer-cleaning tools and in other tools? Thanks.

Yeah. And typically, I said that we did 5%, 10% depends on their cleaning tool type. And, we do have some [indiscernible] and some kind of pump, right. And those parts were purchased from the U.S. And so it's about 5%, 10% in terms of the brand wise.

Okay. Got it. And so do these parts need to get licenses or is that what I'm understanding? Is that I'm just saying correct?

Yes. Well, there's actually two categories, right, and that's an equal. Our tool is not ECCN list, which is a mini -- not ECCN, right and, it's not ECCN. and also we are shipping mature nodes customer facility. And for those portion of the tool, we do not either apply license, okay? So only the tool you need the license is for advanced nodes and also some tool within the ECCN number, which is like a copper cobalt plating and also some -- furnace ARD tool. Those tools, if you're using in the parts you need the license.

Got it. All right. So you're saying, so for the wafer-cleaning tools, the parts, there's no license if necessary even if they come from the U.S. So for example, your supplier doesn't need to get a license, if they want to ship you the part. Is that correct?

Yeah, above for mature nodes to make sure… [Multiple Speakers]

Hey, Robert and David, let me just clarify. So I mean, there's a lot of regulatory and license requirements in general for tools going to China or going to other areas. And so the point is that this new policy hasn't added any additional restrictions for cleaning tools and for certain tools. And so I just wanted to be clear, the new policy added additional restrictions for exports of products that would be going to -- into tools that would be going to advanced nodes and for exports of products that would be going into this new platform.

Did that clear, answer your question, Robert? Hello, Robert? Oh, he is gone.

I think we lost Robert. Yeah.

He is gone.

[Operator Instructions] We have another question coming in from Robert McKay of Blue Lotus. [Multiple Speakers]

Can you guys hear me now? Yeah, I lost connection there in the public call. I'm sure someone else took notes. So I didn't catch it, but I'm sure someone else took notes. So I guess my next question then would be, what about the U.S. headquarters? Does that complicate things for your business? Because I understand ACM Research is headquartered in the U.S. of course, you have the Chinese subsidiary. Just wondering if there's any kind of negative impact from your specific kind of business overview? Thanks.

So you asked the impact in U.S., impact in China? I want to clear your question.

Yeah. Sure. So let me just clarify it. So I just meant, in terms of the BIS rules, I was just wondering if there's any kind of impact from the fact that your headquarters are in the U.S.? Does that -- let me think how to phrase this. So just to make you subject to any extra kind of regulations in terms of the BIS rules due to your U.S. headquarters?

Okay. Well, that's a good question. At this moment, U.S. headquarter basically is actually only conducting sales and marketing, right, and for their tool in the U.S. and Europe, right? And so for those activities, they get promoting our tool made in China or made in Korea. And for the USA or for the European market, it should say nothing impact there, right? Because [indiscernible] only for tool go to China, right? So I don’t think impact anything outside of China activity.

Right. Okay. Got it. And then for the other question was about your ECP tool. So I understand it's only for the cobalt plating for ECP. And so the other tools that you've shipped that are ECPs and just like you were saying for wafer-cleaning, there's no license requirements for those mature tools that are not for, for example, under 28-nanometer that are not for cobalt wafer-cleaning -- sorry, cobalt ECP, Is that correct?

That's correct. Yes.

Okay. Great.

Yeah. You are correct.

Okay. And then for furnace, I think it also applies to furnace. Does that mean the furnace then going forward there would be no revenue stream for furnace? Because I think from your remarks… Yeah. Go ahead.

Actually, yes. And like you said, revenue of furnace ARD it's not a category (ph), which is easily seen in category. And for those part -- and for those tool are probably we can either import any parts from U.S. right? And second thing that we can add also have a U.S. person, directly involved, right and the servicing, consideration or the shipping whatever altogether. So well, that's the case with what devote (ph) all our responsibility and sales marketing everything decision to our Chinese team. And they have a CEO, they have a sales VP, operation people there. So they take care, right? That's different itself, but they have been using non-USA parts. A U.S. person cannot involve.

