Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ACM Research First Quarter 2022 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later 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. Now I'd like to 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 first quarter 2022 results. We released results before the US 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 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 and any unrealized gain or loss in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on our IR section of our website and on Slide 8. With that, let me now turn the call over to Dr. David Wang, who will begin with Slide 3. David?

Thanks, Gary. Good afternoon, everyone and welcome ACM Research First Quarter 2022 Earnings Conference Call. I would like to start today by review our Q1 results and then provide an update on latest status of our Shanghai operation. Please turn to Slide 3. As we mentioned in our business update prior to this call late in the first quarter, our operations were impacted by citywide lockdown in Shanghai. Our hearts go out to all those affected including our employees, business partners and customers. The government has been working diligently to bring the outbreak under control and we fully support their efforts. We also thank our dedicated and hard-working team some of whom have literally lived at our facility. Our team has kept ACM operating as best as we could under these challenging circumstances. Q1 revenue was 42.2 million. Shipments were 67 million and non-GAAP earnings per share was a $0.01 loss. We ended the quarter with 533 million of cash and time deposits. Revenue and shipments were significantly below plan as the lockdown limited our ability to ship finished products, process final acceptance and produce new tools. As an example, we had 13 completed tools that could not be shipped in Q1 due to logistical issues. We expect to deliver all of those tools in the second quarter. We expect the Shanghai lockdown to be temporary and we have begun to increase the level of operations. At end of April, Shanghai government put ACM on the White List of essential business. This enabled us to increase production and restore logistics to our facility. We started closed-loop production at our Chinese facilities also known as tools bus 19. This is where workers travel as a group between our factory and their hotel or home on a dedicated bus. We have started…

Thank you, David. Good day, everyone. Please turn to slide 5. Before I begin keep in mind that unless I note otherwise I will refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized loss in trading securities. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. As David noted, our Q1 results were impacted by the lockdown in Shanghai with revenue and shipments below plan and we had 13 completed tools that could not be shipped in Q1 due to logistical issues. To be clear, these tools were included in both repeat shipments and first tool shipments. As I review our results, keep in mind that we believe year-over-year comparisons are less meaningful due to the circumstances created by the lockdown. Revenue for the first quarter of 2022 was $42.2 million down 3.5%. Revenue for single wafer cleaning tools which includes SAPS, TEBO, Tahoe and Semi-Critical cleaning was $26 million down 19.7%. Cleaning was 62% of sales in Q1 2022 versus 74%. Revenue for ECP furnace and other technologies was $12.2 million up 120.7%. This category represented about 29% of sales reflecting growth in our new product group. Revenue for advanced packaging excluding ECP services and spares was $3.9 million down 32.3%. This category was about 9% of sales. Total shipments in the quarter were $67 million versus $74 million in the first quarter of 2021. Gross margin was 46.9% up from 41.4%. This was higher than our normal expected range of 40% to 45% reflecting a 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 $27.7 million versus $13.5 million. The majority of the year-on-year increase was from R&D…

Thank you. [Operator Instructions] Our first question comes from Suji Desilva with Roth Capital. Your line is open.

Hi, David. Hi, Mark. So a couple of questions. First of all, on the White List activity that called you essential business how soon does that imply you can get back up to full production full shipment?

Great. That's a good question. Yeah, actually as I mentioned, we already have our 2.1 line and closed loop production. And we're adding the people to our facility. By current pace, we calculate it will probably take a few weeks and as we gradually add more people, hopefully, really by end of this month we can have our other employees and our workers start getting to our China factory. And meanwhile, also, we're starting to send people into our Zhanjiang office, which is a design engineer site. Hopefully, also then gather our design engineer back in the office too.

Okay. That's encouraging to hear. And then David perhaps or Mark, the ECP furnace category is growing here. It's 29% of revenue. What are the sub-segments there that are showing the most growth? Is it across the board? And how does that mix look like it's going to look a year out? I know, the single wafer cleaning is also growing very well so curious, if that's going to grow in the mix a year or two out?

