Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research Fourth 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. I would now like to hand the conference over to your speaker today, Gary Dvorchak, Managing Director of the Blueshirt Group. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on today's call to discuss fourth quarter 2022 results. We released results before the U.S. market opened today. The release is available on our website as well as from Newswire services. There's also a supplemental slide deck posted to the investor portion of our website that 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 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 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 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 loss in training 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 refer to Slide 12. With that, let me now turn the call over to David Wang, who will begin with Slide 3. David?

Thanks, Gary. Hello, everyone, and welcome to ACM Research fourth quarter and fiscal year 2022 earnings conference call. Starting with the fourth quarter results, revenue was $108.5 million compared to $95.1 million last year. Shipments were a record $193 million, up 69% year-over-year. Gross margin was 49.6% and non-GAAP operating margin was 17.7%. As anticipated, as a result of U.S. export restriction (ph), several customers reduced production at their advanced nodes facility. We also experienced some delay from our supplier due to supply chain constraints. Despite the impact to our fourth quarter revenue, we are pleased with our results. For the full year, 2022 marked another year of progress on our mission to become a major supplier to the global semiconductor industry. We delivered 50% year-over-year top line growth during the COVID-19 related restrictions, supply chain disruption and increased trade regulations. This results demonstrate -- were driven in part by our multi-product portfolio strategy. Turn to Slide 4. We are focused on deepening our position in cleaning our core product segment. In 2022, our Canadian product grew by 44% to $272.9 million, driven by one -- by our single wafer cleaning tools and continued penetration of semi-critical ordered range (ph) tools. We expect the ordered range to play a key role among mature nodes development in China and going forward. We installed several important new cleaning tools, including viable edge tool, high-temperature SDM single-wafer cleaning tool, and the high temperature IP dry tool and a super-critical CO2 dry tool for DRAM, which is important for our international efforts. ACM now has one of the broadest cleaning product portfolio in the industry, covering nearly 90% of all cleaning projects there. The ECP and the furnace and other technologies, revenue more than doubled year-over-year to $77.5 million and represent 20% of our…

Thank you, David. Good day, everyone. Please turn to Slide 11. Unless I note otherwise, I will refer to non-GAAP financial measures, which excludes stock-based compensation, unrealized loss of trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. I'll now provide financial highlights for the fourth quarter. Revenue was $108.5 million versus $95.1 (ph) million last year. Total shipments were $197 million versus $117 million shipped in the year ago period. Revenue for single wafer cleaning tools and semi-critical cleaning was $74.6 million versus $61.9 million. Revenue for ECP furnace and other technologies was $20.2 million versus $19.5 million. Revenue for advanced packaging, excluding ECP, services and spares was $13.7 million approximately flat versus last year. Gross margin was 49.7%, up from 47.9% 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 product mix and a positive impact due to the change in the renminbi to U.S. dollar currency 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 $34.8 million versus $25.1 million. We incurred higher R&D costs due primarily to increased personnel. Sales and marketing expense was higher due to promotional tools and personnel costs. Operating income was $19.2 million, representing 17.7% operating margin versus $20.4 million. Other expense net was $6.6 million, this was due primarily to the impact of the exchange rate changes on our payables and receivables for the period. Income tax expense was $2.7 million compared to $3.2 million in the year ago period. The effective tax rate for the full year 2022 has increased primarily due to the…

Thank you. [Operator Instructions] We have a question from Mark Miller with Benchmark Company. Your line is open.

Congrats on another strong year and outlook. I had a question about the regional distribution of sales. It looks like China was down 20% sequentially. How much of that was due to the restrictions in China? Just wondering what produced that 20% decline in -- sequential decline in China sales.

Yeah. Mark, I think it's really hard to give you a precise number. And obviously, there's reducing of investment in advanced notes. And that percentage how much contribution, I don't have the number right now. However, I should say there also, we see there are still strong demand in the material nodes, right? So that's the way we think this year, our revenue continue to grow, of course, also plus our new product deployment, especially ECP and the furnace.

In terms of other regions, that showed a nice uptick over prior quarter and year-over-year. Can you -- is that coming from the U.S. or Taiwan? Or I'm just wondering where the other region increase in revenues is coming from?

Actually, we do have -- we're expecting some revenue this year will come from outside Mainland, China, right, and some revenue expected from Korea and some from U.S. And also we're expecting probably not real revenue from there in Taiwan, but they're actually expecting customer probably breakthrough in time of this year, but not revenue.

