Ladies and gentlemen, thank you for standing by, and welcome to the ACM Research Third Quarter 2021 Earnings Conference Call. At this time, (Operator Instructions) After the speaker presentation, there will be question-and-answer session. (Operator Instructions) I would now like to hand the conference over to your first speaker today, Gary Dvorchak. Please go ahead.

Good day, everyone. Thank you for joining us on today's call to discuss third quarter 2021 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as the 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. Certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation, a loss relating to a change in fair value of the financial liability and an unrealized gain in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is -- with that, let me now turn the call over to Dr. Wang, who will begin with slide three. David?

Thanks, Gary. Good day, and welcome to today's call. We had excellent third quarter with strong financial results. We delivered record revenue and shipments with solid profitability. Third quarter results demonstrate the strength of our expanding customer base, our differentiated multi-product solutions, strong product cycle for both front end and back end and our growing production scale. Revenue grew to $67 million, up 41% year-over-year. Shipments were $99 million, up 68% from $59 million in the same period last year. We maintained a good balance of growth and profitability with a 44.5% gross margin and 19.5% operating margin. We are focused on profitable growth as we invest in R&D to driving innovation, broaden our product portfolio and introduce new products. On the bottom line, we report $0.56 of net income per diluted share compared to $0.42 in the same quarter last year. We ended the quarter with $65 million of cash. In addition, we had $30 million a quarter and from our holding of SMIC's stock market shares. I will now discuss recent operational highlights on Slide 3. First, our Q3 revenue growth was broad-based, driving by [hiring] and new products. Our wet cleaning and other front-end process tool grew 29% and represented 70% of total sales in Q3. The growth was driven by our flagship cleaning SAPS tool, good contribution from TEBO cleaning tool and our Semi-Critical cleaning tools. Advanced packaging, other process tools, services and spare parts grew by 88% to 26% of sales. The strong growth of this group was driven by AP tools, including ECP AP, wet etcher, stripper and scrubbers together with the increase in our service and spare parts business, Second, we received good orders from 3 new major customers. Several weeks ago, we announced evaluation orders from 2 potential new customers. The first…

Thank you, David. Good day, everyone. We delivered strong financial results in the third quarter. Unless I note otherwise, I will refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized gains in trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Now the third quarter, shown on Slide 9. Revenue was $67.0 million, up 40.6%. Revenue for single-wafer cleaning tools, which includes SAPS, TEBO, Tahoe and Semi-Critical cleaning was $49.5 million, up 29.0% from $38.3 million. Revenue for ECP furnace and other technologies was $8.2 million, up 69.1% from $4.9 million. Revenue for advanced packaging, excluding ECP, services and spares was $9.4 million, up 109.5% from $4.5 million in 2020. Total shipments were $99 million versus $59 million in the third quarter of 2020 and $82 million in the second quarter of 2021. This includes deliveries for revenue in the quarter, deliveries of shipments awaiting customer acceptance for potential revenue in future quarters and deliveries of evaluation tools. This represents another quarter of record shipments, great accomplishment by our production team given industry-wide supply constraints. Gross margin was 44.5% versus 42.8%. This was at the upper end of our normal expected range of 40% to 45% due to favorable product mix. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses were $16.7 million versus $10.1 million. The increase in operating expenses reflected higher R&D on new products, our expanded U.S. sales team and other costs. R&D expenses grew by 82.2% to $7.6 million or 11.3% of sales versus $4.2 million or 8.7% of sales last year. The increased R&D intensity reflects ACM's commitment to new products and innovation. We expect to increase R&D…

[Operator Instructions] Your first question from the line of Patrick Ho from Stifel.

Congratulations for the nice quarter and outlook. Actually, Mark, maybe to start off first with you, the supply chain. Based on your results, your outlook and the margin profile, it looks like you guys managed it very well. Can you discuss what problems you may have seen and how you mitigated the situation given the results and outlook?

