ACM Research, Inc.

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research Fourth Quarter 2021 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Gary Dvorak, Managing Director of the Blue Shift Group. Mr. Dvorak, please go ahead.

So good morning, everyone. Thank you for joining us on today's call to discuss fourth quarter 2021 results. We released results before the U.S. market opened today. The release is available on our website as well as from Newswire Services. There is also a supplemental slide deck posted in the investor portion of our website that we'll reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wong, our CFO, Mark McCagney, 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 and could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in ACM's filings 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 accounts, You should refer to our earnings release, which is posted on the IR section of our website, and slides 12 and 13 in supplemental debt. With that, let me now turn the call over to David Wong, who will begin with slide three. David?

Thanks, Gary. Good afternoon, everyone, and welcome to ACM Research, fourth quarter and full year 2021 results conference call. 2021 was a transformative year for ACM. who expanded our customer base, ran the production of new product and secured order for evaluation tools from several major semiconductor manufacturers, including top global player in the U.S. I will now provide the 2021 financial results. Please turn to slide three. Our financial results demonstrated the power of ACM's expanding customer-based, our differentiated multi-product solution, our product cycle, and our growing production scale. 2021 revenue was $259.8 million, upper 66 percent, and the shipment was $372 million, upper 104 percent. In the fourth quarter, we had a record revenue of $95.1 million, and a shipment of 1.7 million for the first time in ACM history. The revenue growth was driven by both new products and new .

Ladies and gentlemen, please stand by. Please continue to stand by. Your conference call will resume momentarily. Thank you for your patience. Please continue to stand by.

Hey, operator, it sounds like you're trying to dial David back in. I know we had a couple people that got dropped off the call. Are the participants all still on the call?

Yes, sir, I'm still trying to reach out to David.

Okay, I think what we'll do is I'm going to continue with the prepared remarks section, what David was going to say, and then when you get David, please just announce him to the group.

Yes, sir. Thank you.

