ACM Research, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the ACM Research Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad, and to redraw your question, press the hash key. If you require technical support at any time, please press star 0. I would now like to hand the conference over to your first speaker today, Gary Diverchak. 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 from Newswire Services. There's also a supplemental slide deck posted to the investor portion of our website that we will reference during our prepared remarks. On the call with me today, are our CEO, Dr. David Wong, our CFO, Mark McKechnie, and Lisa Fung, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. 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 a financial liability, and 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 an excellent third quarter with strong financial results. We delivered record revenue and assurance with solid profitability. Third quarter results demonstrate the strength of our expanding customer base, our differential-aged multi-product solution, 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. Sharements were $99 million, up 68% from $59 million in the same period last year. We maintain a good balance of growth and profitability with a 44.5% growth margin and 19.5% operating margin. We are focused on profitable growth as we invest in R&D to drive innovation, broaden our product portfolio, and introduce new products. On the bottom line, we report 56 cents of net income per dilute share compared to $0.42 in the same quarter last year. We ended the quarter with $65 million of cash. In addition, we had a $30.25 million end from our holding of SMIC stock market shares. I will now discuss recent operational highlights on slide three. First, our Q3 revenue growth was broad-based. driving bulk carrying and new products. All wet cleaning and other front-end process tools grow 29% and represent 70% of total sales in Q3. The growth was driven by our flagship cleaning steps tool, good contribution from people cleaning tool and all semi-critical cleaning tools. Advanced packaging, other process tools, services and spare parts grow by 88% to 26% of the sale. The strong growth of this group was driven by AP tools, including ECP-AP, white etcher, stripper, and scrubbers, together with the increase in our service and spare parts business. Second, we received good orders from three new major customers. Several weeks ago, we announced evaluation orders from two potential new customers, The first order is for SAP's Canadian tool from major global semiconductor manufacturer and is scheduled to be installed in their China-based development lab in the first quarter of next year. The second order is for Ultra-USAP MAP carbon plating tool from major Asia-based semiconductor manufacturer. Also for delivery early next year, yesterday, we announced order from leading global semiconductor integrated device manufacturer, or IDN. The orders are for two Ultra-C PR web shipping systems to be used in the China-based advanced packaging facility. We already delivered the first order in October and plan a second delivery in Q1 of 2022. ACM offers a full product line of WALP web process tools. ranging from coder, developer, wet etcher, cleaning, and PR strippers to advanced copper plating tools. Wire, our WLP wet process tool, have gained wider acceptance with a number of China-based manufacturers. This order, our ACM's first WLP tool, wins their major global player. ACM's progress with three new major players is a testament to our technology leadership, regional support teams, and the production skill. We are confident that successful qualification of this tool can result in larger business opportunities. We continue to build our scale, our sales pipeline with a top tier player. I want to thank our sales and technical support teams for their outstanding execution. China is among the largest and the fastest growing market for semiconductors. Over the year, ACM has become a significant supplier of semiconductor equipment in China with our major domestic front-end customer. We believe ACM's efficient technology and multi-product offering provide us an opportunity to capture significant market share on a global basis. Longer term, we are targeting half of our sales from countries and regions outside of mainland China. Third, our ECP product, REMS, is getting momentum. We delivered multiple ECP tools in the first half of 2021, and even more in Q3. As noted in last quarter's call, we expect the ECP momentum to continue with the delivery of 20 ECP tools for the full year 2021. We expect the ECP product line to drive meaningful growth in 2022. We see good opportunity for ECP in both front-end and back-end or packaging applications. In the front-end, smaller geometry require advanced plating solutions. Our front-end ECP portfolio includes the ECP map for dimethyl copper interconnection and the ECP-TSD for through silicon wear. Meanwhile, back-end and advanced packaging has become more important as industrial moves via Moore's Law. Manufacturers are looking for packaging innovation to drive higher performance. ECM-ECP-AP for advanced packaging addresses this back-end opportunity. We estimate that the total global market for ECP front-end and back-end applications were tripled from $500 million last year to up to $1.5 billion in the coming years. Fourth, we are seeing strong interest for our ultra-FN furnace dry process tool portfolio. So far in 2021, we delivered several first tools and evaluation tools, including doped and non-doped poly-LPCVD. We expect to deliver to deliver additional units by year-end. More recently, in October, shipped furnace product with higher temperature oxidation and annealing capability. Building on this strong execution, the next major development in our furnace roadmap is a batch atomic layer deposition, or ALD process. Reveal this. as the most challenging and promising product for advanced manufacturer nodes for both memory and logic. We expect the furnace product cycle to ramp in 2022. Based on 2022 market data, we estimate our current products address 5 billion total global market opportunity. We are committed to our goal to double our addressable market to 10 billion in the next several years. On that note, we are making steady progress with our R&D investment in two additional major new product categories. These are long-term commitment to major adjacent market in which our customers are pushing us to invest in product roadmap that support their advanced nodes. We have accelerated our hiring to support in this program. We are confident that we can deliver the first tool in each category in the first half