Patrick, maybe I'll let David start on that and then I can add, but David can you...

We saw that, Patrick, in the market. Actually, you know, the orders are constrained and semiconductor equipment there are spending double compared to last year. So we see our component also hit the constraint. And we have, I should say, some components we buy from U.S. and buy from Japan and we also buy from Europe. The leading time is get longer and longer. I can give you some example. Some normal parts we have 2 months. Now they get in 4 months, even some special parts get in 6 months. So for that reason a delay, we had forecast ourselves. And then based on sales forecast, we'll buy those long-leading items ahead of time. And so that's the approach we're taking so far. And obviously, now we're in a rolling based forecast next 12 months, and what is the possible delay, what is our vendor's supply status. And actually now, we require our vendor give us in the next 12 months and what it can provide to us. So that's the approach we are taking. And hopefully, we can have this supply security or we call supply on time to be improved. And you can see that the third quarter, we're doing a lot of good work. And however, as compared with the regular last year, our leading running item takes more time. Anyway, so that's the status right now. Hopefully -- and we know our (inaudible) key supplier started to increase 5 more people and also increased the manufacturer floor. And we're hoping those situations get improved for the start of next year. Mark, anything you want to add on that?

Yes. No, thanks, David. The only thing I'd add, Patrick, is it's not new to deal with the supply chain. I mean we've been dealing with the situations related to COVID and the global supply chain. And then, of course, the big recovery where the industry is building back semi capacity pretty aggressive. But at our size, as a company, I think we've demonstrated some scale. It's really important that our customers are confident that we can deliver. And so we're sending that message. And I think our manufacturing and supply chain team did a good job in Q3, and we anticipate that as well in Q4.

Great. That was really helpful. As my follow-up question, maybe for David, in terms of the advanced packaging market, you're showing some really nice growth there. The marketplace itself is growing. Can you give a little more color on the type of applications you're seeing today and how it may progress to say, next-generation techniques like heterogeneous integration. What are you seeing today? And what are some of the opportunities, say, over the next couple of years.

Patrick, actually, I should say, we have laid a very good product portfolio and for the advanced packaging tool, wet process cleaning and coater, developer, PR stripper and also the most important copper plating tool. So we see the people in this growing area is obviously pillar and also we see the people pillar fan out. And also there are also people talking about this micron pillar, more than 300 micron of copper plate there. So it's really high demand for our copper plating tool, right? And also our copper plating has certain benefit compared to competitors, including I call it, etch control and high plating rate with a special design of the plating chamber. So we see there very strong, I call it driving for our revenue growth or the [semi] growth this year and next year. So we're also -- I should say, we're also seeing the customer outside Mainland China interested in our plating tool, and we're expecting those tool hopefully next year, we're getting into [Taiwan] market, and that's our planning too. So that maybe in general way, I call it the advanced packaging tool. And plus, we also increased new customer in China. JCAP and Kungfu [ph] is our traditional top two customers. Also, we'll see a few other emerging or I call the new start-up company getting this application too. So we have very good positive, I call it forecast, for the advanced packaging took growth.

Thanks, Patrick.

Your next question from Charlie Chan from Morgan Stanley.

First of all, congratulations for your great results in China IPO finally, congrats. So my first question is about -- it seems like for it not be the component shortage, you can do more shipments, right? So I'm not sure this year you still deliver very strong growth, right? So next year, do you think you can deliver even stronger growth rate for 2022? Any preliminary outlook.

Okay. Yes. Actually, you look at our shipment, in Q2, almost double. I mean, 80% and our Q3 shipment also 60% increase too. So our total shipments compared to last year has been increased a lot and end of this quarter, I can give you more detail how much percentage increase. It's much, much more than previous year. So we'll say, we think next year, continue we look strong in our forecast pipeline. So in other words, we have the real increase more of the components and borrowing from our supplier. So in other words, we are reworking closely with our key supplier and as I said, we've given a rolling 12-month forecast plan, and they can tell us what is delivered and what is the capacity they can build for us. So we're working on that. And I -- really hopefully next year get better. But again, we're still very carefully watching the market and also working close with supply chain. It's ongoing process, we got to be carefully also manage this supply chain.