Okay. So I'm going to continue. And thanks for the patience, everyone, but we'll have David back soon. So revenue growth was driven by both new products and new customers. We had solid growth from cleaning, 2.5 times growth in ECP, furnace, and other products, and more than three times growth in advanced packaging and wafer manufacturing products. We benefited as our front-end customers continued to scale their production capacity, and we saw incremental contributions from new customers, including second- and third-tier players. We also maintained a good balance of growth and profitability, with 44.4% non-GAAP gross margin, 16.9% non-GAAP operating margin. And with the $545 million raised in the Star Market IPO, we now have a strong balance sheet to fund and accelerate our vision to become a global player in the semiconductor equipment industry. In products, we are now a world-class multi-product company. Over a decade ago, we were positioned as a one-product company with our single way for cleaning SAPS tools. Over the years, ACM's commitment to R&D and innovation has enabled us to grow into a multi-product business that can penetrate adjacent markets. On the introduction of our SAPS technology, we have expanded our cleaning portfolio with Tevo, Tahoe, and semi-critical tools. ACM now offers a complete range of cleaning products that covers more than 80% of all cleaning processes. Building on our core market position in cleaning, we have achieved significant traction for our plating and advanced packaging products, and our furnace product cycle is soon to follow. We expect to continue to build on our momentum by introducing two major new product categories in 2022. In production, we demonstrated the ability to deliver world-class production tools in volume to many of the largest and most innovative fabs on the planet. Starting with our first factory in Zhangjiang, Shanghai, we now have two buildings with considerable capacity in Chuanxia, Shanghai, and a third facility in South Korea. We are now preparing for significant growth with our new factory and R&D facility under construction in Lingdong. In marketing, we have expanded our sales efforts, and we are now knocking on the doors of major industry-leading IT makers around the world. We are also adding services personnel to support recent evaluation orders, and we believe success with a major customer could attract even more customers outside of mainland China. Putting it all together with products, people, and capital, we've built a strong foundation for robust growth in the years ahead. Today, I'm happy to share that we have established a longer-term internal target to reach more than $1 billion in annual revenue. We plan to achieve this by adding new products, new customers, and new production tech capacity in the coming years. I will now provide detail on our 2021 results. Please turn to slide four. First, our 2021 cleaning results demonstrate the strength of ACM's multi-product strategy. Cleaning grew by 44% to $189.2 million. This includes our flagship Saks, Tahoe, and Tevo products. It also includes our recently introduced semi-critical tools, cleaning with 73% of sales in 2021 versus 84% in 2020, reflecting rapid growth in our other new product groups. We expect solid growth from our flagship cleaning and semi-critical cleaning products in 2022, with good support from a recent order for 29 AutoBench tools. We recently announced our ultra-low-pressure dry, ULD technology, which is now being qualified in a major customer, and it expands our AutoBench portfolio to cover nearly all of the cleaning steps performed by the AutoBench tools. We are in development of a few new dry methods for advanced memory and logic applications, such as the supercritical CO2 dry and advanced high-temperature IPA dry technologies. which will further increase our cleaning product portfolio coverage from 80% of the process steps to 90% of the process steps. ECP furnace and other products grew by 149% to $33 million and represented about 13% of sales. We delivered 20 ECP tools in 2021 with about one-third front-end or ECP MAP and about two-thirds for advanced packaging or ECP AP. Last week, we announced orders for 21 ECP tools. These orders include ACM's first volume purchase order of 10 tools to our front-end ECP map tools, which came from a top-tier China foundry. The order followed successful first-tool evaluations in which the customer qualified our tool to 65 nanometer down to 28 nanometer processes. Meanwhile, we delivered seven furnace tools in 2021. These were mostly demo tools, and we expect that Furnace contributes more meaningfully to revenue in 2022 as its product cycle commences. We continue to refine our ECP technologies to meet our customers' increasing needs in advanced nodes and develop Furnace ALD technologies that are critical for advanced nodes in both memory and logic applications. Advanced Packaging not including ECP, services and spares, and other processing tools, grew to $37 million, or about 14% of sales, up more than three times from 2020 levels. This group includes a range of packaging tools, including coder, developer, scrubber, PR stripper, and wet etchers. It also includes their services and spare parts. ACM has a broad offering of wet tools to support advanced packaging, and we're the only company that offers both a full set of wet tools and the advanced plating tools. The global IDM with the China-based assembly facility is evaluating our tools with good progress so far. We're hopeful we can secure meaningful repeat orders for additional PR strippers and other products from this IDM and other customers. Advanced packaging has become more important as the industry looks for packaging innovation to drive higher performance. We expect advanced packaging to be a solid contributor to revenue for 2022 and beyond. As discussed in previous calls, we believe that the TAM of plating tools will be driven significantly by advanced package applications for $700 million in 2021 to more than $1.5 billion market opportunity in the coming years. Second, we diversified our customer base in 2021. Please turn to slide five. Our first customer group is the major front-end manufacturers. We have five customers in this group, encompassing Foundry, 3D NAND, and DRAM. 2021, we had two greater than 10% customers, both from this group. Shanghai Huali, together with Huahong Semiconductor, that's a group known as the Huahong Group, was our top customer at 28% of sales. They're a leading foundry in China that is in the middle of a multi-year expansion project in Shanghai and Wuxi, for trailing edge and 28 nanometer products. We supply the whole home group with nearly all of our products. Being close to our Shanghai engineering team, they are among the first to try out our new tools. YMTC was our second largest customer at 21% of sales. We have been working closely with YMTC since the early days of their first fab in Wuhan. That fab is now ramped to scale and close to full capacity. ACM was the top cleaning tool supplier to YMTC in 2021. We experienced good growth from sales of our flagship products and semi-critical tools to YMTC. Public reports have indicated that YMTC has completed the construction of the shell of its second fab building in Wuhan and will soon begin to install tools to ramp production of its advanced 3D NAND product. We are working to win additional share of YMTC's cleaning business, and we also believe we are well-positioned to participate with our ECP furnace and other new tools in development. Other key front-end customers are SMIC, CSMT, and SK Hynix. Each of these were mid to upper single-digit revenue contributors in 2021. We are expecting more contribution from these three customers going forward. Our second customer group consists of emerging China-based semiconductor customers who manufacture power, analog CMOS image sensors, compound semiconductors, and other devices. This group includes five second-tier players, a handful of new third-tier companies, and others. While revenue from each of these customers alone was relatively small, the group in total contributed about 10% of our 2021 revenue. These customers are investing in new capacities to support the growth of 5G, IoT, EV, artificial intelligence, and other emerging technologies. ACM has a good presence with these customers, supplying a broad range of tools, including SAPs, semi-critical cleaning, ECP, and furnace products. We expect strong growth for this group in 2022. Our third customer group is Advanced Packaging and Wafer Manufacturing. Top customers here have included J-CAP, Tom Poole, Zim Semi, and Waferworks. This group is reflected in our advanced packaging, other processing, service, and spare parts, which is about 14% of 2021 revenue. We see major investment in advanced packaging technology as the industry shifts spending to this area, seeking new sources of performance gains versus more traditional buy strengths. China has an active ecosystem of emerging advanced packaging and wafer manufacturing startup companies, which provide additional opportunity for our products. Third, we continue to make great progress with additional major customers. Semiconductors are a global market, and we intend to extend our participation from China to the rest of Asia, the U.S., and Europe. During the fourth quarter, we announced four positive developments. I'll start with the U.S.-based major global player. We placed an evaluation tool order and a production order for our Ultra-C Saps 5 12-chamber cleaning tool. We plan to deliver both in the first half of this year for installation in their U.S. fabs for use in advanced processes. We have begun to scale up our U.S.-based services team to support this important evaluation. We believe a successful evaluation could lead to larger business opportunities with this and other major customers in the region. Second, we received orders for two Ultra-C PR stripping systems from a leading global IDM. This customer has a China-based advanced packaging system, manufacturing facility. The first tool was delivered in Q4 of last year, and the second one is scheduled for delivery this quarter. Our third was an Ultra-C Saps 5 12-chamber cleaning tool evaluation order from a global semiconductor manufacturer with China Fab. And lastly, we received an order for an Ultra-ECP MAP copper plating tool from a regional Asia-based semiconductor manufacturer. This is on track to be delivered early this year. ACM's progress with these major players is a testament to our technology leadership, the strength of our regional support teams, and our ability to produce at scale. We are confident that successful qualification can result in larger business opportunities, and we continue to build our sales pipeline with other top-tier players. Next, I'd like to provide an update on our production capacity, slide six. We achieved A key milestone with our record 117 million of shipments in the fourth quarter. This is our first full quarter of more than 100 million of production. We exited the year with nearly 500 million of annualized production capacity despite the industry-wide supply chain challenges. Confidence in our production capacity is a critical factor to attract additional major players as future customers. We are working to increase production capacity to 625 million by the end of 2022. We are also on track with our plan to build a production and R&D center in the Lingong region of Shanghai, where the million square feet of floor space could enable us to increase our annual production capacity to 1.5 billion in the coming years. The facility will be used to support advanced R&D with the world-class cleanroom and metrology tools, and will help to speed up our internal R&D and demo activities. We plan for initial production at Lingang in the middle of 2023. Please turn to slide seven for an update on ACM SAM. ACM has become a trusted local supplier to some of the biggest and most innovative semiconductor producers in Asia. We have scaled our business alongside these giants, and many of them now look to ACM to work together to solve some of the more challenging issues that they face. This provides ACM a ready testing ground with beta customers to develop our ideas into products. We have the opportunity to deploy our newest differentiated technologies at leading manufacturers for just a short flight or a drive from our Shanghai factory. We seek to first develop our technology, scale it with our local partners, and then, when ready, leverage ACM's global presence to expand our business to international markets. With this operating environment, we have grown our product offerings substantially over the past several years. We now estimate ACM's current product portfolio addresses an $8 billion market opportunity. The increase from our previous estimate of $5 billion, Sam, is based on a much higher third-party estimates for the 2021 WFD market, which now stands at about $88 billion. By product line, we estimate a contribution of $3.7 billion from cleaning, $2.9 billion from furnace, $732 million from ECP, and $650 million from stress-free polishing, advanced packaging, wafer processing, and other processing equipment. We are committed. to our goal to double our SAM to more than $16 billion in the next several years with the introduction of two major new product categories. We plan to do this with the level of innovation that our customers have come to expect from ACM. We expect that we can deliver these first tools for each of the major new product categories in the second half of this year. As I've noted in prior calls, we plan to enter these categories at leading-edge nodes and we have built an innovative and a differentiated technology roadmap to address the requirements for the next generation nodes. Turning to slide eight, we are tremendously excited about the growth opportunities in front of us. Our expanding product line, our global sales effort, and production capacity, combined with the capital raised from the ACM Shanghai Star Market IPO, provides us with a great opportunity to accelerate our penetration of our SAM both with our current customer base in mainland China and the ramp of other new customers in other regions. This chart offers some more detail around our $1 billion revenue target. We are proud of what we have achieved since our U.S. IPO in 2017 with a 2021 revenue of seven times versus our 2017 revenue, and we are committed to continue on this growth path. Given that many of our customers are still in the early stages of multi-year capacity expansion, we believe we can achieve our $1 billion revenue target largely from mainland China alone. Our model assumes that China maintains about a 20% to 25% share of the global CapEx with modest growth, and that ACM achieves a target of 50% share in cleaning tools, 50% of ECP tools, 40% of furnace tools, and then another incremental $100 million from advanced packaging, wafer manufacturing, services, and spare parts. While we're not setting a specific timeline to achieve this target, we think that one or several major customer wins outside of mainland China could help us to achieve the target sooner rather than later. I also note that our model doesn't include contribution from our two new product categories. We look to these products to provide another major driver of growth beyond the $1 billion target with the initial ramp expected in the 2024 timeframe. Operator, any sign? Have we connected with David yet?