and second half of 2022, respectively. We have a deep R&D program intended to address the next two product generations by entering this category as a leading-edge node. We are in a strong strategic position to leverage our local relationships with some of the most advanced semiconductor fabs in the world. where we can test driver and develop our most advanced technology. This will help driving most of our product line to the leading edge and competing on a global basis. Next, I would like to recap ACM customer base on slide five. Our first group includes our five major front-end customers that represent the Foundry, 3DNet, and DRAM manufacturers. For 2021, we expect a good growth from Huahong Group and YMTC, which we expect to remain as our top two customers. However, each may represent a lower percentage of total revenue as we anticipate, meaningful growth from other customers. For 2021, we also expect a good contribution from our other three major front-end customers, but are now unlikely to be over 10 percent contributors, this including SMIC, which contributed to our third quarter results as anticipated, SK Hynix and 6MP. Our second group, including a number of new China-based semiconductor customers who manufacture power, analog CMOS, image sensor, compound semiconductors, and other devices. This customer, including four of five Tier 2 players, a handful of new Tier 3 and others, which each is relatively small, this group of new customers combined could contribute 10% or more to our 2021 revenue. As the newer customers are investing in new capacity to support the growth of 5G, IoT, EV, and AI, and other emerging technologies. ACM has good presence of these customers, supplying a broader range of tools, including SAPs, semi-critical cleaning, ECT, and their furnace products. Our third group is advanced packaging and wafer manufacturing customers. Top customers here have included J-CAP, Tungfu, Nappers, and WaferWorks. Wafer had good offer Good order momentum in this group this year, including orders from two new advanced packaging houses in Q1, and yesterday's announcement from the China-based packaging facility, a major global IDM. We expect additional orders from more potential customers in this group by year-end. Collectively, we expect tremendous growth from this group. This should be driving buyers Increased industrial focus on advanced packaging and waveform manufacturing. Penetration of new customer and a strong product cycle for ACM ECP AP tools. Looking ahead, we believe our current customer base represents a significant opportunity for ACM. Most of these customers are still in early or middle stage of multi-year capacity expansion. We are committed to further broaden our customer base as we believe every major semiconductor manufacturer can benefit from our technologies. Move on. I would now like to discuss Q3 shipments and provide an update on our manufacturing facility. Please turn to slide six. We deliver record total shipments of 99 million in the third quarter shipments. Achievements were $32 million higher than revenue, the difference being first tools and evaluation tools. Map of customer acceptance for previous delivered first tools. This is a positive indicator as it reflects demand for new product and from new customer. To achieve this level of achievements, we must thank the production team in our TransSat facility We are ramping production capacity to meet a strong customer demand in a constrained supply chain environment. We started production in the second building of our transfer factory in Q3 as planned. We are on track with our capacity roadmap, which targets a full rate of $50 million of annualized production capacity by the end of this year, upper from 350 million at the beginning of this year. We expect to further increase production capacity to 625 million by the end of 2022. We are committed to our long-term strategic plan to build a production and R&D center in the Ninggang region of Shanghai. The one million square feet of floor space will enable us to increase our annual production capacity to $1.5 billion. The facility will also be used to support advanced R&D with state-of-the-art cleaning room and testing equipment. We recently began initial construction, laying the groundwork towards our plan for initial production in the beginning of 2023. Before I provide our 2021 outlook, I want to provide an update on ACM Shanghai's stock market IPO. Yesterday, the Shanghai Stock Exchange announced the pricing of the stock market IPO for share of ACM operating subsidiary, ACM Shanghai. In IPO, ACM Shanghai proposed to issue 43.4 million shares, which is 10% of the total share outstanding following the IPO, and they announced pricing of 85 RMB per share. This would represent growth proceeds of 3.685 billion RMB or approximately 575 million U.S. dollars at the current exchanging rate. If all grows according to plan, we tentatively expect ACM Shanghai stock to begin trading on November 18, 2021. Please keep in mind that the term timing and successful completion are subject to factors beyond ACM Shanghai's control. We are confident that the stock market listing of ACM Shanghai shares combined with the NASDAQ listing of ACM Class A common share can provide a strong foundation to supporting our mission to become a major player in the global semiconductor equipment industry. Now let's move to our 2021 outlook on slide eight. Our guidance reflects optimism about our growth opportunity for 2021. We have tightened our revenue guidance to the range of $230 million to $240 million, representing 50 percent of our annual growth at the middle point. Our outlook for 2021 is based on several key assumptions. First, stability regarding the global COVID-19 pandemic. Second, the stability in the U.S.-China trade situation. Third, a range of spreading, a range of expanding scenario for their production ramps of key customers. Fourth, management of ACM supply chain. And finally, a range of timing of customer acceptance of our first tools. Our results and outlook demonstrate successful execution of our strategic with strong strategy. Our strong growth is supporting additional R&D spending on new products. We are building our global sales and marketing resource to penetrate the new customer in the region. and we are scaling production capacity to support our long-term growth plan. We believe we can on track to achieve our mission to become a major equipment supplier to the global semiconductor industry. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners, and shareholders for their support and competence in ACM research. I will now turn the call over to Mark to discuss financial results in more detail. Mark, please.

