Good day, ladies and gentlemen. Thank you for standing by and welcome to the ACM Research Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. At this time, 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, please 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.

Good morning, everyone. Thank you for joining us on today’s call to discuss fourth quarter and fiscal 2019 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as from our 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 of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Also certain of the financial results that we 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 non-GAAP results and reconciliations between GAAP and non-GAAP amounts. With that, let me now turn the call over to Dr. David Wang, who will begin with Slide 3. David?

Thanks Gary and welcome everyone to today’s call. 2019 marked another year of growth and achievement for ACM Research. We have made meaningful progress in our mission to become a major supplier of capital equipment for the semiconductor industry. We delivered great operational results and ended the year in a solid financial position. Let me review some of our accomplishments in 2019 as shown on Slide 3. First, our financial performance was excellent. We grew our topline by more than 44% to $107.5 million and delivered non-GAAP earnings of $1.17 per share. We generated $9.4 million in operational cash flow and ended the year with $58 million of cash with an additional $60 million in reserve cash from proceeds of the private equity funding into ACM Shanghai. Second, we showed our production expertise. Throughout the year our manufacturing team ran our second [ph] factory with two facilities running we were able to ship $115 million of equipment production of more than $100 million is an important achievement. It demonstrates our ability to scale operations which is one of several critical factors for winning new business. Third, we expanded our customer base to 5 major IC manufacturers. A key advantage is that we are near some of the newest and the most advanced fab in the world. In September, we delivered our first tool to a new local China DRAM player. That brought our total to 5 major front-end customers. In addition to this new DRAM customer, we are now supplying to SK Hynix, the number 2 DRAM player in the world, YMTC the emerging 3D NAND player, Huali and Huahong Wuxi, a growing local foundry and SMIC are strategically important China foundries. Fourth, we expanded our market opportunity by introducing new products and making R&D progress on other products in…

Thank you, David, and good day everyone. Q4 was another strong quarter ending 2019 at a high note with good profitability. For the full year we grew our business significantly with increased market share, good customer exposure and expanded production at our second factory. We had several new key products including our ECP tools for advanced metal plating. We closed the year with $58 million of cash on our balance sheet up from $27 million a year ago. Now I'll put some details around our full 2019 results. 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 our earnings release. First, highlights of our results for the full year shown on Slide 9. Revenue was $107.5, up 44%. We breakout our 10% customers on an annual basis and will provide occasional color on quarterly calls. As you can see on Slide 11, for 2019 we had three 10% revenue customers which I will now describe. First, Huali Huahong Wuxi accounted for 26.5% of revenue versus 24.2% in 2018. They grew by 58% a good contributor of growth as we expanded penetration to Huali Shanghai fabs to additional factories of Huahong in Wuxi. YMTC was our largest customer at 27.5% of revenue versus 39.6% in 2018. Our revenue from YMTC was unchanged year-over-year, as expected YMTC ramped its wafer production from 5000 per month to 20,000 per month during the year. Even though the wafer starts increased significantly, the number of tools was about the same due to subscale utilization of our tools at the initial 5000 wafer per month's level. SK Hynix accounted for 19.8% of revenues versus 23.8% in 2018. Revenue from SK Hynix was up 20% year-over-year. SK Hynix was a big contributor…

Certainly. [Operator Instructions] Our first question comes from the line of Donnie Teng from Nomura Securities. Please go ahead.

Thank you, management for taking my question. Congratulations on very strong 2019 result. And my first question is regarding to our shipment and the sales outlook this year. So I calculated the accumulated shipment sales since third quarter 2017, and I found that we probably still have like $30 million of the backlog. So I'm wondering whether if our sales momentum this year is largely intact is mainly driven by the backlog or we are also seeing a very strong shipment growth this year? This is my first question. Thank you.

Okay. Hi, thank you. So then I will go first, then maybe I will give Mark even more. Actually, like you're pointing out, yes, there's a deferred revenue last year, and for this year, and we estimated also $30 million were record revenue this year, obviously. So by all projections, obviously, we're seeing more shipment this year, much more than last year. I also kind of see in my mind even more will be same as deferred revenue through the 2021. So to answer your question, yes we see more shipments better more than last year. Hi, Mark anything to add if you have?

Yes, the only thing I would add. Thanks, David, and thanks Donnie for the question. So yes, if you look at the revenue opportunity of the finished goods inventory, so finished goods inventory ended the year at $19.3 million. We reported that, and so that's carried at cost. So you could kind of do a quick conversion to the revenue value of that it's, you know, it's about $36 million or so. And, yes, as David said, we expect to grow shipments and we see, obviously that adds some visibility to our revenue as we get accepted to take revenue on those products.

