Good day, ladies and gentlemen. Thank you for standing by and welcome to the ACM Research Fiscal Second Quarter 2024 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'll turn the call over to Mr. Steven Pelayo, Managing Director of The Blueshirt Group. Mr. Pelayo, please go ahead.

Thank you, Desmond. Good day everyone. Thank you for joining us to discuss second quarter of 2024 results, which we released before the U.S. market opened today. The release is available on our website as well as from Newswire services. There is also a supplemental slide deck posted to the Investors section of our website that we will reference during our prepared remarks. On the call with me today are our CEO, David Wang; our CFO, Mark McKechnie; and Lisa Feng, our 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 of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of these 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 on short-term investments. For our GAAP results and reconciliations between GAAP and non-GAAP amounts you should refer to our slides -- or pardon me, you should refer to our earnings release, which is posted on the IR section of our website and to Slide 12. Let me now turn the call over to David Wang, who will begin with Slide 3. David?

Thanks, Steven. Hello, everyone, and welcome to ACM Research second quarter 2024 earnings conference call. Please turn to Slide 3. For the second quarter revenue was $202.5 million, up 40%. Shipments were $203 million, up 32%. Profitability was good with a gross margin of 48.2% and operating margin of 25.6%. And we ended the quarter with approximately $367 million of cash and time deposits with a positive cash flow from operation for the quarter. Revenue for the first half of the year was $354.7 million up 62%. We believe this growth rate is higher than the growth rate of China WFE and demonstrates market share gain for ACM and the contribution from new product cycles. Now I will provide detail on products. Please turn to Slide 4. Revenue from single-wafer cleaning Tahoe and semi-critical cleaning product grew 36% in Q2 and represented 76% of total revenue. ACM offers what we believe is among the industrial most comprehensive cleaning portfolio. We estimate the global total available market or TAM for cleaning is close to $6 billion and ACM produce products supporting 90% of all cleaning process steps in both memory and the logic. During the last earnings call, we highlight the sulfuric peroxide, or SPM portion of the cleaning market, which has been a relatively small contributor to our business, but represented 25% to 30% of the total front-end cleaning market. ACM now offer full product line of SPM tool across all temperature range. We have already shipped Tahoe and single-wafer tools for lower and middle-temperature SPM steps. We now have a differentiated high temperature SPM tool that we believe position us to gain market share from the current market leader. We currently have more than 10 SPM customers in production or evaluation and look forward to increase contribution to shipment…

Thank you, David. Good day everyone. Please turn to Slide 10. Unless I note otherwise, I will refer to non-GAAP financial measures, which excludes stock-based compensation, unrealized gain loss on short-term investments. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Unless otherwise noted the following figures referred to the second quarter of 2024 and comparisons are with the second quarter of 2023. I will now provide financial highlights for the second quarter of 2024. Revenue was $202.5 million, up 40%. Revenue for single-wafer cleaning Tahoe and semi-critical cleaning was $153.2 million, up 36.2%. Revenue for ECP front-end packaging furnace and other technologies was $39.0 million, up 103.8%. Revenue for advanced packaging excluding ECP services and spares was $10.3 million for the second quarter, down 20.4%, but for the first half it grew by 13.5%. Total shipments were $203 million up 32%. Gross margin was 48.2% versus 47.6%. This exceeded our long-term gross margin target of 40% to 45%. For the full year, we now expect our gross margins to be above the high end of the range. This is due to gross margins above the range for the first half and our expectations for gross margin at the upper end of our target range for Q3 and Q4. We continue to expect gross margin to vary from period-to-period due to a variety of factors such as sales volume, product mix and currency impacts. Operating expenses were $45.6 million, up from $36.3 million. R&D was $21.8 million versus $19.4 million. The year-over-year increase primarily reflects additional personnel expenses to support our product development pipeline. Sales and marketing was $14.1 million versus $11 million and G&A was $9.8 million versus $6.0 million. For 2024, we plan for R&D in the 13% to 15% range, sales…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Suji Desilva from ROTH Capital. Please go ahead.

Hi, David, Mark, Lisa congrats on the progress here and the -- guidance. For the second half, your shipments appear to be increasing. Can you talk about maybe what percent or give us some sense of how much of that shipment base is outside of China versus China? And how that will increase in the mix over time?

David, you want to take?

You want to take that Mark?

Yeah. Sure. Hey, Suji thanks. Yeah, we expect our shipments to be a bit higher in the second half versus the first half of the year. We'd expect shipments up, obviously, in the third quarter. In terms of the mix internationally, outside of Mainland China, Suji I would say that the substantial majority of our shipments will still be within China. And so we will have some shipments outside, but really substantial majority is going to be to the Mainland China market in the back half of the year.

Okay. That’s fair. And then specifically the Korea customers, I know you've been shipping into the China fabs for Korea customers. But are you already shipping into Korea fab for Korean customers? And if not, what the timing of that starting because that sounds like something newer as an opportunity I've heard versus kind of US and Europe?