We have not connected with him yet.

Okay. I'll keep going, and let's keep trying to get him on the call. Now let's move to our 2022 outlook on slide nine. Our guidance reflects optimism about our growth opportunities for 2022. We have increased our revenue guidance to a range of $365 million to $405 million. This represents 48% projected annual growth at the midpoint. Our outlook for 2022 is based on several key assumptions. stability regarding the global COVID-19 pandemic. Second, stability in the U.S.-China trade situation. Third, a range of spending scenarios for the production ramps of key customers. Fourth, management of ACM's supply chain. And finally, a range of timing of customer acceptances of first tools. Our results in Outlook demonstrate successful execution of our strategy. Our strong growth is supporting additional R&D spending on new products. We are building our global sales and marketing resources to penetrate new customers in new regions, and we are scaling production capacity to support our long-term growth plan. We believe we are on track to achieve our mission to become a major equipment supplier to the global semiconductor industry. To conclude, we are extremely proud of these results. We want to thank our customers, business partners, and shareholders for their support and confidence in ACM research. I also want to acknowledge our employees for an outstanding job and for staying focused and engaged with our customers. I am now going to move on to the CFO section to discuss the financial results here in more detail. We delivered record financial results in the fourth quarter and for the full year of 2021. Unless I know it otherwise, I'll refer to nine GAAP financial measures, which exclude stock-based compensation and unrealized gains. in trading securities. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Now, the fourth quarter, shown on slide 9. Revenue for the fourth quarter of 2021 was $95.1 million, up 108.8%. Revenue for single-way for cleaning tools, which includes SAPS, Kibo, Tahoe, and Center Critical Cleaning, was $61.9 million, up 68.3% from $36.8 million. Revenue for ECP, furnace, and other technologies was $19.5 million, up from $4 million. Revenue for advanced packaging, including ECP, services, and spares, was $13.8 million, up 2.8 times from $4.8 million. Total shipments for the quarter were $117 million versus $67 million in the fourth quarter of 2020 and $99 million in the third quarter of 2020.