Okay great. And my second question is regarding to our growth outlook. Could you tell us what kind of customer applications are still going strong this year despite of coronavirus? I think, as you mentioned is like YMTC is still on track. So I think YMTC is growing very strong and for Huahong they have Wuxi fab and is ramping up, as they mentioned in their earnings call. But I'm curious about SMIC, is becauseSMICspent most of their CapEx on 14 nm capacity, like out of the $3 billion CapEx they spent $2 billion there. So I'm wondering if SMIC is also very important growth driver for us and whether our gross from SMIC is mainly from their 14 nm or just purely from their 8-inch in Tianjin or other fabs? Thank you.

Okay, thank you for questions. Actually, like you mentioned we have continued demand from YMTC and also we see the demand from the [indiscernible]. Their 22 nano fab and also their Wuxi bottom fabs. And we also see from initial property investing or some type of transaction from SK Hynix, right second half this year too. As a matter to the SMIC, yes, they get a lot of R&D research for the nano and this year renminbi. And with [Indiscernible] participate in that renminbi, also beyond that also have their demand from the Beijing 12-inch fab too. So I expect in this year revenue from SMIC should be increased more than last year.

Got it. So basically for SMIC it is like both from like 14 nm in Shanghai, as well as 12-inch fab in Beijing.

Yes, that's as I see that. Yes.

Got it. And my last question is regarding to a DRAM customer. So as you know, I think coronavirus is causing some uncertainties on end demand for sure. Under the most bearish case, do you think that our sales from DRAM customer can be still maintained stable compared with 2019 in terms of absolute U.S. dollar amount or…?

This moment, I did not say very clear and amazing. We do see some technology upgrade and this is another real expansion for the capacity is more like, they transition from certain technology to certain advanced nodes. They need more of our tool, right. So we see that orders were coming in I said the second half. And as a matter of their real capacity expansion, this moment, I should say, we're cautiously watching, and carefully we did, and we're still waiting for customer sign right now.

Thank you for the questions. [Operator Instructions] The next question comes from the line of Sujeeva Desilva from ROTH Capital. Please go ahead.

Hi, David. Hi Mark and good to know your staff is safe and back to work there.

Thank you, Suji.

Yes, first question on the gross margin, can you talk about the factors that drove that above target, what the pricing elements are there and whether those will persist or revert to normal in the next few quarters?

Okay, so Suji, as I said, yes, last quarter, our gross margin is actually beyond our range, which is 40% to 45%. It is really a matter of combination of the tool and combination of the technology with them. I still feel since we are growing our self in the future, we still believe, even this year, or maybe for next one year, we still consider 40% to 45% is our normal range. Right? Obviously, some year can be higher, some year can be lower, but I still think about the ranges, we are discussing and thinking right now, obviously, beyond a couple year later, as we have more advanced tools accepted, and when we're moving that gross margin for the next level. So that's our assessment right now. Mark, anything you want to add on that?

No, I think you covered it well. It's every quarter you know just our product mix and customer mix you can have some variants, it doesn't take a lot of tools to shift the gross margin one way or the other. But yes, we are very confident in our long-term model.

Okay, it's helpful color there. And then on the 20 – we are in the 20 guidance for revenue, can you talk about the mix of that, that would be a non-SAPS as you diversify your revenue stream from the core SAPS revenue?

Yes actually. So Suji I can see that as we have more product on the line right, you can see that we are have a toggle as being introduced in the market today, and I mean this year, last year, and we see there probably multiple customer interested and to this powerful product because of the large quantity of their [indiscernible] and which is real protected environment and also we see the positive repeat order coming for the existing customer for Tahoe. Beyond that, I can see that there is also have plating tool and we are probably seeing more of a customer buying tool for the both back-end and also front-end. So that all add together probably you are seeing about the new product, which is you know beyond the fabs this year, will add additional $15 million to $20 million more sale. And so that's I see a growth potential, which is our new product gain additional customer and give us new revenue driving stream.

Thank you for the questions. Next question comes from the line of Christian Schwab from Craig-Hallum. Please go ahead.

Hi, great, congratulations on extremely solid execution at this challenging time. Two quick questions, how many tools, first one is how many tools is the opportunity for the Tahoe after acceptance there?