Yeah. I think for this year, the copper plating and furnace will grow, right? And major actions still come from copper plating. As you see last year 22 were shipped for the copper plating site, and same thing for the furnace. This year, I would say, revenue-wise obviously copper plating more than furnace. And meanwhile, I can still say, our cleaning tool still demand is very strong. As you can see that, we have single wafer cleaning and also large deals -- [indiscernible] and also later this year we're probably getting to our super critical CO2, the cleaning tool in market right? And meanwhile, we also have this big order for the Ultra bench, and we just announced also too. Also, by the way, as I mentioned auto bench this key technology we call low pressure drying, we developed in the last two years and have been qualifying as we will become the driving factor for us to gain the market share from competitors. So, also leading other small competitors in China. We still maintain very strong leading position in China cleaning market.

Okay. That's great. And then lastly, on the tools, the 13 that you're unable to ship, I'm curious, what portion of those roughly is a first tool? Because I imagine those maybe take a little longer to get in place versus the repeat tools as you kind of recover the shipment process here?

Yeah. I mean, this is the 13 tools is mixing our cleaning tool our batch tool and copper plating and also advanced package, right? And obviously the 13 tools they are shipping in May right? And some of them actually have been shipped out already. All of the 13 tools can be shipped out probably by mid of May will all ship out and for the logistics.

Okay. One last question, if I can sneak it in. Have your customers' capacity expansion plans also been impacted? I'd imagine they have. And then just if so are those getting back on track? Because obviously that's the fuel for your demand to kind of re-achieve your count of 2022 numbers. What's going out the customers' capacity expansions and their ability to kind of install tools?

We're always keeping weekly dialogue with customer, right? And there's some tools shipping timeline we couldn't do that. We'll try to really quickly ship the tools out. And also they're also trying to push us for April and or sorry May and June to get them tools. Our engineers are working very hard. I think we try to catch up the manufacturer scale. And hopefully, we can get into Q2 and based on plan, right? Obviously Q2 will be better than Q1 obviously. Q – Suji Desilva: Okay. Thanks so much for taking all the questions. Thanks.

Thank you. Our next question comes from Quinn Bolton with Needham & Company. Your line is open.

Hi, guys. Since demand and bookings remain strong, I just wanted to focus more on the production and the lockdown effect. First, David just wanted to clarify your response to the Shanghai facility getting back up and running at full capacity. Did you say in response to Suji's question that you would be back up and effectively back to full capacity by the end of May?

Yes. I think that's by the plan. We're gradually putting people in the production line. And that's our goal, right? Hopefully, we can go earlier but that's probably realistic plan and we will gradually get to 50% eventually they'll get 100%, right? That's our goal. Obviously, our goal is by end response we try to recover 100%.

Got it. And then sort of a second question.

Hey, Quinn just to kind of clarify one thing because what David mentioned is all of our employees back to the facility is our target by the end of the month. I mean the logistics will still have to catchup to get our supply chain and some of those details worked out. We'll gradually get our overall output, the full capacity as we move through the year. But in terms of our staffing, we're targeting that by the end of this month.

Got it. And I guess sort of a related question next Mark, obviously, you haven't shared the quarterly progression of your annual plan. But through the lockdowns you had press released that you were going to come in well below your internal plan. As you sit here today, are you going to be below the internal plan at the beginning of the year in the second quarter and then expect to catch up in Q3 and Q4 since it's a much, much heavier back-end loaded year, or do you think the second quarter can be back in line with the original operating plan?

Let me add something, Quinn. What happened is obviously, we have ordered those parts either from the overseas supplier and also supplier in China which are most close to Shanghai, right? And most of all our machine shop Sony Shanghai there are not shutdown, right? So those parts of the machine have been fabricated already. Obviously, we try to deliver. And as I said we already got this return production so we have special permission. We have just a car or a truck can load the parts back to our factory now. As I said, the deals are still there and the demand is still strong. And our long-leading items on the line, of course, some of them are waiting to clear the customer in the port of Shanghai. So that's why, I should probably maybe Q2 still get some impact. However, those are parts those are other than what eventually is still no delay. And then we're trying to catch up in Q3 Q4. That's why we put this year our revenue and also including shipments probably still below our plan. Of course, we have to do a lot of good work and to manage well our workers' efficiency and we'll probably run more than two shifts and consider three shifts. That's all we consider to catch the demand and also meet the requirement of delivery time for our customers.