Okay. So, we are definitely working with Korean customers. And so at this moment, we are now -- I mean Q2 we have no shipments going there in Korea right now. However, we do see the opportunity including also R&D tool for the beyond the cleaning product, we're having an engage with our Korean customer. So we see that additional new products. We’re hopefully can be shipping in the second half this year, which is really another bigger products for the HDM, right? That's where we are currently evolved.

Outstanding. That's great. And then my last question is on the high bandwidth memory supply chain in Taiwan which has been growing very strong. Can you talk about your opportunity there if that's soon and who the competition today is in that market, because we know with AI that's growing very fast?

Okay. You mean the panel side of the new product? Suji, you mean that is that correct?

The high bandwidth memory opportunity, the supply chain there the products into Mainland China and into Taiwan rather.

Yes. You mean our new panel product you talk about?

Yes, right. The back-end packaging.

Back-end packaging? Okay. I see. Well, for the back-end packaging, we're engaging with the customer in Taiwan and also engage with customer in the US right? We just announced we have received our first coater/developer order from one of the US advanced packaging house. And definitely we are well set out there for this wet tool for the advanced packaging. So we’re having engaged with the multiple customers in Taiwan. Meanwhile, we just announced this, our panel low-pressure cleaning for flux and also announced this, for example, plating for the panel. I think the two new products will definitely address the new trend also new out there of this packaging requirement. So we're engaging with multiple customers right now both in Mainland China and also in Taiwan also in the US. So we believe that will bring another exciting market for our new panel product. And plus we're still engaging also develop additional new type, other type of panel products too. So we believe that will bring another revenue growth potential, right, in this product portfolio.

Okay. Sounds like great progress all around. Thanks David. Thanks guys.

Thank you, Suji.

Thank you for the questions. One moment for our next question. Our next question comes from the line of Charles Shi from Needham & Co. Please go ahead.

Hi. A couple of questions. The first one, looks like you are implying a half-over-half largely flat for second half of the year but shipment is probably higher in the second half. So just want to -- also want to clarify when you say a shipment in the second half of the year to grow, hopefully that's a half-over-half comment or that's a sequential quarter-over-quarter comment? That's the first question.

It's a half-over-half. Yes, we'd expect shipments to be higher in the second half than they were in the first half.

Yes. But any thoughts on the implied revenue guide for second half being largely flat versus the first half? And how should the people think about this?

Actually revenue also second half is higher than first half right? You look at our middle point of the new statements.

Okay. Then the second question is about the capital allocation. Definitely, the ACM Shanghai is already paying a dividend to ACM Shanghai customers. I wonder any thoughts on starting a dividend policy with the ACM Research investors and especially when the ACM Shanghai probably going to see that lock-up expiry pretty soon?

Yes. Okay. Good point. And we do have a dividend right in the last year and probably will continue this dividend distributing to all the investors of ACM Shanghai for near future. Then you talk about the lock-up of the ACM USA for their share in China Shanghai. I think in this moment our still major business is from Shanghai and ACM USA definitely can sell their share. However, you consider our stand right now we're keeping our share right? The reason is that we do have dividend and also ACM USA have the cash going on and there's no reason to sell our precious share inside of China.

Sorry David. Just want to clarify when I say dividend, I mean the dividend for ACM USA shareholders not the ACM Shanghai shareholders.

Okay. So the dividend we got from ACM Shanghai and will come to ACM USA. So, this money I think will be reinvested into our marketing side and also potential supporting in R&D and for other purpose, right? So, at this moment we believe the cash we got from dividend the best interest for the investors in USA is reinvest back to the business instead of just distribute dividend to the ACM USA investor. So, we think that will be our major focus for the dividends usage. Mark anything you want to add on that?

Yes. I mean Charles I think it's an interesting question, but echoing what David says, we don't have any plans to pay a dividend from the U.S. Yes.

Thank you.

Thank you for the question. Our next question comes from the line of Mark Miller from The Benchmark Company. Please go ahead.

Let me say congratulations, another very good quarter. And again you're probably the greatest growth stock at least in my universe. And hopefully the investors will respond to that more aggressively in the future. In terms of your evals going on especially outside of China can you give a little more color in terms of evals in terms of what type of tools and what countries?

Okay. Sure Mark. At this moment, we do have our cleaning tool right as being go to U.S. customer. We do have two types of tools. One is SAPS cleaning and another one is really backside and also bevel clean right in the same customer. And recent was receiving another order from coater/developer from U.S. advanced packaging house. And also we do have also another evaluation tool or SAPS tool from the European customer in the evaluation. Also meanwhile we're happily engaged with the Korean customer for copper plating right and tool. That's in the demo status. And hopefully quickly we can shift to the production for the final production evaluation. And also we're talking with a few customers in Singapore and also in the U.S. and talk about our new cleaning capability including TEBO and Tahoe. And also our -- I want to say that is our supercritical CO2 really would be designed for advanced technology evaluation, especially for 3D cleaning and also for sulfuric acid cleaning. So that kind of also powerful cleaning tool, we're engaging with a multiple customer right now.