Hello? Go ahead. Continue. Okay.

Thanks. Yeah, we can hear you okay, David. It's good to have you back. I finished reading your introductory comments and I'm on the CFO section, so I'll keep moving on. Yep.

Okay, please.

Great. Hmm. So total shipments for the quarter are $117 million versus $67 million in the fourth quarter of 2020 and $99 million in the third 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, which we consider a remarkable accomplishment by our production team given industry-wide supply constraints. Gross margin was 47.9% in the fourth quarter versus 43.3%. This was higher than our normal expected range of 40% to 45%, reflective of 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 $25.9 million versus $13 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 to 12.6 million, or 13.7% of sales, more than double the level from the year-ago quarter. The doubling of our R&D spending reflects ACM's commitment to new products and innovation. We expect to continue to increase the intensity of our R&D spending to the 17% level in 2022. Operating income was $20.4 million, up from $6.7 million. Operating margin was 21.5% versus 14.8%. Unrealized loss on trading securities related to the change in market value of our SMIC investment was $1.2 million in the fourth quarter of 2021 versus an unrealized gain of $3.6 million in the year-ago quarter. Note that we exclude this non-cash item from our non-GAAP results. We had a tax expense of $3.2 million versus a tax benefit of $2.8 million in the year-ago period. Net income attributable to ACM research was $18.1 million versus $6.2 million in the year-ago period. Net income for diluted share was $0.81 compared to $0.29 in Q4 of 2020. I'd like to point out a few below-the-line items. Equity income in net income of affiliates contributed $3.6 million in the fourth quarter of 2021 as compared to $0.1 million in 2020. I reference this item in this quarter's report as it was higher than normal due in part to an investment-related gain from ACM Shanghai's participation in a limited partnership. Tax-related items compared to a normalized tax rate and the effects of foreign exchange fluctuations on operating results provided a net headwind of .2 million or a penny per share and a net benefit of .9 million or .4 cents per share in the fourth quarter of 2021 and 2020, respectively. I will now review selected balance sheet items. Our cash balance was $563 million at the end of the fourth quarter versus $65 million at the start of the third quarter. This obviously included the net proceeds of our star market IPO of $545 million during the fourth quarter. In addition to the cash balance, we also had trading securities of $29.5 million led to our SMIC investments, which includes an unrealized gain of approximately $14.5 million versus our original purchase price. Total inventory was $218.1 million at the end of the quarter, up from $176.6 million at the end of the last quarter. The $41.5 million quarter-to-quarter increase was driven by two items. First, finished goods inventory grew by $9.8 million to $91.7 million. As you know, this item represents the balance of first tools that have been delivered to customers for evaluation and are carried on our balance sheet at cost, pending potential transfer of ownership. The second item is work in process and raw materials, which in total grew by $31.7 million from the prior quarter. We are pleased to be able to secure this inventory for our planned shipment growth in 2022. At quarter end, short-term borrowings, including the current person of long-term debt, was $12 million, down from $17.6 million at the end of the third quarter. Non-current long-term borrowings were $23 million, essentially flat at the end of last quarter. Cash flow used by operations was approximately $36 million for the fourth quarter and approximately $40 million for the full year. As I discussed above, this was to support the growth of our finished goods inventory, which is a good indicator of evaluation tools at our customer and our future production needs. In sum, we are successfully executing our strategy. We're 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 mainland China and the expansion outside of China. Let's open the call for any questions that you may have. Operator, please go ahead.

If you'd like to ask a question, please press star, then 1. If your question hasn't been answered and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Patrick Ho with Stiefel. Your line is open.

Thank you very much, and congrats on the nice year. Maybe first off for you, Mark, in terms of the supply chain, you guys managed it very well based on the results and the outlook. Can you, one, describe some of the issues that you're facing and some of the challenges? And secondly, what are you doing specifically to try and mitigate the situation?

So, Mark, I'm the author, right?

Yeah, go ahead, David, please. You can start. Yeah.

Okay, sure. Well, actually, yes, this is a shortage of the supply chain. I think everybody is facing right now. ASEAN is facing also, right? And last year, we do have initially some long-leaning items, and in average-wise, there used to be two months, three months. They're pushing, you know, quite a far away, like five, six months. So as our approach in doing that in the last year is that We're working very closely with our supply chain, and also we give them more of a head-of-the-line leading item order, right, and also asking the security to deliver, right? That's the way we're doing. Second thing, we're also looking for a secondary vendor, which is hopefully something like a three-vendor, you know, not the best. So that's what we kind of reduce our leading order, not leading the time. So come to this year, again, we'll do the same poaching and, again, we'll give more of a, as much as we can, give the long-living item order and to the strategic supplier. And at the same time, we're also actively looking for a secondary and a third of supply, right, to rebalance our, with the constraints of supply chain. So hopefully, you know, this year, we can see better. We also see our supply chain do a lot of good job expanding their capacity, you know, to hire more people. And we do see that capacity increase. And so anyway, hopefully, I think this year, we'll get it smooth and we'll be in better control in the next year.