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 exclude 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-way for cleaning tools, which includes Saps, Tebow, 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 systems 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 are $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 spending in 2022. Operating income was $13.1 million, up from $10.3 million. Operating margin was 19.5% versus 21.6%. unrealized loss on trading securities related to the change in market value for our SMIC investment was $1 million in the third quarter of 2021 versus an unrealized gain of $9 million in the year-ago quarter. Note that we exclude this non-cash item from our non-GAAP results. We had a tax benefit of $0.3 million versus a tax benefit of $1.7 million in the year-ago period. Net income attributable to ACM research was $12.4 million versus $9.0 million in the year-ago period. Net income for diluted share was $0.56 compared to $0.42 in Q3 of 2020. Tax items and the effects of foreign exchange fluctuations on operating results provided a net benefit of $1.7 million or $0.08 per share in the third quarter of 2021. versus a net benefit of $0.3 million or $0.02 per share in the third quarter of 2020. I will now review selected balance sheet items. Our cash balance was $65 million at the end of the third quarter versus $70.2 million at the end of the second quarter. In addition to the cash balance, we also had trading securities of $30.2 million related to our SMIC investment. This includes a significant unrealized gain from our original purchase price. Total inventory was $176.6 million at quarter end, up from $136.9 million at the end of last quarter. The $39.7 million quarter-to-quarter increase was driven by two items. First, finished goods inventory grew by $17.9 million to $81.9 million. This represents the balance of first tools that have been delivered to customers and evaluation and are carried on our balance sheet at cost pending a potential transfer of ownership. The second item is work in process and raw materials, which in total grew by $21.8 million from the prior quarter. This was due to purchases to support future shipment growth. At quarter end, short-term borrowings, including the current portion of the long-term debt, were $17.5 million, down from $24 million at the end of the second quarter. Non-current long-term borrowings were $23.1 million versus $18.7 million at the close of the second quarter. Cash flow used by operations was approximately $4 million for the third quarter. For 2021, capital expending is planned at approximately $10 million. This includes $5.5 million already spent through the first nine months of the year. Our 2021 investments will be primarily focused on capacity increase at our 20 factories, investments to support our R&D programs and initial spending on Lingam. In sum, we are successfully executing on our strategy. We are participating in the growth of major new IC fabs, we are ramping production, and we are developing and delivering new products to a growing list of customers. We are positive about our opportunities in China and expansion outside of China. We remain committed to achieving our mission to become a major player in the semiconductor equipment market. Now, let's open the call for any questions that you may have. Operator, please go ahead.

Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question from the line of Patrick Ho from Stifo. Your line is open.

Thank you very much, and congratulations to Nike Porter 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, you know, given the results and Outlook?

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

Yeah, let me start that. Patrick, you know, Mark, add more. Actually, you know, all these constraints and semiconductor equipment, they're spending double, right, compared to last year. So we see our component also hits the constraint. And we have a, you know, I should say, Some components we buy from U.S. and buy from Japan, and you also buy from Europe, right? There's a leading time, get longer and longer. I can give you some example. Some normal parts, we have two months. Now they get into four months. Even some special parts get into six months. So for that reason, delay, we're doing ahead of our forecast to 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 base and forecast next 12 months. And what is the possible delay? What is our vendors' supply status? And actually now we require our vendor give us next 12 months. and what it can provide to us, right? So that's the approach we're taking, and hopefully we can have this supply security, or we call supply on time, to be improved. And, you know, you can see that our third quarter, we're doing a lot of good work. And however, as compared with the regular last year, our leading, leading, running item, it's a much, you know, take more time. Anyway, so that's the status right now. Hopefully, you know, and we know our key, some key supplier start increase hire more people and also increase the manufacturer floor. And we're hoping those situations get improved, you know, for the, you know, start next year. Hey, Mark, anything you want to add on that?

Yeah, no, thanks, David. I mean, 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 – is building back semi-capacity pretty aggressive. But, you know, at our size as a company, I think, you know, we're demonstrating some scale. It's really important that our customers are confident that we can deliver. And so we're sending that message. And, you know, I think our manufacturing and supply chain team did a good job in Q3. And, you know, we anticipate that as well in Q4.

Great, thank you. 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?

Okay, Patrick, actually, I should say we have laid down a very good product portfolio, right, and therefore the advanced packaging tool with a wide process cleaning and coater, developer, PR stripper, and also the most important, cover plating tool, right? So we see the people in this growing area is, you know, obviously PILA, And also we see the people in the fan out. And also, you know, there are also people talking about this, you know, micro, micro, micro, micro, right? More than 300 micron of copper in the plate there. So it's really high demand and for our copper plating tool, right? And also our copper plating has certain benefit compared to competitors, you know, including, I call their edge control and their high plating rate with our special design of the plating chamber. So we see their very strong, I call their driving for our revenue growth or their shipping growth this year and next year. So we also, I should say, we also see a customer outside of mainland China interested in our plating tools. and respecting those tools, hopefully next year we'll get into Taiwan market. And that's our planning too. So that may be the general way of their, I call their advanced packaging tool. And plus we also increase new customer in China. J-Cab and Kung Fu is our traditional top two customer. Also we'll see a few, other emerging or, I call it, new start-up companies get into this application, too. So we have very good, positive, I call it, forecasts, right, for the advanced packaging tool growth.

Great. Thank you very much, and congrats again. Thanks, Patrick.

Thank you.

Thank you so much. Your next question from Charlie Chen from Morgan Stanley. Your line is open.

Hey, Charlie. Hey, David. Hey, Mark. And, hey, and first of all, congratulations for your great result in China IPO, finally. So, congrats. So, my first question is about, it seems like, will it not be the component shortage, you can do more Siemens, right? So, I'm not sure. This year is still a very strong growth, right? So, next year, do you think... you can deliver an even stronger growth rate for 2022. Any preliminary outlook?

Okay, yeah. Actually, you're looking at our shipment, right? The Q2 almost doubled, right? I mean, 80%. And our Q3 shipment also 60% increased, too. So our total shipment, you know, compared to last year, has been increased a lot, right? Probably end of this quarter, I can give you more detail how much percentage increase. It's much, much more than previous year. So we're saying, we think next year continue we look strong in our forecast pipeline. So in other words, we have to really increase more of the components and the buying from our supplier. So in other words, we are really working closely with our key supplier. And as I said, we give them a roll-in you know, 12-month forecast plan, and they're going to tell us, you know, what is delivered and what is, you know, capacity they can build for us. So we're working on that. And I really hopefully, you know, next year get better. But again, you know, we're still very carefully watching the market and also, you know, working closely with supply chain. You know, it's ongoing in the process. We got to be careful to also, you know, manage this supply chain.

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

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

No, David, he's asking about the newer, the two new products, yeah.