Okay. And I'm not sure if you think about this, but previously, you mentioned you have two new product lines to launch, right? Can you update the status right now.

You're talking about new products or the existing products.

He is asking about the newer, the two new products, yes.

I see. Okay. Well, probably the -- let's put it this way. Two years ago, we're started launching the 2 new products. And unfortunately, I still cannot tell you what the product name. However, we believe these 2 products represent a big market and service market globally. And also, we see the 2 new products and also have, I call it challenging, also need innovation for technology improvement. So now we are working closely with R&D and the team. I think probably one product will come out first half next year. And also, we do have our customer talk together, get us the tool as a better side application test. And also, our second product, we're targeting second half next year. So with our team and working very dedicated, we're hoping those 2 will deliver in the timeline.

Okay. Since on track. And my next question is to Mark. Again, let's [work] on China IPO. I'm not sure the pricing, what's the kind of variation implication, it might be [indiscernible] et cetera? And what would that mean to your U.S. listing market cap?

Yes. Charlie, so I think we put a lot of the details out on where it was priced and the number of shares, the proceeds, RMB 3.685 billion or USD575 million. So we -- in terms of the valuation, I think you can kind of look at our numbers and work that out. And of course, I don't know how that's going to necessarily filter back into our U.S. market cap. But after the offering, we mentioned that the U.S. -- we would own 82.5% of the subsidiary.

I thought that it's a big catalyst, given what's kind of an overhang, right? So hopefully your market cap can continue to expand. That's all from me.

Thanks, Charlie.

Next question from Ken Bolton from Needham & Co.

David and Mark, I offer my congratulations on the stock market IPO as well as the international customer expansion. I wanted to start with the international customer expansion. It sounds like the 3 customers you're working with or that you recently announced are all taking tools for delivery to their China manufacturing facilities. I'm wondering if you can give us your thoughts that as you first penetrate their China manufacturing facilities, what's the opportunity to begin to place and deliver tools to international.

Quinn, we lost your words. Mark, can you hear Quinn?

Yes. No, David, I heard Quinn okay. I can repeat the question. Can you hear us, David?

Yes, Mark, I can hear you coming through.

Yes, you're coming through okay, Quinn. I don't hear David. A - David Wang Mark, you can hear me?

David, we can hear you okay. I guess you cannot hear us. So Quinn, I can take that question, while we wait for David to come back. But I think your question was about the new customer announcements. I think we mentioned that 2 of those were for deliveries to the China fab. Another one was an Asia-based one. And so can you maybe Quinn, just to clarify your question again?

Yes. I guess maybe I misunderstood. I thought all 3 were delivery, smart tool deliveries taking place in China and was asking what's the progression, the company's opportunity to first deliver tools to China facilities, but then to expand to other manufacturing facilities at those customers around the world.

Got it. Yes, it's a great question for David. But I think you know we've got a global sales force. And so these are the 3 that we announced here recently, but we still feel pretty positive about our opportunity for customer deployments outside of Mainland China. I think, as David noted, our longer-term goal is to have half of our business out of China outside of Mainland China. So we've got activities that we think can result in that in the coming years.

Got it. Just to clear -- Did you say that one of the customers was taking delivery outside of China, somewhere else in Asia.

Well, we just -- of the 3, we talked about SAPS evaluation order from a global semi manufacturer with a China development fab. We talked about the 2 stripper orders to global IBM's China packaging facility. And then the ECP evaluation order, we just mentioned it was from Asia, a regional semiconductor manufacturer, but we didn't say where that tool was going.