Great. That's helpful. Maybe as my follow-up question, it's very encouraging to hear about your $1 billion annual revenue targets. Can you discuss a little bit about your capacity need and how you'll be able to flex capacity depending on, you know, kind of the product strength? So are you going to be able to flex from, say, you know, your clean products or advanced packaging as that market grows? Give me a little bit of color, I guess, in terms of, one, the potential capacity increases and how you can flex from product to product depending on customer demand.

Great. Actually, Pat, if you want to turn to slide eight, we have a little bit of a model kind of supporting what you were projecting here, right? Page eight. And basically, I think with our broader process coverage for communion tool, and we believe, you know, by end of this year, we'll have about 90% step coverage with additional CO2, supercritical, and advanced IPA drive. So with that, the broader technology, we have confidence of probably catching 50% of the local mainland China market. That's about there. You can see that is we're kind of half of that, almost close to $0.5 billion. And then follow that is real carbon plating, right? And same thing again with our broader plating technology, including we mentioned about the thin seed, completing as thin as a 50 angstrom. so we can handle the most advanced technology nodes, we believe. So that in other sense will cover processing and also PSV and also advanced packaging tool. So that give us, you know, roughly I said 50% of that. So it's about basically in China about .3 billion, right, and then about the United States about close to .2 billion as our market here. So next in front is a big one, right? That's a huge market there, too. So we're talking about probably a catch 30% of the global market. And with that additional packaging, we're talking about 100 million. So with that all together, it goes to 1 billion. However, this is really, I think, a conservative estimation. The reason I see that is we're actively looking market outside of mainland China. As we progress, as I mentioned, we secured the one, you know, top tier customer in the U.S. space. We're continuing exploring our customer in Taiwan and in Singapore, South Asia, and even Europe, right? So with that additional global customer, also I mean in China, you know, as we progress, I think we'll speed up. Even there is, you know, our speed reaching 1 billion on revenue, right? So that's probably major. We're thinking today's our product, which is a living market, As I mentioned also in our new series, we are also working on two additional new products, which is what double our addressable market, you know, from $8 billion to $60 billion. And obviously, those products will not get the revenue probably until 2024 and even beyond, right? So that's what we further adding additional driving force into, help ACM, you know, grow to a billion, even succeeding, you know, being over. So that's our strategy we're talking right now. Anything else, Mark, you want to add on that?

Yeah, you bet. No, I think there's – I think it sounded like Patrick had a little side question about our ability to produce it, too. And so, Patrick, one thing to be clear, the – You know, our production facilities, it's pretty fungible between our different product lines, Patrick. And so really our capacity is about the floor space we have. And, you know, we've given you the plans on that. It's our team. And, of course, it's the supply chain. So, you know, those are kind of the big drivers. I mean, we, of course, we've got plans in place, you know, to support from a production standpoint to support those targets today.

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

Thanks, Patrick. Our next question comes from Donnie Ting with Numero Securities. Your line is open.

Hi, David and Mark. Can you hear me?

Yes, Donnie. I can hear you very well.

Yeah, great. Congrats on the good results. Maybe my first question is regarding to your 2022 guidance. So it looks like we revised up a little bit just from the guidance we have given out in the past one to two months. So just curious, what's the reason behind the better guidance this year? And also, considering that we are expanding our non-waiver cleaning equipment much quicker in 2021, there is a question frequently asked by investors is that how can we grow this non-waiver cleaning towards much faster? What kind of investment we have been done in these new areas? This is my first question. Thank you.

Okay. So actually, like you said, in the, you know, January timeline would be our first over-year guidance, right? And, you know, since then until now, almost like, you know, almost like two months passed. So we do see some more visibility, you know, compared with their, you know, their January timeline. And we see that they're more visible and also therefore, for that reason, so we made their you know, slightly adjustment of a $20 million more increase for the whole year guidance, all right? So you're looking at this year's revenue growth. I think we're still seeing very strong growth in our main convenient product, and also just recently announced we do have this auto bench, you know, big order coming, and we see that there are also very strong demand in also auto bench product, which is more added on there in a single wafer. Also, I can say in China, second tier, including SMIC, also they're expanding, you know, 45 nanom a lot in this production line. So we see that the older bench will be real critical for those in the training ag product. So also, as we announced, we have this low pressure drying technology has been qualified, and that's really make an older bench product. on the spending in China for the domestic player. So we can almost cover most of their other banking process. Obviously, there are , you know, and continue to grow. I also other, you know, squabbles, backside clean will continue to grow, too. So I think still driving force of community in nature. And more than that is we see this year, we're going to see the , you know, more of our revenue, in the increasement, right? So then we see that will continue to grow as we announced recently, you know, not big order for the carbon plating tool. And so I see that continue driving our revenue. Another one really are our farmers, right? As we announced last year, we have about 72, I think, have been shipped out, you know, cover LPCDD, high-temperature meal, and also, you know, a vacuum, a meal. And so it's quite a... tool has been running custom very well. So looking for this year repeat order and also new customer base add-on. So we'll see also the furnace will add a revenue for our, you know, 2022 revenue growth. And more than that is, again, and this also will have a, we'll talk about this, the amount of packaging, right, is still growing in that portion. So we'll see this year will be another exciting year. As I said, you know, our existing product on the market will further, you know, make the revenue grow. And other factors, you say, are, you know, existing customer and also second-tier, third-tier customer, and also packaging, you know, also way from there. In fact, customers are still in their multi-expending, right? That's why we give the estimation for this year's revenue.