Got it. Okay. Fair enough. And then so for that corners tool and is there any Chinese or any Chinese suppliers that could supply the parts that you need for that tool. So I think domestically or would that be against the regulation?

Yes. It's a good question. Actually, the deposit can be using or where we are using maybe other country. Some parts we can say from Europe, right, and some parts from the Korea and some are from Japan. We can -- from some part also in China too, right? So it's -- well you need to some kind of qualification, qualify those parts. Is that what we take time.

Okay. Got it. So in your view then do you think that for the vast majority of your products you can requalify with like non-U.S. supply chain parts and then theoretically maintain your product lineup?

I should say, we're still evaluating that right now and we do see some parts can be changing quickly. And some parts we have to rework with the supplier then to qualify the parts and also work in the customer to qualify that tool, right? So with that ever take time and now they just like, you know, one day is reaching, right. But then, normally, our qualification process, I should say, if we change the path, and six months or one year, that's typical time you need to qualify, right. That's the typical time you consider to qualify a new parts.

Okay. Got it. Okay. That's very helpful information. Yeah. Congratulations on the good results and thanks for answering all the questions I had. I know it's difficult to sort through all these regulations. So yes, thank you.

Thanks, Robert.

Thank you.

Thank you. [Operator Instructions] We have our next question is coming from Chaolien Tseng, Credit Suisse. Please, one minute, while are your line is open?

Do you hear me?

Yeah. We can hear you.

Okay. Great. Thank you, Mark. So my first question is regarding, I understand that from a [indiscernible] in logic side, the market side, market potential is very big in China. So I'm also very curious how about, first say, like, I mean, [indiscernible] NAND and 90-nanometer DRAM. Do you expect the Chinese I mean, fab customers will continue to expand over next few years. I think one of the argument is that because for this NAND and DRAM products maybe because of the construction issues. So the market is very worried that this potential China set customers may now continue to have good expansion over the next one, two, three years?

Well, and obviously there is a moment, we're still assessing their market, right. It's too early to give any conclusion right now. And I will say 90-nano DRAM above and there's a lot of niche market, right in the DRAM business. They're not only getting to their smaller dimension and some DRAM still sell 25-nano or a niche market there. So I don't know, I just kind of speak of a customer, but I won't see that DRAM does have another application in a large node, right. And for 3D NAND, I don't know really at this moment. I cannot comment in the 96-layer, as any other application. We don't know yet really. And sorry, cannot comment?

Thank you, David. Another question for me is that, so over the past few months or after the – I mean, the Shanghai finished -- kind of finished the lockdown. On the product development, on the R&D side, I mean, first, do you see that kind of ahead of expectation in the past two quarters versus what kind of, I mean, still slow in terms of the new product development. Another thing is that, could you share a little bit more about on the wafer-cleaning side that our supercritical drive towards progress. Thank you.

Okay. Well, new product and I think we are coming for almost like a two or three year in all the effort, right? The two new product, new category product, which is a real trouble our addressable market. It's real good progress. But it's like, we're in a final stage and capacity and also do there, I call it, pretty much we want to make sure our testing is okay, and meet the customer requirements and we ship. I still think we're probably, possibly shipping by end of this year, as a new product for the customers. And regarding the CO2 dry clean product, I think we're doing also very well, right. This is a critical product for other high spec ratio drying process. And so our Chinese engineer is working very hard and they try to bring this market -- from the market.

Thank you. And David, one more question is back to the gross margin side because I missed the first few minutes. I'm not sure if you or Mark already discussed the gross margin on ECP and furnace versus the corporate average because the second quarter gross margin is pretty good. I'm just thinking about is there any potential -- is there any possibility that’s looking ahead, our gross margin will be more on the higher end of our long-term range. Thank you.