Okay. In terms of your margin guidance and margins have been certainly above the target range. You are guiding the margins being at the top and guiding range. I assume that implies that your backlog, the margins of the tools in the backlog are at or above your target range.

Mark, you want to answer that?

That's right, Mark. I mean, we mentioned that for the year our gross margins would be above the normal 40% to 45% range. Really because they were stronger above the range for the first half of the year and the rest of the year, we're expecting them to be at the upper end of our range. And so yeah, I mean, our visibility on the margin profile for the end of the year is pretty good.

Thank you.

Yeah.

Thank you for your questions. [Operator Instructions] Next question comes from the line of Robert McKay from Blue Lotus. Please go ahead.

Hey there. Thanks for taking my question. Am I coming in clearly?

Yes. Robert, please. Go ahead.

Okay. Great. So I have a bit of a touchy question. And I think it might be important is I was wondering, if we've evaluated, if there's any -- there's been some discussion regarding some further restrictions on Chinese companies. I was wondering if there might be -- if we've evaluated what kind of impact there might be, if that unfortunately does come through and what our thoughts are on that? And if there's anything we can talk about in that respect?

You talking about this new rule for the export control, is that what you mean?

Yeah. Exactly.

Okay. Well, I mean, again, we just heard some real market rumor. We carefully I should say, watch out the new rule come out, where ACM definitely will follow the law right? And the USA law and follow Chinese law with international business. And carefully at this moment, no speculator, but I will say even something come out is not only ACM, right? A lot of U.S. Company got impacted too. So we just want to watch out what's going on to whatever adjustment based on the new regulatory come out.

Maybe I would add to that is, we take a deep step back and we look at the China WFE. I think David's view -- our view on WFE in China is that's pretty stable for this year and for the years to come that the country will continue to invest in their production capacity. And so like David mentioned, we'll monitor any of the new regulations. Of course, we'll follow the rules, but we generally anticipate WFE in China to remain pretty stable.

Okay. Got it. Thanks for the clarity. In terms of our supply chain then is there any potential impact to supply chain if there is any of these -- if any of these rumors do come to a fruition?

Supply chain, at this moment, I see they're pretty stable right now, right? Obviously, we're looking for different kind of supply chain. And for mature product we still buy US components. But for whatever the long snows we have been using non-USA parts. And at this moment we're also looking for the multiple supply chain both in other countries also inside of China. We also qualify the local player of the components. So we definitely have a plan to secure our supply chain. And when any new regulatory come out we can quickly switch into other alternative choice of the supply chain.

Okay. Got it. That makes a lot of sense. So you have some backups. That's very good to hear. And then I had one more question. I think is related to the private offering that we announced in January. I think we were going to some private offering with our Shanghai shares. I was just wondering if we have any update in regards into that private offering if there's any progress on that front and when we expect to hear more about it.

Yes. Actually we're in the process of the final formal application, right. But we know that the approving process in the secondary offering in China will take time. We estimate probably six, eight months even longer. So our permission probably we're expecting middle of next year we might get it. And then within another one year of the permission we got then we can probably seen the second offering based on market situation. Now obviously, we expect in that time we got our PECVD and the track system and also furnace including our panel-packaging tool getting in the market. So we're choosing the right time and are rather pricing to raising our second firm.

Okay. That makes a lot of sense. Thanks And then I had one more question. It was just about – if we have any new products that we can look forward to in the second half of this year or in early 2025 that we can think about or should we just wait until the announcement?

Well obviously, we announced already, right? I mean this Q2, we announced two products already. So I want to say we'll continue exploring new products and obviously, like this panel right we announced two. We're still working on the additional other type of the panel product for this year. And probably we're going to announce another new product when we got ready. Meanwhile, I'd still say, we are still major focused on our UGC, [ph] what you’re doing right now; cleaning, copper plating furnace and especially furnace ALD and track and PECVD. So our new products are probably still along this major technology and also the product. We're not going to develop other new which is completely new more than this category I mentioned.

Got it. Perfect. Very clear. Thank you very much and also great results and quenched with the touchy questions. Thank you very much. Yes.

Thank you, Robert.

Thank you for the questions. [Operator Instructions] There are no questions at this time. I would like to turn the call to management for closing remarks.

Okay. Thank you, operator. And thank you all for participating on today's call and for your support. Before we close, Steven is going to mention our upcoming Investor Relations events. Steven, please?

Thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On August 27, we will present at Jefferies' Semiconductor IT Hardware & Communications Technology Summit at the Four Seasons Hotel in Chicago in the United States. On September 4, we will present at Benchmark 2024 TMT Conference in New York City. Attendance at the conference is by invitation only. For interested investors, please contact your representative – sales representatives to register and schedule one-on-one meetings with the management team. This concludes our call and you may now disconnect. Bye-bye.