I see. I see. Okay, well, probably they're, you know, let's put it this way. Two years ago, right, we're starting, you know, launching the two new products. And unfortunately, I still cannot tell you what the product, you know, name, however, is. We believe these two products represent a big market and service market globally. And also we see the two new products and also have, I call them challenging, also need innovation for technology improvement. So now we're working closely with R&D and their team. I think probably one product will come out first half next year. And also we do have our customer, you know, talk together, get those two as a beta side application test. And also our second product, we're targeting second half next year, right? So with our team and working very dedicated, we're hoping those two tools will deliver, you know, in the timeline.

Okay, since I'm on track. And my next question is to Mark. Again, you know, lots of works on China IPO. I'm not sure if the pricing, what's the kind of valuation implication, apply the P multiple, et cetera, and what would that mean to your U.S. listing market cap?

Yeah. Hey, Charlie. So I think we put a lot of the details out on where it was priced and the number of shares, right? The proceeds, 3.685 billion, Remnant B, or 575 million US. 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. Okay.

Okay, thanks. Yeah, I thought that it's a big catalyst given it was kind of an overhand, right? So hopefully your market cap can continue to expand. Yep, so that's all from me. Thank you. Thanks, Charlie.

Thank you so much. Next question from Kim Bolton from Needham & Co. Your line is open.

Thanks, David and Mark. I'll offer my congratulations on the Star Market IPO as well as the international customer expansion. I wanted to start with the international customer expansion. It sounds like the three customers you're working with or that you recently announced are all taking tools for delivery to their China manufacturing facilities and 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

Hey, Quinn, we lost your voice. Hey, Mark, can you hear Quinn?

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

Hey, Mark?

Yeah.

Are you there?

Yes, we are.

Yeah, Mark, I can hear you. Am I coming through?

Yeah, you're coming through okay, Quinn. I don't hear David. Hey, Mark, can you hear me? David, we can hear you okay. I guess you cannot hear us. I'm telling you. Yeah. 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 two of those were for deliveries to the China fab. Another one was an Asia-based one. And so can you maybe, Quinn, just clarify your question again? Yeah. Yeah.

Yeah, I guess maybe I misunderstood. I thought all three were tool deliveries taking place in China and was asking, what's the progression that 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. Yeah, it's a great question for David, but I think you know we've got a global sales force, and so these are the three 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 outside of mainland China. So we've got activities that we think can result in that in the coming years.

Got it. Just to clarify, did you say that one of the customers was taking delivery outside of China somewhere else in Asia? Yeah.

Well, of the three, we talked about a SAPS evaluation order from a global semi-manufacturer with a China development fab. We talked about the two stripper orders were to a global IDM'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, got it. The second question, David talked about the growth in the advanced packaging business. I'm 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?

Yeah, 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... You've got to mute this. Sorry, guys, we're having some technical issues. I think the team in Shanghai is trying to get back into the call. But, yeah, I think for now, Quinn, we would plan on – you're kind of a similar mix. I mean, it's hard to say 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 two groups.

Got it. That's helpful. Thank you, Mark.

Thanks, Quinn.

Thank you so much. Next question from – Suzy DeSilva from Roth Capital. Your line is open.

Hi, Mark. I don't know if David's back on, but congrats on the progress here. I wanted to know that the Tebow products have been out there for a while since the IPO. I'm curious. You 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 Tebow can grow versus Saps?

Got it. Yeah, great. And, Suzy, we're trying to get –

I got it back now. Can you hear me okay?

David, can you hear me?

That's great. Hey, David.

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

Yeah, very well. Please.

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

Okay. Well, actually, you know, the T-Bowl, we made progress, right? And also we realized T-Bowl have combined with a certain dry technology. So a year ago, we started to develop with the advanced dry technology and most of us on two types. One is a hot IPA multi-zone heating method. Next one is actually a supercritical CO2. There's two new drawing technology, I think, where one will come out probably Q1 next year, and another one will come out probably Q2 next year. With this drawing technology and together with TIBO, we'll further give TIBO much wider application. Why? Because all their, you know, like 70 nano DRAM, their capacitive structure, you have to dry by CO2 because of mean effect, right? Also, certainly, you know, 1410 nano of their, I call their firm class structure, also their, you know, high spec ratio, either PA, hot IP, dry technology. So, with this adding additional dry technology on people, a product, and we'll see that their tool, you know, more of a possibility getting application. and also the logic of manufacturing. Okay. All right.

Thanks, David. And Quinn just asked a question. I want to maybe rephrase and ask it and 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, you know, we're excited about the global customers. You talk about 50% of 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 facilities, just to understand that dynamic?