Got it. Thank you for that. And then just lastly, on the two new platforms since the R&D folks had to work from home have there been any delays in the intended launch dates of those two new platforms, or do you still expect to introduce one in the first half and one in the second half of 2022?

Yes. I think that's still actually less impacted. The reason I say that is, that two platform partially designed by our Korean team and partially designed by our Shanghai team, right. Obviously, Korean team has no impact, right. They're working still pretty normal. And the Shanghai team work at home and they're still -- they're working very diligently, right. Now so we will not see much impact for the second half of the year deliver early first and later in the second -- that's our plan. I think we can make it.

Excellent. Thank you, David. Thank you, Mark.

Thanks,

Thank you. Our next question comes from Charlie Chan with Morgan Stanley. Your line is open.

Hi, David. Hi, Mark. Hey, how are you? Yes, I know it's kind of a tough quarter for you, but it seems like the full year is still fine. My question is about first of all because the other big foundries like TSMC and UMC, they mentioned about some bottleneck of global equipment. So even you still have a purchase order, but my concern is that given those other increments of bottleneck whether your China customer can really build those production lines on time. Because even for TSMC the equipment delay is like three to six months. At UMC, they're expecting to have parts come in on time. Just wanted to get your thought whether that it's going to impact your future order. Thank you.

Yes, it's a really good question. And it's really hard for us to comment whether our customers' production is on time or not. But at this moment all customers in China really want us to deliver on time, right? Of course, they want us to deliver ahead of time, but we cannot do that. At this moment, our I'd say customers still pursue their full speed to do their production line installation. And at this moment, I think that's our job. Assuming they got other parts other important equipment for international bigger guys and then we did our portion. So far I didn't see anybody delay say, push delay and postpone their delivery. We not have any customer in China told us postpone their order to deliver later, right? That's the standard right now.

Okay. Got you. And another thing is more about the competing landscape. I was just aware that there is a new competitor in the cleaning category called the IDG Power. It seems like management comes from ex land research. I'm not sure if you are aware of this competition. And what would that change your long-term market share targets, especially in China? Thank you.

Yes, you mean the China market, right? That's your question? Is that correct?

I'm sorry, I'm talking about a new competitor called IDG power and it seems like they want to make entrance to the cleaning market.

Ah, another company for power?

Yes.

IDG? Okay. Well, I mean, the main competitors are the international big three. We have also a local player coming. This more than, I think, we are working on many competitors. With the beginning of wafer fab tool got first PO from Korea market, right. You have an international big guy also Korean local guys competing. So I think we're okay with our competition, right. Our goal in China is very clear. With our technology superiority, single for the bench SAP TEBO Tahoe also semi-critical products. We're definitely in leading position in this market. I think, again, there's -- our goal is to take 50% of the market. The rest of 50% are bigger three international players and also their new small company in China and that's okay. And we like competition and as long as they are competing on product, right? So we're okay. I think we are pretty confident. And also very strong relationship and customers like our tool, like our innovation. Especially also they like us to have their future solution, right. And not just also cleaning products, we do have a couple of competing corners. And soon we come with two new platforms in the second half of this year. So we are really a multi-product platform company. And we feel very comfortable about our future growth, right?

Okay. Okay. I just wanted to make sure you are aware of new competition. Yeah. And maybe last question is to Mark. I know you maintained the full year revenue targets. But from a CFO perspective, if you kind of run through the full year projection for the bottom-line. After this shutdown do you see kind of any downside to your original budget for the bottom-line for 2022? I just want to make sure, whether the following quarter can fully make up the loss in the first quarter. Thank you.

Yeah. Hey, Charlie so we don't chat on the bottom-line, but we certainly talk about the top line the $365 million to $405 million, we're maintaining that outlook. We would anticipate that you run through our overall operating model for the year, it would probably be not that changed from what we anticipated before the lockdown. Just the revenue shifted to the back half of the year. Where we are evaluating are there going to be additional costs associated with the lockdown? I mean, at this point, there may be some but we don't really think they're going to be that material. We'll have to evaluate that as we move through the year.

Okay, yeah, I just want to make sure this is fully temporary. That's why I asked. Thanks for your information.

Yeah. Thanks, Charlie.