Thank you.

Yeah. Thanks, Mark.

[Operator Instructions] Our next question comes from Quinn Bolton with Needham & Company. Your line is open.

Sorry about that. I was on mute. Hey, guys. Congratulations on the strong 2022 results and the very strong '23 outlook in the tough WFE environment this year. I guess a few questions. One for David or Mark, can you just give us some sense at the '23 guidance of $5.15 to $5.85. Do you expect any meaningful contribution from advanced nodes in China or have you effectively zeroed out the advanced memory and logic nodes in that guidance?

Yeah. Let me give a first shot. And I think we still see some probably still purchase going on, but obviously, quite reduced, right, compared to last year. And so that's not that much counting in our projection for our -- this year's, call it, projection. And however, we do see -- and also, there are some speed up and for the customer and even some new customers, right, in China for mature nodes and also for their power devices. So that's we see there our revenue growth and from major from those customers, right? And plus, as I mentioned, and also other products spread out by ECP continue to gain market share. And the furnace this year, we think we'll gain more rapidly with the market share, too. So that's the probate factor, right? Next one is also including some international contribution sales from outside Mainland, China.

I wanted to also ask just on the shipments, a very impressive number at $197 million. And in the fourth quarter. I know you don't guide to shipments on a go-forward basis. But can you just talk about was there anything special going on in December? Was there any business sort of either pulled out of the September quarter or perhaps pulled in from March. You talked in the prepared script about some supply constraints. Hard to see the impact of supply constraints when you're at nearly $200 million of shipments a quarter. So just trying to get some sense on what's your outlook for shipments, perhaps qualitatively since I know you don't give guidance for that number.

You mean the future? I talked about last quarter.

Well, just yes, maybe David just talk about the strength in shipments in the fourth quarter, was there anything unusual that led to such a strong number? And then any comments you might be willing to make about how you expect shipments to trend over the next few quarters?

I see. Well, actually, last four quarters, shipments also impact by constraint, right? If we have no supply chain concern, maybe ship more that's obviously there. And plus this, I call it trade restriction also limit that shipment too. So anyway, I think the next few quarters, we still can see that the continued quarter, I'm not saying that quarter higher than the fourth quarter, right, but I should say next year. And this year, we'll see that continue to increase our shipment, right?

Thanks. And then for you, Mark, obviously, gross margin near 50%, well above your target range of 48% to 45%. How much of the strength in the fourth quarter was due to that higher shipment level? I assume you're getting pretty good factory utilization at that kind of shipment level. Was that a big driver to gross margin or is it really more just a function of the mix of tools that you shipped in December that led to that near 50% margin?

Yeah, Quinn. It's going to be predominantly about the mix of products. The absorption helps a bit, but it's not a big portion. It's really about the mix. And as I said in the prepared remarks, we also had some benefit from the currency rates, but it's mainly about mix, Quinn.

Can you quantify the FX impact Mark? I mean, my guess is your mix with furnace and ECP driving a lot of the growth in '23. It sounds like your mix is going to stay pretty healthy in '23.

We're not changing our 40% to 45% gross margin target, Quinn. It's -- we're in -- it's a competitive industry in general, and we certainly want to work well with our customers. But 40% to 45% is the right target longer term.

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

Thank you.

Thank you. And we have a question from Christian Schwab with Craig-Hallum. Your line is open.

Hey, guys. Congratulations on strong execution and guidance. David, you're not alone in seeing tremendous strength out of the Chinese domestic market, Applied Materials and their ICAP business, spent half the call talking about it. So when you look at China, in your commentary about adding mature node, 28-nanometer IoT power sensor is probably a smaller market. But in saying that it does not -- the capacity within China does not meet domestic demand, I think, is the way you worded it. How many years of strong capital equipment spending do you think it would take for that to occur? Is that like a three to four, five, six year adventure? How long do you think that would take?

Okay. Good question. I should say, still I just mentioned or electric vehicle, other consumer electronics, right? There's a lot of consumption rate in China [indiscernible] chips. And I look at customer or new customer expansion plan, I would say probably the trend will continue to go another at least three years, right? And that's the -- I say there probably a three-year time line. I mean, again, it really depends on the real situation, but we see that trend going up.

Great. And we've also heard from some different companies who sell into domestic China market that there seems to be a reinvigored effort to buy from domestic Chinese suppliers versus international providers into the capital equipment marketplace, if there is good and competitive markets and products available, which, of course, you have. So do you see your growth potential potentially benefiting from that over the next three years as well?