Well, I still want to say that our gross margin is still in the range 40%, 45%, right. And last quarter is again the combination tool, right? And you're right, our copper rating for front end application does have higher margin, right, as of why on the driving. Also, we do have a strong combination of the cleaning tool to have also higher margin, right? So it really depends on the ratio. And there are also there -- we do have something also in a low margin tool, like, in a double AOP (ph) tool, right. And also, auto bench tool, right. So it's really dependent combination. So I still say our margin is still 40%, 45% and for the near future.

Okay. Got it. Thank you. Thank you, David.

Thank you.

[Operator Instructions] The next question will be coming from Charlie Chan of Morgan Stanley. Your line is open.

Thank you. Hi, David. Hi, Mark. First of all, thanks for walking us through. Yes, this is a very challenging environment and thanks for all the clarifications. So my first question is really about the cyclical impact. I know China still need to be able to low cost efficiency, right? But if you look at outside of China essentially all the foundry fabs, memory fabs are cutting CapEx, by at least 20% into next year. Do you think that is going to impact your plan in mature nodes? And do you see any mature nodes customers are withdrawing some CapEx plan recently? Thank you.

Yeah. Actually, Charlie, I really couldn't say, rare near future, right, I wouldn't say next quarter to quite kind of retail, but I just recall the high level point of view, as I said, China is still consumption a lot of mature nodes and products, right. And also recently electrical car even consume more of the power device. So a lot of our mature nodes products, which is still not enough or made in China, right. And so for that point of view and China is going to really increase more of a mature nodes production and then meet their own requirements. So from that point of view, I can see that the next few years is still out of fab is going to build, right, to meet such a requirement because most of the market right now is in China, right? That's the real reason markets are here. So they can build their fab, they can sell the product. So from that point of view, I still have a very positive view for China market due to mature nodes. As a matter of either next, the one quarter, two quarter or three quarters, I couldn't tell, and I'll have the real product after them all of the market next year. But from the long view, I think, there's a lot of fabs we can do that. Also electrical car driving, right. It's real high, develop in China, that's a power device can be another bigger potential market we're looking right now.

I see. Yeah. I totally respect your view. But just there by, we did is and I knew this before, right, meaning CapEx long term still correlated with the free cash flow. So from what we're seeing right now, there's just some wafer pricing pressure in mature nodes. So I'm really worried about free cash flow could decline and that will at some point will catch up the CapEx plan. But anyway, I do agree that long term there is a still upside for China as a mature nodes. And my second question is about your efforts or you’re -- the entire supply chain efforts to minimize the U.S. take on its dependency. So you do -- you said that you want to qualify some U.S. components on Japan, Germany or even China locally. I think that, that should be the way to do. My question here is that how do your customer complete the production line without the critical tools, by nanometer ASMLs [indiscernible] tool or applied materials, AP tool or land research, ICP, [indiscernible]. Meaning, together those companies or countries still want to more comply with the U.S. rule? How do you still sell your tools, if your cars have a vehicle that's a critical products?

Okay. Let me clear that.

Do I miss anything? Yes.

Well, let me clarify that. You mentioned for the advanced node or for mature node?

Advance nodes, because the mature nodes, I think it should be fine, right, nanometer from the export rule perspective or technology perspective, but your advance node is something that I'm asking?

Yeah. I think we do anticipate the mature nodes will slow down, right. A lot of, like, you said, the critical parts and also critical tool, right, has made in U.S. right now. And so those systems as hard to really easily find another replacement tool, right, in other even in Japan or in Europe. And so that can be there. So that -- yes, I agree with that. So for -- I see that is really -- we're more focused on the mature nodes. And at the same time, we also focus on the international market with advanced nodes too, right. And like ACM has a differential product, we are not only trying to sell to 60-nano or 40-nano, we want to also sell to the 3-nano, 2-nano, right. So we're going to also focus in the market in outside China for the advanced nodes. And this way, we can have a differential product and get into their global market.

I see that's very, very reasonable. So last question, maybe to Mark or David if you want to comment. Because right now all the local equipments that they are kind of more focused on the mature node opportunity. Do you expect more price competition from your local peers? And secondly, Mark, given the kind of a reduced revenue scale, but I believe you guys continue to spend R&D to launch the new product line. What would be the reasonable operating margin assumption for coming years? Thank you.