Okay, great, but I think we see a few, I mean, at least three more customer interests in the Tahoe and that is a new customer, right possibly will have customer give us conditional deal or first deal, and then we do have repeating orders come from the existing customers, which is our first time Tahoe customers. Right? So we're expecting probably about four and two and if we're working, you know, I mean, lucky, and maybe add another one, so that we see the four or five tool this year for the Tahoe deliver. But obviously, not all of this will recognize revenue by end of this year, right. So that really depends on how we deliver tools and how we can be qualifying for the new customer and that will account for the revenue this year.

Okay, great. And then my second question, I think the big fund the National IC Industry Investment Fund is about to kick off it's big second phase of capital investment to the local chip guys in China. Is that supportive of your solid outlook for this year or could there actually be upside to your estimates as that begins to flow in the marketplace?

Yes actually measures, you know, [indiscernible] is really boosting for the – actually the fab building and fab expansion plan, as we mentioned a couple times and China customer and they're really under multi-year expansion plan, either you called it at YMTC or Huali Huahong Group and or the SMIC and or other new DRAM customers too. So they have a multiyear expansion plan, and obviously this is the new founding in [indiscernible] to the customer side and we will definitely be improving our visibility and give us more of an opportunity. Beyond that, it's also cover I should say the quality wise the fab also gaining some [indiscernible]. So we see that expansion or new fab will give us a new opportunity too.

Thank you. Next question comes from the Patrick Ho with Stifel. Please go ahead.

Thank you very much, and congratulations, and glad to hear everyone well. Maybe first off in terms of the supply chain you mentioned on the prepared remarks that it's fine and everything is going well. Can you discuss any potential disruptions that you did have over the last few months, and whether that's part of the reason why you're pushing out some of the system deliveries into the second and third quarters. And what gives you confidence that it's now resolved where you don't have to, use I guess second or third source suppliers?

Okay, great, actually just for the supply chain EBITDA line first. At this moment, I should say probably our major supply and probably 70% come from outside China in that pouring I call the import in from China in which probably most of them from Japan and some are also from Korea. And we do have about less than probably 10% from U.S. and 10% from Europe, that's our supply chain distribution. In the last two months, three months, we didn't see any supply chain delay. Right? Until that time obviously China got to suffer. We do have - see some are in a machine shop and gather people not on time, you know, return to the job. At this moment or our suppliers in China, for machine shop have been on the line already. So as I see that is our major tool pushing from the Q1 to Q2 is obviously you see that is - in the Wuhan our customer YMTC, they do have manpower or their subcontract, they cannot yet go to the Wuhan restrictions, so that's why some tool we suppose ship to the YMTC in the Q1 was pushed to Q2. That's the major reason. Right? So, obviously, you know, we will watch carefully for our supply chain now since coronavirus has kind of spread out and however we're lucky to see Japan and Korea that is stable and hopefully in a few months we are going to see U.S. and Europe get stable. So we are so far cautious and watching. We feel probably okay for a real long, I call it for imported components at this moment.

Great, that's helpful. And maybe a question for you Mark, in terms of CapEx for this year, especially as you get the third facility signed and begin the process there, can give a little bit of color on how much you think potentially you're going to invest in CapEx for 2020?

Yes, hey Patrick, thanks for the question. So the CapEx for 2020, you know, it's just normal run rate operations, $2 million to $5 million is what we're looking at adding a second floor to production at our second factory and some other upgrades. So that's kind of our normal run rate. We did talk about the land for our new production and R&D site out there in Lingang. So if we reach agreement on that, we can see putting some money down for that, and we might even spend some on the construction site there this year. So, depends on exactly when it starts, but you know that land could be on the order of $10 million and maybe $5 million to $10 million of spending on construction, depending on when it starts.

Thank you. Next question comes from the line of Charlie Chen from Morgan Stanley. Please go ahead.

Hi, David and Mark. Nice to meet you online. So, my question, so first of all, congratulations for your great results and great execution during these kind of environments. My question is really about your overseas customers' opportunity. Can you please give us some color whether you will be able to enter the 7 nm logic foundry opportunity? So, I guess, it is ready to your chance for 3 nm [ph] and also for the current 7 nm and 5 nm baseline, do you think customer could change the baseline for you to use your higher performance products? Thank you.