Yeah, actually, no. Obviously, the tool we ship into the China facility or China FAB, right, their FAB, is good as a starting point. This way, our process data, process capability can validate their FAB in China. It's 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 a really good sign and also a good starting point. And those data come out there in China, the driving force to their mother fab or their facility outside mainland China.

Okay. That's a very helpful color, David. Thank you. Congrats again.

Thank you.

Thanks, Eugene.

Thank you so much. Once again, in order to ask a question, please press star 1 on your telephone keypad. Next question from Mark Miller from Benchmark. Your line is open.

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

Oh, yeah. David, do you want to answer that, or should I? I can take that, too.

I can give a little line there. This is normally, of course, margin is a flat rate. We start at between 40% and 45%. And there's a high margin tool. I give you the single wafer, you know, that tool normally gives a high margin. And certain, I call it a copper plating, and they also give margin for front end. And then there's also no margin tool, right? And it's an older bench. There's certain, I call it a WAD process tool on the box packaging side, too. So it's good, I mean, this is a good combination and also dependent combination that their margin may be changing, right? So, you know, I couldn't give you a precise number, and probably I think the senior range, 40, 45%.

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

Oh, it's, you know, I don't, I can't give you a precise number, but it's a good combination of specified customers, Okay, you're breaking up at least on my side. Just wondering, you've been primarily more DRAM. NAN is supposed to come on stronger next year.

Do you see opportunities, more opportunities for yourself and Nan?

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

Thank you.

Yep, you got it.

Thank you so much. Next question from Emma Tian from Hongdao. Your line is open.

Hey, guys. Congrats, first of all, on the really straight Q3. This is Emma from Hongdao投资. My questions are probably more for David as well, but Mark, you're welcome to share your thoughts. I'm not sure if David's back online. Probably not yet. Yes, I'm still here. Can you hear me okay? Oh, that's great. Hi. Yeah, I can hear you. Okay. 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 markets, because we know that the three factories of ACMR are all based in mainland China. They're actually quite, they're 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 a little, right, about the market. And in the off year, we are finishing up the market. IPO was the most strong financial foundation, right?

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

Can you hear now better?

Yeah, this is much better.

Okay. I said we already have a manufacturer Army Center in Korea, right? So from now on, actually, you'll be probably Army Center close major customer in China and actually Beijing and also Wuhan and potentially, you know, Hefei, right? Those Army small centers will help you closing support for customers. But more than that is also we consider other regions and also countries, right? And as our business moving out of China, say, go, you know, Taiwan and go to U.S. and even go to Europe. And we do have a plan building R&D supporting center. And we believe that R&D closing to the customer will give you a faster choice or faster supporting capability. Meanwhile, also we consider, you know, if we found good tenant people for the company, we can even MA the company, you know, in their local region. That further enhances our R&D power in the local. So our goal is really, you know, getting to their diversifying and global R&D in our roadmap. And also, as, you know, mentioned in our talk in the script, We said we are going to have eventually 50% sell, right, from outside mainland China. And, you know, 50% is inside. And that's our long-term strategy, right? And also with our definition technology, I think it will be, you know, much strong driving force, our tool to be sold in global. Like we mentioned, TiVo, right, or Tahoe, and also we're developing new technology also As our innovation products come out, we validate in the local market, China, and then we can start to push those, verify the product into their global market. Meanwhile, we see also some FAB in China also get advanced process going on. So we have also our tool can validate those advanced technology nodes. In other sense, we get a better of their technology being verified here, they'll help us get into the market outside China.

Thank you, David. That's awesome. Do you mind sharing a bit of a timeline 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?

Yeah, actually, it really depends on how we penetrate the customer, right? And also how we see their opportunity in other MA or a potential, I call it, you know, group come out. And we're very dynamic. And as I said, you know, we're building Korean eye center, you know, two or three years ago. And we definitely have our, you know, plan. And also, according to our success, our penetration to their local customer outside China, then we'll give you speed up. Those are, I understand the build up, right? Or we found some good people and good product, right? We may be, you know, just MA, those group of people there too. That also can further enhance ourselves and supporting capability for that local region.

Great. Cool. That's awesome. All the best for that.

Mark, anything you want to add on that?

Yeah, no, 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. Thanks.

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