Actually, I think for mature nodes, it is pretty same, right? In this moment, you know that there are other restrictions regulatory, not limited mature nodes, right? So I see that as still everybody can sell. So we're not specific to say, they have to buy domestic, whatever we are doing. However, because of the last two years, three years, the constrained supply and traveling and people -- that we make our R&D team in Shanghai we will make outstanding (ph), right? We still can't go in with the customer. Maybe that will give a customer kind of advantage of our proximity omni center, manufacturer closing. I see that as a more big impact, right? So I mean, I should say, I will say the customer still consider a faster tool pricing and also the stability of tool as a major consideration and not just have to select domestic. I think that's a really fair market. We want to also share that market with other players in domestic and also outside China. That's really -- finally, it's really a solution game, right, your cost, your service, your product quality. I look at that as more major.

Perfect. And then my last question regarding initial sales to a large U.S. company. And I think that I heard you say you thought you would get acceptance of those two tools and additional orders from that customer this year. Is -- did I hear that correct?

Yeah. I think that we qualify that tool. And hopefully, we're -- their continued expansion plan, and we've got to repeat the order, right? That's what we're expecting.

Great. And is that -- with that customer, is that on some complex stuff like gate all around or something like that or is there a technology shift where it's opening up an opportunity for your products with that customer that maybe didn't exist before.

Well, I'm not going to talk too much about that, right? We do have NDA. We even kind of talk if the customer is a logic and memory kind of target either, but we cannot comment your question, sorry.

Okay. That's fair. And then I think in a conference call or two ago, you mentioned -- this is my last question, that you would expect sales or shipments, I should say, outside of domestic China in calendar '23, a target of about 10% of those shipments outside of that market. Is that still the number we should be thinking about or did I remember that…

Yeah. I should say probably five to 10. It really hard to give you a fixed number now, maybe by end of this year, I'll give you more detail. But the target right now of five to 10. That's our goal.

All right Sounds perfect. Great. No other questions. Thank you.

Thank you.

Thanks, Christian.

Our next question comes from Chaolien Tseng with Credit Suisse. Your line is open.

Okay. This is Chaolien. Thank you, David and Mark. My first question is, is that the revenue by region, is that based on shift to location or the customer headquarter region?

We're saying that is based on -- it's not by actually a quarter, we'll talk about the delivered to China territory, right? Final location we talk about.

Okay. So that's more like a shift to the location of the Fed.

Let me clear that. And while let's say highly exclusive let make sure. Highly exclusive we whatever that is sold actually to the China allocation, we're considered as for the Hynix, right. Hynix have both staff in China also in Korea. So did that answer your question?

Yes. So actually, my next question is also relating to these important customers. So I'm curious that how much complexity manufacturing complexity are we preparing for this and any other international customers by end of this year or next year? In Korea, the production capacity in Korea. Because I'm just thinking that if any -- yes.

Okay. I think let me, Korean capacity or expansion and we're going to, well, doing from now on, right? As I said, we're expanding investments, including increased capacity and that capacity at the moment, we can say some of them is still using for China market because we have a co-development tool between Korea and Shanghai. And also that capacity also will be prepared for a secondary manufacturing center and to supply customers outside China, right? So that's a two-function in there in Korea I make sure I answer your question. Does that answer your question, Chaolien?

Yes. Because I'm just thinking that with the U.S. Trade Act, if any of our potential, I mean, U.S. or non-U.S. fab customers going to expand in U.S.? Would they have to only purchase any clean furnace or ESP from our Korean production side from our Shanghai production side in the next few years.

Well, obviously, every customer either they call it a business continuity, right, because in a natural disaster, they're always asking two sites, even three-site manufacturing. So you're asking customers, they prefer, they prefer at these two locations and something happened, they still have a segment stores can continue providing the tool. So that's exactly where we're designed here as I call it, a business continuity and to really make sure we can supply to all the customers in the world.

Okay. Thank you. And next question, I'm not sure if I missed this earlier, would you might give us an idea on the R&D ratio into 2023 after the major increase last year?

Let Mark answer your question. He knows more money. I don't know much money. He's better.

Yeah, Chaolien. So in 2022, if you go through the numbers, the non-GAAP basis, it was about 15.3%, up from 12.7% in 2021. We think that's about the level we'd expect in 2023 or on 15% or so.