Okay, Charlie, thank you. By the way, thank you, I have not seen each other and one day I should really do anyway. So thank you for the question. And actually, you mentioned about the top tier customer. ACM has been real working very hard, and was this moment have engaged with a pool of top three, you know, a guy in the industry. So, let me give you the first our preparation, right? We believe as ACM want to be the vendor for the top tier guy, you have to get a certain size, which is at this moment we are also moving about one employee and $100 million revenue this year even more higher. So also we are having strong balance sheet leading for this, I call it penetration process. So we have about currently $100 million cash and we'll also get more from the China IPO and hopefully end of this year. So as I see that is, we're in the right spot and the site to be able to supporting big guys demand, big guys I call it requirement. So as the map come to the next line of technology with our technology TEBO and SAPS and Tahoe, we definitely - we have confidence those technologies will be needed for the top tier guy to enhance their yield and reduce the kinds of spending, especially sulfuric acid [ph] and also most importantly for their as a smaller geometry coming is 7, 5, 3 nano and yield improvement is critical for their economical ramping up. So we have very strong confidence. And as a matter I should see that is we're working very hard. And we're- this is a matter of time and hopefully we'll can break one of these two customers this year. And you'll have even more right two together, but we're hoping to break one over this year and possibly bring another one next year. So that's our strategy put on. And third, we also hire high power, actually sales force and both in Taiwan also in North America. There's one additional announcement what we assume very high power to help our sales in the U.S. and North American market. So with that all said, ACM will be very positive and we're being you know, working hard and to penetrate those top tier customers. Mark, anything you want to add on that?

David, no, I think you summarized it pretty well. I mean, we're - really everything we do here at ACM is to become a major player, broaden our product line, developing the balance sheet or capacity plans, and we're putting some serious resources in place to realize our goals.

Thank you. [Operator Instructions] Next question comes from the line of Mark Miller from Benchmark. Please go ahead.

Thank you for the questions. You mentioned in your situation with respect to the coronavirus, but I'm just wondering, what's the situation with some of your major customers, are they back to normal?

Okay, thanks Miller. As I said is, permission the – our customer YMTC in Wuhan, there actually they never stopped manufacturing even in the Luna New Year timeline. Obviously, they're in I call the - full production today. As a matter of - if they want to install a new tool and they are waiting for 3D to reveal, get the people can move in. Right? Hopefully, those kind of things can happen they can do without confirmation then probably we can install they have people and moving to Wuhan to install this tool. And I see that even the worst case, I still have a service guy about 20 service guys in Wuhan and that is still possible. You saw the tool and may be a little bit slow pace, but that's the worst case situation. In other cities like Beijing and our customer SMIC in Shanghai, Huali, Wuxi, and SK Hynix and also you know Huahong and Wuxi, they are so far pretty open right now, and their you know we can have our engineers sent there. I am going to have visiting to those customer, but that's all become normal right now.

Just was wondering the smartphone production supposed to be down around 12% year-over-year this quarter may also be softer in the second quarter, are any of your customers adjusting their production schedules you know about?

This moment as you see our major customer, we have not seen any slowdown yet. And there are you know, there are some trends there to deliver time based on the – is still our plan or as our production schedule. Right? As a matter of DRAM customer, as I mentioned, they're still moving to the new advanced mode. They're still buying for the buyer tool to expand in the new generation technology. So for the capacity wise, we're still in a cautious watching right now and we're not getting a clear sign yet.

I am sorry if I missed this. What was stock based compensation in the fourth quarter?

Hi Mark.

Yes, I can look it up. It's on the table in our earnings release.

In the presentation slides?

Yes, it's in the table in the earnings call, but yes, stock based compensation here looks like it is $650,000 for the quarter and $3.6 million for the year. We actually had a big jump. The reason that it was high and I believe the third quarter was some of the options we granted to our China IPO employees. You know, regarding the China IPO, there was a bump for that.

Dave, you indicated tax and effective foreign exchange increase were positive by that benefit of $4.7 million for the year. What were they for the quarter in terms of how do they did they add in the quarter?

Yes, for the quarter, it was about a nickel. So you had - if you adjusted relative to 14% tax rate, you are about $1.7 million on the tax. We had a partial valuation release in Q3, and we did the full release for the year. So it's about $1.7 million delta in Q4. And then we actually had a foreign exchange loss from operations of about $600,000. So, that was a headwind to our earnings, but net-net we reported $0.23 non-GAAP earnings in Q4, and there was apples-to-apples it would be a nickel lower. So it would have been like a $0.17 number if you took out those one-time items.

Thank you. [Operator Instructions] Next question comes from Charlie Chen from Morgan Stanley. Please go ahead.

Thanks for taking my follow up question. So David, I know is a little bit fancy, but also related to your potential China IPO, given the circumstance of China, U.S. pension and your big exposure to China customer like YMTC, the SMIC, do you consider potential restriction on your technology export to your China customers from the U.S. Government and how is the company going to address these potential risks? Thank you.