Okay, thank you. Yes, thank you, David. And my second question is regarding to our shipment. So we have a strong shipment per quarter right now. It's like over $100 million. I'm wondering if you could quickly comment on the shipment trend this year by by each quarter is like still trending up above the fourth quarter level or there will be some seasonal drop in the first quarter and then reaccelerate into the rest of quarters. And also wondering if you have seen like some for example, like Hynix or the DRAM TAPX to pick up more meaningful from this year because previously it looks like our momentum has been mainly driven by logic investment and also Chinese customers. Thank you.

Okay. Well, looking at our last year, you know, quarter season, right, and since our manufacturer base is mostly in China and, you know, some of the opening in Korea, but both China and Korea, they have this, you know, New Year or Chinese New Year. So that really can, because, you know, our employees go back home, take some weeks, sometimes 10 days. That really, you know, can reduce our shipment. So looking at last year, Q1, Q2, Q3, you can see that more, right? Always Q1 is lower. And again, you know, this is a similarity with everything because of manufacturer-wise. and also some customers delivered at the end of last year. So it's all reason behind, you can see that, we're always with Q1 slightly weak, and Q2, Q3 strong, and Q4 depends. Sometimes very strong too, like last quarter, very strong. So we'll probably see that kind of similar pattern will happen this year, and that's our estimate. Then looking at real product-wise, and you just mentioned actually Hynix, yes, they're Capacity in WUSHI pretty much is kind of full, right? Not much time expending. We are looking there, they are looking really expanding in their career site. So we are working closely. We try to also, you know, working very close with the customer, try to, you know, get into their site, into their current site, right? And their Other than that, you know, I can say there are other memory, you know, companies in mainland China are very strong, and we see that continue to grow. And also looking for other international opportunities, right, in both logic and memory, too.

Got it. Thank you so much, David.

Thank you, Tony.

Our next question comes from Suji De Silva with Roth Capital. Your line is open.

Hi, David. Hi, Mark. Congrats on finishing 21 and a strong growth outlook. So I'm curious on the calendar 22, guys, if the sense of your customer concentration would be similar to 21, would you expect fewer or more 10% customers as you grow here across the customer base?

Yeah, okay. Well, I can talk about the market a little more. Obviously, this year, we're not too top, right? Customer, you know, it's the body volume group and also MPC, right? And the rest of the three, you can see that is, you know, top five, additionally, the SMIC, SXMP, and also their, you know, HP high-end. And we see that probably this year, you know, we see they're kind of quite a bigger, I call their plan increase. And obviously, from there, you can see the SMIC. And also, we're expecting 6MT continuing investment, too, right? So we're hoping, you know, those three, you know, of the customer, probably one, at least maybe two, will get into the more than 10% this year. That's our expectation, right? And so that's why I see they're in top customer. Other small, I mean, other second tier, third tier, will still continue their expansion of capacity. So that meeting is done, I can say.

Okay. That's very helpful, David. And then the new product categories you've yet to announce, I'm curious, are these addressing similar size TAMs to what you're offering now, or are you going to target even larger, more significant TAMs in these new product categories?

Yeah, you guys look at the slide there, you know, we laid down that pretty clear. We're existing product, right, we're drafting, you know, of the $8 billion, right, and used to be $5 billion because the total market can grow. So that becomes $8 billion, you know, by 2021 is the global, I call it, you know, market calculation. But we do work with additional two new products, and that's, I think, We are thinking and applying for about a couple years ago. And also because of our customer, it really want us to get into the two new products and to work together, address their, you know, process and advance those needs. So the two new products, we believe what they come out, you know, probably second up this year. And so far, we're running very well. And also, as again, we're doing a new product. We're still using our innovation idea. a differential idea, we want to be building product has certain performance and should be, you know, close to top tier and I think global top tier or even some are hoping some performance that we're building or some differential technology to develop. It can even succeed in those products. So anyway, we're working on this right now. And those two products is about the double carbon stamp, right? Addition $8 billion market add together. So, again, we're very excited about two new products, and we're doing the same way as we did before, and we're, you know, inventing a new idea and providing a better solution for the customer to address their technology, you know, even next-generation requirements, right, not just any self or current requirements, but just for the future requirements, too.

That's a great execution on the product roadmap. Congrats, guys. Thanks, CJ. Thanks.

Our next question comes from Christian Schwab with Craig Hallam Group. Your line is open.

Hey, good morning, guys. So the U.S.-based major global player, congrats on the evaluation and production orders there. When you guys talked about successful evaluation could lead to larger opportunities, can you quantify that, like give us a range of potential outcomes versus, you know, modest, you know, success at that customer to great success at that customer?

Yeah, actually, you know, you can see that it's the tool tool, right, what we deliver. And, you know, we're very, I should say, excited about that. And also, as tools will be qualified, we're obviously looking for more opportunity, right? And also, I'm not looking for just this tool. And actually, we have additional other products. As soon as they're qualified for this tool, they can bring to other new different process steps and also different applications. And also, we have other products, right, like today, copper plating, and also furnace. I think we're looking for also future opportunities working with leading suppliers and leading customers in the U.S., even more of our products, you know, as we have in the pocket, copper plating, And there, you know, are even stratified polishing and also furnace. And, you know, furnace, we're doing LPCDD, but also this year, we'll also have our ARD furnace come out, right? We should talk about a thermal ARD and a plasma ARD, but it's a vertical furnace type. That's all become their, I call it, big opportunity and can bring us to this, you know, top-tier customer. As time is going on, we have successfully getting the one customer They did all their modern production and really will bring ACM to additional, you know, second tier, a second top-tier customer in the USA, too. Also, more than that is, you know, when we secure success in the U.S. top-tier customer, we will help out many other regions, including Taiwan, including Europe. So we're excited about this, and that's why we're putting a lot of effort and, you know, hiring people and doing the service supporting, and we made this project a success. So far, so good. Working very close and, you know, trying to make projects on our big effort make a success.