Got it. The second question, David talked about the growth in the advanced packaging business. Wondering if we might be able to get you to sort of -- give us your sense, how much of the business in 2022 might come from that broader advanced packaging application.

Yes, you bet. So Quinn, I guess, we gave the mix right for Q3 and year-to-date. It was about 74% on the front-end products and 26% on the...Sorry, guys, we're having some technical issues. I think the team in Shanghai is trying to get back into the call. But yes, I think for now, Quinn, we would plan on -- kind of a similar mix. I mean it's hard to say for 2022, for next year, where the growth will come from. We'll give more details on our Q4 call but we don't anticipate a significant shift between those 2 groups.

Next question from Suji Desilva from ROTH Capital.

Mark, I don't know if David is back on, but congrats on the progress here. The -- I want to know that the TEBO products has been out there for a while since the IPO. David started talking about it more in this call. Is that ramp opportunity now potentially going to inflect? What are the kind of the puts and takes of the pace at which TEBO can grow versus SAPS?

Got it. Yes, great. And Suji, we're going to -- we're trying to get...

I got back now. Can you hear me okay?

David, can you hear me? A - Mark McKechnie That's great. Hey, David.

David, it's Suji. Can you hear me?

Yes, very well.

Great. Okay, David. So I'll repeat the question. So I said in this call, you guys talked about the TEBO product more, you had the IPO. I'm curious, is there an inflection ahead for the TEBO product? What's the opportunity there? What are the factors of puts and takes of that growth versus SAPS, which has done very well for the last few years?

Okay. Well, actually, the TEBO, we made the progress, and also, we realized TEBO have combined with a certain drying technology. So a year ago, we started to develop the advanced drying technology and most of that on 2 types. One is a hot IPA multi-zone [PD] method. Next one is actually super critical CO2. The 2 new drying technology, I think were one will come out probably Q1 next year and the other one will come out through probably Q2 next year. With this joint technology and together with TEBO will further give TEBO much wider application. Why? Because all the -- like a 70 nano DRAM, their capacity structure, you have to dry by CO2 because [new] effect. Also, certainly [40] nano of the, I call it the semi fab structure, also their high aspect ratio of the hot IP drying technology. So with this adding additional drying technology on TEBO product, and we'll see the other tool get more of a really advanced application. -- one and also the logic memory logic manufacturing.

Okay. All right. And Quinn just asked a question, I want to maybe rephrase and ask it, make sure we get your answer. The new customers seem to be shipping primarily into China and the region with one maybe in Asia. And we're excited about the global customers. You talked about 50% of the business coming from outside of China longer term. Can you talk about what it would take for these customers to start putting your tools in outside of China and why maybe the dominant initial push is in the China facility, just to understand that dynamic.

Yes. Actually, no, obviously, the tool we ship into the China facility or China fab, right, their fab. It's good starting point. This way our process capability can validate their fab in China, [indiscernible] is obviously potential, I call it getting to their fab outside Mainland China, and so that's what we're looking for. So I think it's really good sign and also a good starting point. And those data come out there in China, we are driving force [indiscernible] to their mother fab or their facility outside of Mainland China.

Operator [Operator Instructions] Next question from Mark Miller from Benchmark.

Congratulations on the quarter. We're seeing margins jump around a lot, and I believe that's through the mix. And I'm just -- you said the mix looks like it's going to be 75, 25 front end back end. So I'm just wondering for the next quarter, is it a similar mix to the third quarter?

Yes. David, do you want to answer that? Or it should I can take that, too.

I can give a little bit light there, This is normal gross margin is a flat rate. We said between 40%, 45%. And there's a higher margin tool. I give you a single wafer, SAPS tool normally gives a high margin and certain, I call it copper plating and also give margins for front end. And then there's also no margin tool, right? And the (inaudible) certain, I call it a wet process tool and advanced packaging side too. So I mean this is a good combination. And also depends on combination that margin may be changing. I could give you a precise number and probably I think within the range of 40%, 45%.