Thank you. And our next question comes from Mark Miller with The Benchmark Company. Your line is open.

Thank you for the question. The 13 tools that could not be shipped in quarter one, can you estimate approximately what revenue this represented?

Yeah. David, you want to take that first?

Hey Mark, please.

Oh, Yeah, I can hit that. I mean, David talked a lot about the spot lockdowns that started in mid-March and then, the so-called five-day lockdowns which were started at the end of March. And of course, we didn't completely shut down. On the 13 tools, we're not really going to quantify the exact specifics, but there's, five cleaning tools, a couple of ECP tools and the remainder were advanced packaging. So we did mention that those tools are reflected both in finished goods inventory and work in process on the balance sheet. We also had some impact from acceptances and qualifications that were delayed. And then, of course some slowing of production. I'd also point out this is typically our seasonally weak quarter, because of the Chinese New Year. And so a lot of the business would fall in the last month of the quarter. I mean typically our quarters would be more linear and the overall mix relative to our plan, it doesn't take a lot of tools given the ASPs really to move that. So I don't know, David if you wanted to add any more to that?

Yeah, I think pretty well, Mark. Yeah.

Yeah, it's a pretty good.

Okay. Thanks Mark.

Hey Mark.

You're expecting these tools to ship by the middle of May?

Yeah. I think we started shipping some of them already. And we will probably complete all shipments by mid of May. And yeah, that's our plan.

You're interviewing auditors. When do you think that process is going to be complete? And you'll have an auditor selected?

Yeah, Mark on that front, look, we remain committed to the NASDAQ, we're confident we're compliant. We've been evaluating auditors for the past several quarters. As David mentioned, we're in the advanced stage of selection and we're working hard to appoint one for 2022, which would be a year in advance of the mandate. We're not going to give a lot more detail on that. When we have something to announce, we'll certainly do so.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Chaolien Tseng with Credit Suisse. Your line is open.

Hey, David and Mark. This is Chaolien. So, one very quick question for the R&D expense on a full year basis. Did you mention earlier it will be around 15% for the year?

Yes. And actually, our goal, right, obviously the whole of this year our trade spending anywhere between probably 15% to 16% range and obviously higher -- a couple of points higher than last year. The reason for that is that, we increased more R&D for the existing product line expansion and also add this furnace and including furnace ARD. And plus, we do have two new platforms, right, of the new product that's all adding on the engineering, the manpower and also building the development tool, all this stuff. So an office, hiring crew, all the stuff. So that's why we're planning increasing a few points to R&D for this year's budget. And Mark, anything you want to add on that?

Yes. I wouldn't add a lot. I mean, our overall operating spend, I mean, there's always a mix between sales and marketing and R&D. But we're clearly investing in our new product opportunities and there was some elevated costs in Q1, because of the development tools.

Thank you. Next question is on the competition side. And just, by the way, the new local competitor that Charlie mentioned earlier should be IDG Energy. I think one investor [indiscernible] is to do different focus right now. But my question is on the Ultra ECP side, because it looks like the company's Ultra ECP is getting through to customer orders now and also based on the announcement in February. Do you see any strong local competitors in China for our Ultra ECP tool? And another question for Ultra ECP is that, I remember back in February you also mentioned that one of the ECP tool orders is from a top-tier Chinese foundry. Has that top-tier Chinese foundry also ordered ECP for wafer level packaging application? Thank you.

Yes, I'll hit competition first. Right? Copper plating is a really relatively new technology. You look at a real competitor in the world, right, there's just a few companies can do that. The reason is really difficulty of the technology, number one. Number two, also have IP, I call that, a barrier for the people getting into the business. So, I think, ACM is one of the company, coating the entire, I call that, IP for the copper plating technology, both in dense application, also in advanced packaging too. So regarding the local competitor, I think, it's still -- they have to take time, right? I mean, number one, they've got to create a new IP that will make sure not to step on other, including ACM or other big guys IP, number one. Number two, you have to really overcome a few key technology barriers. Right. So, at this moment we are pretty confident on our technology and IP and also we have a way to penetrate very fast for the Chinese local customer. Either [indiscernible] application or the advanced packaging tool too. So with that in hand, we have very strong confidence. And also, we not try to only capture the local Chinese market and also with our partial plating technology and also high speed, the copper plating for IP. I think we're also aimed toward the international market, long-term run, we want to say, 50% in China and 25% in global market that's our goal. So, answer to second question, yes, and all major top tier customers in China and all have operating tool. Right? And you can say, SMIC, [indiscernible] and also on One PC [ph] and also 6MP [ph] all have our copper plating tool. And we also get our application in the second tier and third tier of the foundry in China. Of course, we sell more just than we announced. We have just received very volume first order from one wholesaler, the most packaging company in China tend to reorder. They show their confidence into our technology and also with our performance.