Thank you for that color. My last question is just regarding the additional capacity that's coming online and the $1 billion revenue target. As we expand the customer basis, as well as expand the number of tools that we're able to sell, as we just highlighted, to different leading customers, You know, as we look out beyond middle of 23 when some of that initial production is beginning to ramp, I'm trying to determine, you know, if the gross margin of the company or your expectations for gross margins would be any different than they are today.

Good. And, okay, let's talk about gross margin. Great. And I think so far our gross margin is pretty kind of, you know, stable, right, between 40 and 45 percent, and sometimes quarter to quarter, you know, fluctuation, we can see that. So it's really, you know, this growth margin really, at the future, will really depend on two things. And number one is how we develop a more intelligent product, right, and those products have a more high margin, and also how we take care of this semi-critical product. And so we're kind of going to take a balance, right, in other words. we want to see that as we more progress. For example, in like a furnace, you know, if we get a more ARD product come out, and first ARD has a higher margin, and LPCVD, you know, relatively low margin, right? So it's really trying to balance our advanced innovative technology and product on time, and therefore you can balance those so-called semi-critical tool and the margin. So, again, our goal still in the next few years was to locate our margin between 40-45%. It's our goal. And maybe up to our high end product to qualify any customer that hopefully we can have a margin, you know, get a higher opinion on 45%. And that will be in the coming year, you know, a few years later. That's our goal.

Great. No other questions. Congrats on a good finish to the year. Thank you. Thank you. Thanks, Christian.

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

Hey, guys. Congrats on the results and outlook. I guess I want to start with a billion-dollar target, longer-term revenue target. Just a couple questions there. In light of that target, can you give us a sense with Lingong starting to ramp in the middle of 2023, what do you think you would get to a billion dollars of capacity? I know long-term Lingong gets you to $1.5 billion, but how quickly do you get to having the capacity in place to support that target model, and then I've got a follow-up question.

Great, great. Okay, Clem, actually, you know that the 25 area, we do have two, you know, fab, right? It's about almost 20,000 square meters. That will be probably covered, as I mentioned in here, $625 million quarter revenue-wise. Maybe you can stretch it a bit more, but, you know, that's what is the property capacity. So that's why what kind of, you know, building or wind down facility is about total one million square meter, square feet, I'm sorry. And then in which about the two manufacturing fab will be, you know, built there is about the total probably close to 50,000 square meter with the half million square feet of the area. That two fab build up capacity-wise, space-wise, we'll talk about 1.5 billion, right, whether it's a four-story building, And in all, we have all automation for their logistic, their, you know, parts, spare parts, all their, you know, parts system there. So we have, we can say, like, high efficiency. So data will be started using from the year 2023. And then we're gradually moving capacity from Transom to the Mingang, right? So eventually, we'll probably, you know, we'll be more of a, finally focused on all the two-fab in Mingang. And that will be, Again, if you're using fully utilized, 1.5 billion, and of course, I have more training, more people, and more engineer, right, to run that fab. That will be the alignment of production, you know, capacity, running speed. So what we see, that will be, you know, it's pretty good decision, and we'll also make this happen and make sure our capacity can really meet our requirement for our sales goal, right.

But I guess just in terms of that billion-dollar capacity, is that something you think you could hit in 2024, or is that something that you might not get there until 2025?

Again, just from a production perspective. Sure. Yeah. I think I'm talking about real capacity-wide and real space-wide, right? That's what it's like, right? We have two five years out, and then two five years, we eventually will finish all construction by 2025. you know, as of this year end, we're cleaning all their construction. But then you'll have the, you know, modeling inside all their, you know, arranging all their production required, you know, gas system, all other things. We'll talk about middle of next year. So eventually we'll start with one fact first, then we'll start with the second fact. So capacity-wise, as I said, space-wise, it's going to be $1.5 billion. However, you have to hire the people, train the people, right? That will be according to our Sales plan, you know, then we'll hire the people at a needed pace, and then eventually reach 1.5 billion. So that's really relying on ourselves and also our, you know, R&D and new product qualification. It will depend on that.

Got it. Okay. And then for Mark, you've talked about a 17% target for R&D as a percent of sales. I think in the fourth quarter, R&D was, you know, below 10%. You know, so getting to 17% seems like a pretty big jump. You know, does that happen in a step function? Can you just give us some sense, you know, how do you ramp up to that 17% sales level? And I guess a related question, SG&A came in pretty heavy at 17% of sales. Where do you see SG&A as a percent of sales in 22? Thanks.