Okay. Let me answer the first question, I think the question was -- the second for the Mark will answer. Okay. Well, and you mentioned mature nodes, I think ACM real position for our mature nodes, they didn't even connect me, right. And we are now going to do mature nodes cleaning almost 90% or above, right. Also, we are launching almost two years ago auto bench product, right. So for this moment, I think we're very, very well positioned for those mature nodes. Plus, we do have [Indiscernible], right. Those kind of tool come out and copper plating obviously needed for mature nodes. And also we do have a two new products which we will also have a huge marketer contribution or market potential for the mature nodes. So in terms of a local competitor, I will say this way, customers still choosing and not only say low price and looking mature nodes, there's also two or difficult to make. And also for the customers want to ramping faster for their machine on the production, they got to have from the part or the tool they can use first, right. Now they qualify one vendor up another. So I still think that this semiconductor is not easy. And for any tool player, customer probably like a one or two player maybe, maximum three. Maybe two is good enough for them to choose. If we got a three or four different player and for the same product, it's really to focusing there on the effort. They make the chip. So we're pretty comfortable on our position, our technology and fabs and also a customer relationship and also a commitment, right? Also multi of 10, 20 -- over 10, 15 year relationship with the customer. So we're pretty okay with the competitive position in China. Okay, Mark, maybe second question for you.

Yeah. You bet. I think the question was about the operating margin kind of outlook. So as you know, we've talked about this before, but look, we're a technology company. We believe there's lot of growth ahead of us. We certainly are still targeting that $1 billion revenue target over the longer -- medium longer term. So we're planning for growth. For next year, of course, David mentioned we're not guiding it for next year. We'll talk about that on our Q4 call, but we're planning for growth. And in general, the operating margin, it depends on the overall top line. And so, but we just did 25% here in Q3. If you are depending on what kind of revenue you'd be looking at for next year, we'd like to have kind of a floor of a 10% annual level. So with modest growth next year, that would be kind of a reasonable target and with good growth, we hope they would see some leverage.

So Mark, I'm not sure if you -- I get it right. So you said some moderate growth, you're still comfortable you can get 10% operating margin over both next year. Is that right?

I'd call that a target. Yes, we'd call that a target. I mean, it depends. There's a lot of factors. We're going to best in a given year, but we generally have kind of a 10% annual operating margin target.

Okay. Fair enough. Thanks for all the answers, David and Mark.

Okay. Thank you, Charlie.

[Operator Instructions] Our next question will be coming from Mark Miller of Benchmark Company. Your line is open. Your line is open.

Hey, Mark.

Okay. There was a glitch on that. I just had a question. You just did your year-end total sales down somewhat. I was just wondering and you attribute that to several factors. I was wondering what percent of that change was attributed to the new restrictions?

Okay. Well, I should say, there's a -- I don't know, probably, I should say there's a parts, right? We are -- in those parts there is, we are buying U.S. parts, right? And so that's what the -- now the ship with the people or you have to found a different like other source, like compliance source. That's the portion of our delay shipment, right, that something pushed off. And also, we still do have some constraint even from non-USA parts, right? It's really tied control for the constraint of the supply chain. So that's all maybe put a two things together that’s impact our revenue in Q4.

You indicated the restrictions would impact your ECP plating tool. Did you also say furnaces?

Furnace will be specific is special for ARD, right. It's very dependent type, right. No, it's not all furnace.

Okay. And just one final housekeeping question. What was stock-based compensation?

What was your question, Mark?

What was the stock-based compensation?

Stock-based comp, it's $1.9 million for the quarter.

Yeah.

Thank you, Mark.

Thanks, Mark.

[Operator Instructions] There are no more questions in the queue. I would like to turn the call back over to David Wang for closing remarks.

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

Great. Thanks, guys.

This concludes today's conference call. Thank you all for joining and have a good rest of your day. You may all disconnect.