Okay, well, good question Charlie. And basically the technology we're selling in most markets right now is I think wafer technology. Right? We have a community. Those technologies actually were developed in the last 10 to 15 years in Shanghai. So, based on our talking with our lawyer in the U.S., that is not in the restriction category of the export technology category right now. However, we do see some kind of either 25% the immunity rule, right components, if you import and use U.S. components, that 25% as I heard, probably, down to 10%. With that challenge yes, we do have seen some challenges there, even if that happens we will have to real, you know shaping the product or we have to find a alternative choice supply chain to replace those components. Right? That is so far our strategy try to protect our investors interest and also make the company continue to grow in this you know kind of a dynamic environment.

Okay, thanks. And my next question if I may is about your value and pricing versus your key competitors. Sorry, I didn't know about this. But do you need to process some discounts versus Japan or U.S. vendors when you approach your customers?

You mean our pricing from - I make sure of the question, you mean our purchase pricing components or our selling price to the customer.

Your selling pricing to the customer, and if you can give us a rough market share in China?

Okay, well, I mean pricing is always kind of challenge, right? And obviously, we constantly get pressure from customer and lower the pricing. However, I think our strategy trying to sell product is by our product quality and value added the specials have really improved, and also for other excellent, you know, better service for our customer, say local customer in Korea, and in China, potentially in Taiwan. So we offer better quality and value added products. Again, obviously we're looking for reasonable pricing and for the customer. So that's our strategy right now. To answer your question, yes, we're trying to really sell the value added and moreover, you know, consider cost of their ownership not justify selling price. So that's our strategy.

Okay, and your market share in China? Hi Mark, yes, please.

Yes, hey David, if you don’t mind I would just add. Yes, I would just add to that is, look like, we're a small company with – but growing bigger with some big aspirations. So, David and the team, every one of our products have some innovations backed by patents and we have to do a little better on the performance side. So, we cut our teeth with SK Hynix proving that the yields at the steps, the Tahoe product similar performance, but we're going to reduce the amount of sulfuric acid use. So we always have something innovative to drive the customers to use our products and we feel that we offer a bit more and can get a good price for that.

Thank you.

Yes, maybe Charlie, I want to add one more word here. I do believe the company was sustaining R&D arm and sustaining our operation or give a certain profitability of the company, we are not real pushing pricing down to get market share. We rather maintain certain pricing. We leave out some market share to other competitors coming. We feel that more win-win situation and that's our strategy.

Thank you. We have a last question from the line of Quinn Bolton from the line of Needham & Company. Please go ahead.

Hi, guys, thanks for squeezing me in here. First question Mark, just a clarification on the timing of the restricted cash. Did you say that you have access to that restricted cash or it becomes unrestricted upon the filing of the STAR market transaction or on the listing, a successful listing of that transaction?

Yes. Hi, Charlie [ph]. Yes, so I'm glad you asked that. So yes, Quinn, we did say that on the call that when we submit the application, we're going to unrestrict the cash as opposed to when we achieve the listing, yes.

Great and then second question from me, just can you guys give us any sense of the number of tools or the dollar revenue that may have shifted from Q1 to Q2 as a result of the Coronavirus effects?

Okay, Quinn, it's a good question. But as we set the rule general earnings call, we do put the - not normally give guidance for the coming q or next q, right? The reason for that is because one tool and if it is delivered in Q1 versus Q2 will cause fluctuation sometimes 10% to 15%. That gives us real projection on the earnings for the next quarter is very difficult. That's why we say this moment and may be for wire, we're not going to give the clear projection for the coming quarter. However, if we see our revenue, say maybe quarterly come to $50 million, $60 million, or $70 million per quarter, then maybe that time we can give more clear, in that case one tool gets delay or gets up not much impact to our final projection accuracy. So, I really hope you understand that and you know, we're in other situation. However, as you can see that is maybe Q1 is our lowest quarter in the whole year, and we can see strong Q2, Q3 demand, and we don't know Q4 or Q2 is so far the highest I think right now, but we don't know Q4 right? And maybe Q4 will be higher than Q3 or maybe you know Q4 can be higher than Q3, it depends on the maybe deal. And so that's our assessment for this year's revenue.

Thank you. With that I would like to hand the call back to management, Mr. Wang for closing remarks.

Okay, thank you operator and thank you all for participating on today's call and for all your support. This concludes the call and you may now disconnect.

Ladies and gentlemen, thank you for participating. You may now disconnect your lines.