Yeah, thanks, Quinn. So, I mean, big picture – The R&D was about 13.7, right, in Q4. So it was – we kind of – we stepped up our R&D and it more than doubled year on year. So that – you know, we certainly have a lot of areas and opportunities for investment there. I think, Quinn, you know, we would anticipate to ramp that up, you know, kind of gradually throughout the year. And we talked a little bit about the seasonality. You know, David mentioned Q1 is going to be probably the lowest quarter of the year. And so we'll bring the R&D up, you know, throughout the year. All right. So, you know, in general, if you think about our overall operating model for 2022, you know, we're thinking about the gross margin would be the 40% to 45% range. And, you know, the big difference is going to be in the uptick in the R&D intensity. You would expect a little bit of leverage, you know, for both sales and marketing and G&A, but not dramatic growth. So, you know, they'll go down a little bit as a percentage of overall sales, and the R&D will pick up. Okay. Thank you.

Our next question comes from Edison Lee with Jefferies. Your line is open.

Okay. Thank you. Hi. Congrats on the results. I have two questions, mainly with respect to the 2022 revenue guidance. I wonder, out of the latest guidance, how much of that is going to come from overseas versus China? And number two is that what do you think will be the breakdown of these three major categories within your revenue guidance, that is amount cleaning, ECP, and advanced packaging and other?

Yeah, okay. Let me cover first and Mark, you can add more. So I think our revenue this year, our projection is still major come from, I call it, you know, mainland China, right? And maybe something from our, you know, S.K. Heinrichs, too. So not a significant portion from overseas, right? Even we have this revenue that we sell to the top-tier U.S. customers, and possibly about a two or better qualified, but in one or two tools, right? It's not a large volume. So what you see, as I said, our revenue base is still on the Made in China base. That's how I see that. Then the product category, you can see that, you know, I really couldn't tell, you know, what the number was this year, but looking at last year, you can see that our community has been down to 70, you know, 73%, right? And we'll see that trend continue. because as I said, you know, cover painting will start to play, and also our, you know, furnace will start to play. The bounce tag is getting close, too, so we'll see that community percentage will continue to drop, right? And looking at year 2020, it's 83.8 percent, and last year is at 72.8 percent, and so probably we see that community, even the absolute value will continue to grow, but that relative value percentage will be dropped, right? So we don't know yet. We cannot give you a number, but I can just give you a trend-wise and whether more other products will grow. We can see that.

Okay. Can I ask a follow-up about this new cleaning product for Compound Semi? And I assume that cleaning product for Compound Semi is not one of the two new product categories that you're going to introduce this year, right? So can I assume that You have not yet talked about these two new product categories that you're supposed to introduce this year.

Yeah, I think our two new category product is not supposed to be sitting in carbon, right? It's beautiful to sit in wafer, I make sure, right? It's real product. And that has been the plan, I said, a few years ago. And we have put a lot of effort in the last two years and three years. And it's really come to their beta type. And we're thinking about their second half this year, we can deliver a beta tool for customer for evaluation, right? And those two beta new products, as I mentioned, cost $8 billion of their addressable market. And, however, we believe it will take about a year and a half at least in the customer side for evaluation. So we're really looking for maybe contribution and will be there, you know, come from maybe 2024, and that timeline, okay, there's two new category products, revenue-wise. But then, well, you know, regarding customer-wise, I should say, we're also working very closely with Asia customers, including Taiwan, and also Singapore and some South Asia, too, including also Europe. So I think this year we're going to have additional new customer will be gathered over outside of the mainland China. However, company revenue-wise, probably will not contribute too much revenue because the first tool, you have to gather, you know, first tool is no, you know, no revenue, right, until they're decodified, right? So, they really need to secure new company this year, revenue will be gathered next year. So, will not contribute much to the revenue-wise.

Okay, I see. Maybe just one last question. So on the cleaning equipment for Compound Semi, do you think you will contribute to revenue this year?

Oh, yeah. And actually, you know, Compound Semi is really new emerging market, right? And obviously, the size-wise, you can see the 6-inch, 8-inch, right? And we're working. We have all our, you know, tools, especially the most packing tool, all wet tool. We can be using that to the Semicarbide or the same again Nitrite production and also we got a fleeting tool right last year when we qualify our carbon fleeting tool and for their For their I call their this Dan Nitrite and eventually Semicarbide application too. So we have all that and there This is a carbon fleeting while aiming for the Semicarbide, you know, and also come on semiconductor application

And these are all in mainland China, is that right?

Well, we also see some requests even from outside mainland China, right? And we do have an international customer asking us to cover an application, both for computing and also for their code developer, you know, web Azure and PR streamer.

Right. Okay. Okay, that's great. Yeah, that's it for me. Thank you very much, David. Yeah, thanks.

That's all the time we have today for questions. I'd like to turn the call back over to David Wang for closing remarks.

Okay. Okay. So, again, thank you, operator, and thank you all our participants for participating on today's call. and for your support. Before we close, Gary is going to mention some upcoming investor revision events. Gary, please.

Thanks, David. On March 14 and 15, we will present at the 34th Annual Roth Conference in Dana Point, California. Then on the 22nd through 24th of March, we'll present at the Morgan Stanley Virtual Hong Kong Summit. Attendance at these conferences is by invitation only for clients of each firm. So interested investors, please contact your respective sales representative to register for one-on-one meetings. This concludes the call. Everyone, you can now disconnect. Thank you.

This concludes the program. You may now disconnect. Everyone, have a great day.