Understood. Thank you. And maybe my very last question is that I noted previously some other analysts also asked about the very exciting revenue growth in 2023. And David discussed earlier that a portion of that will come from the Tier 2, 3 fab customers in China. So I'm still quite curious here because if you look at the fab customer in China Tier 2, Tier 3 fab, how would you comment on your market share with this Tier 2, 3 fab in China last year versus the market share outlook for this year?

Yeah. Actually, if you look at the number, we just see the script, it's about 20% represent right now in last year, right? And I continue to see that number will continue to increase. And because we see the new customer come out and also some second tier and third tier customers like some expansion too. So it's -- we see that group occupation will increase. Yes.

Yeah. And another question, more on the revenue recognition side, further kind of advanced note restricted by the U.S. regulation -- the U.S. October 7 regulation for any tools, either the repeated tools or the new tools that we ship to any of these fab customers are all those related revenues already booked in the fourth quarter?

Let me [indiscernible] well, obviously, in the fourth quarter, there is some revenue coming from there, right? And I'm also expecting still some revenue contribution even this year, too. And obviously, we follow strictly for the U.S. trade regulation, which is no U.S. part and no U.S. technology more, right? That's our baseline there. But I still see some going on, but obviously, has been reduced as we compare last year.

Okay. Understood. Thank you, David.

[Operator Instructions] We have a question from Suji DeSilva from ROTH. Your line is open.

Hi, David. Hi, Mark. Congrats on the progress here. Expecting growth in some of the newer products to show up materially in '23 here. What is maybe the competitive landscape on some of the newer product, the furnace and the CMAP? How is that different from the traditional SAPs, Tebo products?

Yeah. Okay. Let's put it this way. So we're growing -- I think this year, we still continue to see our new product in cleaning, right. I just mentioned in the script, we do have a babble (ph) etcher and also new drying technology, including supercritical CO2. And also, we see the opportunity for even a single wafer SPM. So we still other expansion of our cleaning product, which is to cover almost 90% of cleaning process there, right? Also, we see some of this differentiated technology we introduced to the international customers, right, Korea and the U.S., Europe. And more than that is also we have the copper plating and furnace, right? And copper plating gained a lot of market share last year. We continue to see that trend continues going on. Also, we're expecting a couple of ratings for getting into the market in Korea and in Taiwan, even beyond, right, Europe. And another way, the furnace product, and we do have high-temperature, Anneal, oxidation, and vacuum Anneal, LPCVD, including nitrite, poly, the poly has (ph) been expanded multiple customers in China. And also last year, we did also introduce, right, this two new ARD furnace product for the market and with also proprietary design of our ALD furnace. We see that there's also penetration to the market in China also in outside China, right? So we see that V3 product will be driving continuously growth for 2023. And then that's the so far we say. But that was our two new digital product, PECVD and Track will take time. I think we need almost a year to evaluate at the customer side, maybe also putting in multiple customer site. And then that revenue contribution will be probably 2024 and beyond.

Okay. All right. Thanks, David. And then with the growth in China from the shipments, can you distinguish what's happening in China in the foundry logic market versus the memory market to understand the different dynamics there in support of your '23 forecast?

Okay. Let's put it this way. I still say, we're seeing mature notes grow, obviously, mostly in the logic and power device analog, maybe some of the compound semiconductor, right? So we see that that trend -- that total ratio will increase in China. And I still say our memory, I still see some growth, but the relative ratio was probably not grow faster as this mature nodes market, right? I think last year, we are about the market of 15%, right, come from memory because a little more than 15% come from memory market. This year, I should say, probably might be another range or maybe a little bit slightly lower. That's what we're looking right now. And Mark, anything you want to add on that?

No, I don't think I'd add anything, David. I think you covered it well.

Okay. Great. That’s really helpful in color, Dave. Thank you. Thanks, guys.

Thank you.

Thanks, Suji.

Thank you. And I'm showing no further questions in the queue. I'd like to turn the call back to Mr. David Wang for closing remarks.

Okay. Question so fast. Just give me one second. Let me get it. 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 our upcoming investor relations events. Gary, please?

Hey, David. Thank you. On March 14, we're going to present at the 35th Annual ROTH Conference in Dana Point, California. Attendance at the conference is by invitation-only for clients of ROTH. If you're an interested investor contact your ROTH representative to register for the conference and request a one-on-one. This concludes the call, so you may all now disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.