Thank you and that's very clear. And next David, I want to learn more about the Korea side. Can you share a bit more about the production complexity in Korea and from what type of tools and the ramp-up schedule for this year and next year? And for the revenue guidance for this year how much of that will potentially come from our Korea facility? Thank you.

Okay. Good question. And yeah, as I mentioned we do have a tool facility, which is R&D manufacturing facility in Korea. And that's started making our, for example, auto bench -- partial auto bench tool and also part of their furnace tool. And also some of them made also in China in a combination. As time going on and also, we are saying, we want to also expand the manufacturing in Korea and by we are consider buying the land and building more bigger space to take care of our manufacturing R&D in Korea. Because we believe we want a building R&D manufacturing center close to the customer. That's what we talked about many times. And this is really big movement. And also, we believe we have two manufacturing centers one Shanghai, one is in Korea. We really make a robust supply chain and also keeping we call the continuity of the production. It's really what the benefit to our customers both inside China also global customers. So that's the route we keep. And we're not only stopping in Korea. As we do more business in Taiwan or in the US and we're also building on [indiscernible]. Not including I call it Europe. As I said, semiconductor is international business and we want to be putting our best design engineer close to the customer. Therefore, they can better service supporting the customer.

Thank you, David. And David one last question for me if I may. I hate myself ask this question but this is one of the questions that investors have been asking me from last week and I couldn't explain well. Some investors are very curious that there are also other semiconductor-related equipment makers in Shanghai with their major production in Shanghai. But it somehow looks like their revenue didn't get hit as much as our revenue in the first quarter. I'm just curious why -- is there any reason if you have to say, I mean first employee loss at home or the logistics issue or the customer acceptance issue and the small to raw material issue? What is the biggest factor for our weak revenue performance in the first quarter?

Yeah. I know what you mean here. Obviously on a different company, I couldn't comment what's their custom combination like quarter-to-quarter difference. And somehow this quarter we got a combination I said, there's -- okay, you talked about Chinese revenue recognition right? And China recognition really for you to sell the tool and ship the tool to the customer site, okay? And that's something recognized simple, right? But US recognition is upon shipment. So, for the question here, yes, we are -- I mean this is a recognition rule by the US rule. It impacts a lot, because if we cannot ship repeat order, the revenue cannot be recognized. So that's way you can see that actually our China revenue is higher than US revenue, let's put it this way, right? You might see that I still satisfy with our China revenues, why, and we also have some customers delay their production line, I call it facility buildup. So we ship almost 10 tools in their facility but they cannot install on time. So anyway, this one quarter is very strange in all combinations together, right. Chinese New Year and some delayed installation and also as I said, this is the shutdown all together. But anyway I mean it's one quarter, right? I mean, I don't think it makes a major impact to our long-term business. We have to probably be careful about our future preparation for this kind of shutdown. And now, we start setback call a two spot wide line will continue for wire until this all pandemic can go away. So we'll really propel from now on we will make sure if the same thing happened again we will still maintain healthy production in the hotel in the factory with the bus and moving close to production, right. That's our goal. And we'll probably go through orders through this year. And even as it gets better we want to make sure we've got robust production systems and not impact by this COVID-19 spread out, right. [indiscernible] Of course, expecting they didn't come back again. If it comes back again, your supply chain has got issues. So far so good. We're hoping everything gets better from now on.

Okay. Understand. Thank you, David.

Thank you.

Thank you.

[Operator Instructions] And at this time, I'm showing no further questions. I'd like to hand the conference over back to Mr. Wang for any closing comments.

Okay. Well, again, thank you to everyone for participating in our conference call and I will report you next earnings. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Everyone have a wonderful day.