Okay. But for the next quarter, does it look like a similar mix to the third quarter?

I don't -- I cannot give you a precise number [indiscernible] by customer and this will carry a long time. [indiscernible] so it's still come 25%.

Okay. You're breaking up at least on my side. Just wondering, you've been primarily more DRAM. NAND is supposed to come on stronger next year. Do you see opportunities, more opportunities for yourself in NAND?

[indiscernible] A - Mark McKechnie David, you're breaking up a lot. Maybe I'll take the question, Mark, since David's breaking up. So Mark, just to be clear, you can -- if you look at our customers and kind of the way we reflected our NAND business, as you know, YMTC is our big NAND customer, right? So they were in the 30% range last year. And so I think kind of your premise, we have pretty good mix in NAND and then, of course, SK Hynix, CXMT are our DRAM customers. So we continue to expect to get good content both in the 3D-NAND and in the -- with our DRAM customers.

Next question from Emma Keane from Hongdae [ph] Unidentified Analyst

Congrats first of all, on the [release] of Q3. This is Emma from [Hongdae]. My questions are probably more for David as well. But Mark, you're welcome to share your thoughts. I'm not sure if David is back on line. Probably not yet.

Yes. I'm here. Can you hear me okay?

That's great. Yes, I can hear you. So first -- my first question is probably related to Quinn's question as well. I just wanted to ask a bit more details about your future plans probably in the long term about expanding the global market. Because we know that the 3 factories of ACMR are all based in Mainland China. They're actually quite all near Shanghai, if I remember correctly. Is there a particular reason for that? Like do you have any plans to build any other factories, say in Beijing or even outside of Mainland China or outside of Asia area?

Okay. Let me give you the [indiscernible] and we are finishing the market, IPO, like more strong financial foundation.

Sorry, David, you're still breaking up quite a lot. Or is it just me, I'm not sure.

Can you hear now better?

Okay. I said we already have a manufacturing center in Korea. So from now on actually we're building probably off a center close to major customer in China and actually Beijing and also Wuhan and potentially [offering]. Those R&D centers are helping closing support for customer. But more than that is also we consider other region and also country and as our business moving out of China, say go to Taiwan and go to U.S. and even go in Europe. And we do have a plan building R&D supporting center. And we believe the R&D closing to the customer will give you a fast choice or best supporting capability. Meanwhile, also we consider -- if we found good people for the company, we can even M&A good company in the local region. That will further enhance our R&D power in local. So our goal is really getting to the diversifying and global R&D in our road map. And also as mentioned in our talking script, we said that we are going to have eventually 50% sale from outside Mainland China and 50% is inside. And that's our long-term strategy, and also with our differential technology, I think, will be much strong driving force. Our tool to be sold in global, like we mentioned, TEBO or Tahoe and also we developed new technology also on the road. As our innovation product come out we validated in the local market, China, and then we can start pushing those -- verify the product into their global market. Meanwhile, we see also some fab in China to get advanced process going on. So we have also our tool can validate those advanced technology nodes. In other sense, is we get better of the technology being verified here. They will help us get into the market outside China.

David, that's awesome. Do you mind sharing a bit of a time line for the factories outside of China? Or is it just -- it's like more of a long-term plan, and it depends on how the R&D activities and other opportunities go?

Yes. Actually, it really depends on how we penetrate the customer, and also how we see the opportunity in other M&A or potential, I call it, group come out. And we're very dynamic. And as I said, we're building Korean center a few years ago, and we definitely have our plan. And also according to our success, our penetration to the local customer outside China then will speed up those (inaudible) we found some good people and good product and we're able to [close] group of people there too. That also can further enhance our sales and supporting capability for that local region.

All the best for that.

Mark, anything you want to add on that?

Yes. Nothing to add. I think we are kind of at the end of our call here. So I think we need to wrap up. Operator, if you can, please wrap up the call.

Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect.