ACM Research, Inc.

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Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the ACM Research fourth quarter 2022 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. I would now like to hand the conference over to your speaker today, Gary Dvorak, Managing Director of the Blue Shirt Group. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on today's call to discuss fourth quarter 2022 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's also a supplemental slide deck posted to 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 McKechnie, and Lisa Fong, 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 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 and an unrealized gain loss in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website, and refer to slide 12. With that, let me now turn the call over to David Wong, who will begin with slide 3. David?

Thanks, Gary. Hello, everyone, and welcome to ACM Research fourth quarter and fiscal year 2022 earning conference call. Starting with the fourth quarter results, revenue was $108.5 million compared to $95.1 million last year. Ships were record $193 million, upper 69% year-over-year. Gross margin was 49.6% and non-GAAP operating margin was 17.7%. As anticipated, as a result of US export restriction, several customers reduced production at their advanced nodes facility. We also experienced some delay from our supplier due to supply chain constraint. Despite the impact to our first quarter revenue, we are pleased with our result. For the full year, 2022 marked another year of progress on our mission to become a major supplier to the global semiconductor industry. We delivered 50% year-over-year top-line growth during the COVID-19-related restrictions, supply chain disruption, and increased trade regulations.

As a result, Demstreet was driven in part by our multi-product portfolio strategy. Turn to slide four. We are focused on deepening our position in cleaning our core product segment.

In 2022, our cleaning product grew by 44% to $272.9 million driven by our single wafer cleaning tools and continual penetration of a semi-critical old bench tools. We expect the old bench to play a key role for mature nodes development in China and going forward. We instilled several important new cleaning tools, including bevel edge tool, high-temperature SCM single wafer cleaning tool, the high-temperature IP dry tool, and the supercritical CO2 dry tool for DRAM, which is important for our international efforts. ACM now has one of the broadest cleaning product portfolio in the industry. covering nearly 90% of all cleaning projects there. The ECP and furnace and other technologies revenue more than doubled year over year to 77.5 million and represent 20% of our revenue mix. This was driven by significant contribution from our ECP planning tools with increased penetration at our top customer for both ECP map for front-end and ECVAP for the back-end. We expect a strong product cycle in 2023 from our furnace products. Our higher-temperature NEO and LTCVD furnace, including silicon nitride and poly-D-poly, have expanded to multiple customers. We expanded our furnace platform with the introduction of a thermal atomic layer Separation ALD Ultra FNA Furnace Tool. We delivered the first ALD tool to a customer in September and second one to another customer in November 2022.

Advanced package, not including ECP.

Service and spell and other process tool grows slightly year over year. This segment includes a range of packaging tools, including coder, developer, scrubber, PR stripper, and wet etcher, and also service and spare parts. ACM is the only company that offers both a full set of wet tools and advanced plating tools. We believe advanced packaging will become more important as the industrial looks for packaging innovation, such as 2.5D and 3D interposal, and find out to drive the higher performance, particularly in China. In Q4, we added two major product categories, Ultra-Litho-Track code developer tool and Ultra-PMAX P-CVD tool. We estimate these two new tools double our server-developed market, or SAM, to $16 billion. This major new category reinforced ACM's position as a multi-product platform company. Our ultra-lethal track code developer tool is a natural evolution of our expertise in cleaning, coating, and developer systems, which we have built over the past decade. With our core competence in software and robotics, combined with our improving standalone code developer tool performance, we are well-positioned to competing in the $3.7 billion track market. We believe many global logic memory manufacturers are seeking a second track supply source. Our proprietary architecture design enables ultra-lethal track to process 400 or even more wafers per hour, which is required for the next generation of lethal tool, specifically designed for memory manufacturer customers. The tool has multiple features that enhance performance across defectivity, throughput, and cost of ownership. We delivered the first ultra-lethal track, called the developer ARF tool, to a domestic Chinese customer in the fourth quarter of 2022, and plan to deliver an inline model later this year.

We have also begun development of a KIF model. Our ultra-PMAX PE-CPE tool marks ACM's

enter into a new process area for front-end semiconductor manufacturing. We believe our proprietary design provides better film uniformity, reduced film stress, and improved particle performance. We target this product for global logic and memory manufacturing. We expect good traction for 28 nano and above logic customers, which we view as a major expansion opportunity in China. We believe there's a This is aligned with China's focus on adding manufacturing nodes capacity, adding mature nodes capacity to match domestic consumption. We expect to deliver our first PCVD tool to IC manufacturers soon. We also expect our ultra PMAX PCVD tool to be used in critical process for memory fabrication. We look to those two new product categories to provide another leg of growth to ACM in 2024 and beyond. ACM tools are used by nearly all of the Chinese-based semiconductor manufacturers. Our sales and service teams are constantly working to gain better traction with each of our customers across each of our major product lines. Our 2022 results demonstrated impressed growth for our core Canadian tools and a good product cycle in ECT. We expect a similar product cycle for foreigners in 2023 and a long-term contribution from TRAC and PCVD.

I will now provide a detail in our 2022 customers. Turn to slide five. For 2022, we had three 10% customers.

Huagong Group remain our top customer at 18% of sales. SMSC was the second largest at 15%. N1PC was our third at 10%. 6MT and SK Hynix also contribute, but we are less than 10% and 5% respectively. We had a stronger contribution from second and third tier semiconductor manufacturer, including power, analog, CMOS image sensor, and other devices. Although none of them individually was a 10% customer, this customer group represent about total 20% of our 40-year sales. For 2023, we expect a growth from our China-based customer with a sheer gain in our core cleaning tool and ECD and the furnace product cycle. We also anticipate initial sell to the U.S. and European market. We have two Canadian tools at the U.S. facility of a large U.S.-based manufacturer. Evaluation is going well, and we are optimistic it will lead to additional orders from them in 2023. Today, we announced an order for our first evaluation tool to a top-tier European customer. The tool is planned for delivery in early Q4 this year. and we are beginning to hire service teams to support it. We are optimistic this could lead to repeat orders of this product, orders for our other products, and open the door for other potential major customers in the region.

Next, I want to detail our planned investment in new facility.

Please turn to slide six. Construction of a Lingdang production R&D center is nearly complete and remains on track for initial production in the second half of this year. Our Lingdang campus will include one million square feet and include two R&D buildings, two factory buildings, and one accelerator factory. The accelerator factory will be equipped with a clean room R&D lab of the same grade as our customer IC production line. to speed up R&D and product processes verification. Upon completion, the Lingang campus is expected to have an annual revenue production capacity over $1.5 billion. We are moving forward with the purchase of a new full-owned headquarter for ACM Shanghai in Zhangjiang area of Shanghai, the Silicon Valley of China. We paid about $47 million for their building in the fourth quarter and are moving later this year. This is an important addition for ACM that will provide stability for employees, help us attract new talent, and allow us to invest in world-class R&D centers to speed up the development of our tools. To support our international expansion, we have increased our investment in Korea. This will serve as a second source of production capacity for business of continuity and will provide additional access to a greater pool of R&D talent. We already have a team of about 70 local R&D engineers who have co-developed our furnace, track, and PECVD product with our Shanghai R&D team. This facility will be in approximately of several major semiconductor manufacturers, which we believe will help achieve greater traction. For 2023, we expect to spend about 80 to 100 million capex. Our main project, including Lingang facility, capacity-adding Korea, and new ACM Shanghai headquarter, following this important investment. Our major spending project will be complete for the next several years. We remain committed to our 1 billion revenue target presented to slide 8. We remain bullish on the domestic China semiconductor market. We expect our China customers to continue to add or even speed up capacity as in mature nodes as made in China capacity is much lower than the local market consumption. Domestic demand for semiconductor will follow increased production of electrical vehicle and consumer electronics. The majority of our customer demand has been for mature nodes production site, including 20 nano and above logic devices, power devices, and IoT. And we anticipate good growth for year to come. We believe we can achieve our $1 billion revenue target in near future from mainland China alone. Our model is based on 55% market share in cleaning, 50% in ECP, 35% in furnish, and 15% each for track and PECVD. You see upside potential from international markets. We are making good progress with Korea, US, and European customers and expanding our global sales and supporting teams. We're also accelerating our R&D and production facility in Korea to be close to several major semiconductor player and provide a second side to supporting worldwide customers.

I will now provide our outlook for the full year 2023. Please turn to slide nine.

We are reaffirming our 2023 revenue outlook to be in a range of 515 to 585 million. The range of our outlook reflects, among other things, the potential impact from current US-China trade policy and together with various expect a spending scenario of key customer, supply chain constraint, and the timing of acceptance for first tool on the evaluation in the field, among other factors. In conclusion, we are proud of the progress we have made in 2022 and excited for the opportunity that the line had in 2023. We remain committed to our mission to become a supplier to major global semiconductor manufacturers and to deliver innovative solutions to our customers. Now, let me turn the call over to our CFO, Mark, who will review in detail our fourth quarter results. Mark, please.

Thank you, David. Good day, everyone. Please turn to slide 11. Unless I know otherwise, I will refer to non-GAAP financial measures which exclude stock-based compensation, unrealized loss of trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. I'll now provide financial highlights for the fourth quarter. Revenue was $108.5 million versus $95.1 million last year. Total shipments were $197 million versus $117 million shipped in the year-ago period. Revenue for single-wafer cleaning tools and semi-critical cleaning was $74.6 million versus $61.9 million. Revenue for ECP furnace and other technologies was $20.2 million versus $19.5 million. Revenue for advanced packaging, excluding ECP services and spares, was $13.7 million, approximately flat versus last year. Gross margin was 49.7%, up from 47.9% in the prior year. This exceeded our normal expected range of 40% to 45%. The increased gross margin versus the prior year period was primarily due to product mix and a positive impact due to the change in the renminbi to US dollar currency rate. We expect gross margin to continue to vary from period to period due to the variety of factors such as sales volume, product mix, and currency impacts. Operating expenses were $34.8 million versus $25.1 million. We incurred higher R&D costs due primarily to increased personnel. Sales and marketing expense was higher due to promotional tools and personnel costs. Operating income was $19.2 million, representing 17.7% operating margin versus $20.4 million. Other expense net was $6.6 million. This was due primarily to the impact of the exchange rate changes on our payables and receivables for the period. Income tax expense was $2.7 million compared to $3.2 million in the year-ago period. Effective tax rate for the full year 2022 has increased primarily due to the requirement for tax purposes to capitalize and amortize previously deductible research and experimental expenses under IRS code 174. That was effective January 1st, 2022. Companies tax provision assumes the rule will not be overturned and is based on capitalization of all the R&D expenses for tax purposes. Net income attributable to ACM research was 12.6 million versus net income of 18.1 million in the year-ago period. Net income for diluted share was 19 cents compared to net income for diluted share of 27 cents in Q4 2021. I will now review selected balance sheet items. Cash and cash equivalents, restricted cash, and time deposits were 420.9 million at the end of the fourth quarter versus 473.2 million at the end of the third quarter. Total inventory was $393.2 million at year end, up from $327.8 million at the end of last quarter. This included finished goods inventory of $146.9 million, work in process of $79.1 million, raw materials of $167.1 million. Net cash flow from operations was $1.3 million for the fourth quarter. Net cash flow used in operations was $62.2 million for the full year. Capital expenditures for Q4 was $72.6 million. which included a $47.2 million payment for our new headquarters building in Zhongzheng and spending on our Linggong factory and other items. Capital expenditures for the full year was $91 million. That concludes our prepared remarks. Let us open the call for any questions that you may have. Operator, please go ahead.

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. We have a question from Mark Miller with Benchmark Company. Your line is open.

Congrats on another strong year in outlook. I had a question about the regional distribution of sales. Looks like China was down 20% sequentially. How much of that was due to the restrictions in China? Just wondering what produced that 20% decline in sequentially decline in Chinese sales.

Yeah, Mark, and I think it's real hard to give you a precise number, and obviously there's a you know, there's a reduced investment in advance notes, and that percentage, how much contribution, I don't have a number right now. However, I should say there, also we say there are still strong demand in the mature notes, right? So that's the way we think this year our revenue continue to grow. Of course, also plus our new product, you know, deployment, especially ECB and the foreigners.

In terms of other regions, that showed a nice uptick over the prior quarter and year over year. Is that coming from the U.S. or Taiwan? I'm just wondering where the other region increase in revenues is coming from.

Actually, we're expecting some revenue this year will come from outside mainland China, right? And some revenue we expect from Korea and some from U.S., And also expecting, you know, probably not real revenue from TSM from their, you know, Taiwan, but they're actually expecting customer, right, probably breakthrough in the Taiwan this year, but not revenue.

Thank you.

Yep. Thanks, Martin.

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

Sorry about that. I was on mute. Hey, guys. Congratulations on the strong 2022 results and the very strong 23 outlook and the tough WFE environment this year. I guess a few questions. For David or Mark, can you just give us some sense, you know, at the 23 guidance of 515 to 585, do you expect any, you know, meaningful contribution from advanced nodes in China, or have you effectively zeroed out the advanced memory and logic nodes in that guidance?

Yeah, let me give you a first shot. And I think we still see some, you know, properties still purchase going out. but obviously, you know, quite a reduce, right, compared to last year. And so that's not that much counting in our projection, you know, for our, this year's, I call it projection. And however, we do see, and also there's some speed up, and for the customer, even some new customer, right, in China for mature nodes, and also for their power devices. So that's, as we see there, our, Revenue growth and from major from those customers right and plus as I mentioned And also other our products spread out by ECP continue gain market share and the furnace this year We think working in a more rapidly with the market share too. So that's the property factor, right? Next one is also including some international Contribution sales from from outside China

I wanted to also ask just on the shipments, a very impressive number of 197 million in the fourth quarter. I know you don't guide to shipments on a go-forward basis, but can you just talk about was there anything special going on in December? Was there any business sort of either pulled out of the September quarter or perhaps pulled in? From March, you talked in a prepared script about some supply constraints. Hard to see the impact of supply constraints when you're at nearly 200 million of shipments a quarter. So just trying to get some sense on what's your outlook for shipment, perhaps qualitatively, since I know you don't give guidance for that number.

You mean the future or talking about last quarter?

Well, just, yeah, maybe David just talked about the strength in shipments in the fourth quarter. Was there anything unusual that led to such a strong number? And then any comments you might be willing to make about how you expect shipments to trend over the next few quarters?

I see. Well, actually last four quarter, Shiman is also impact by constraint, right? If we have no supply chain concern, maybe ship more. That's obviously there. And plus this, you know, I call trade restriction, also the name is that Shiman too. So anyway, I think next few quarter, we still can see that their continual, you know, I call their, I'm not saying that quarter higher than the fourth quarter, right? But I should say next year and this year, we'll see that continuing increase of shipment, right?

Excellent. And then for you, Mark, obviously, gross margin near 50%, well above your target range of 48% to 45%. How much of the strength in the fourth quarter was due to that higher shipment level? I assume you're getting pretty good factory utilization at that kind of shipment level. Was that a big driver to gross margin, or is it really more just a function of the mix of tools that you shipped in in December that led to that near 50% margin?

Yeah, Quinn, it's going to be predominantly about the mix of products.

The absorption helps a bit, but it's not a big portion. It's really about the mix. And I said in the prepared remarks, we also had some benefit from the currency rates. It's mainly about mix, Quinn.

Can you quantify the FX impact, Mark? I mean, my guess is your mix with furnace and ECP driving a lot of the growth in 23. It sounds like your mix is going to stay pretty healthy in 23.

We're not changing our 40% to 45% gross margin target, Quinn. It's a competitive industry in general, and we certainly want to work well with our customers, but 40% to 45% is the right target longer term. Understood.

Thank you, Mark. Thank you, David.

Thank you.

Thank you, and we have a question from Christian Schwab with Craig Hallam. Your line is open.

Hey, guys. Congratulations on that. on strong execution and guidance. David, you know, you're not alone in seeing tremendous strength out of the Chinese domestic market, you know, applied materials and their ICAPS business, you know, spent half the call talking about it. So when you look at China, And in your commentary about adding, you know, mature nodes at 28 nanometer IoT power sensors, probably a smaller market, but in saying that it does not, the capacity within China does not meet domestic demand, I think is the way you worded it. How many years of strong capital equipment spending do you think it would take for that to occur? Is that like a three to four, five, six-year adventure? You know, how long do you think that would take?

Okay, good question.

I should say still, I just mentioned, you know, all electric vehicle, other consumer electronics, right? There's a lot of consumption rate in China for the, you know, 28-annual barbed chips. And, you know, I look at customer or a new customer expansion plan, I would say probably this trend will continue to go another at least three years. And I see there probably three year timeline. I mean, again, it really depends on the real situation, but we see that trend going up.

Great. And we've also heard from some different companies who sell into domestic China markets that there seems to be a reinvigorated effort to buy from domestic Chinese suppliers versus international providers into the capital equipment marketplace if there is good and competitive markets and products available, which of course you have. So do you see your growth potentially benefiting from that over the next three years as well?

actually i think for mature notes is pretty same right this moment you know that all the restrictions regulatory not limited to maternal right so i see that it's still everybody can sell so we're not a specific say they have to you know buy domestic whatever you know we're doing however because of the last two years three years you know the constraints applying and traveling and the people that's we will make our R&D team in Shanghai really make understanding, right? We still can't go in with service customer. Maybe that will give our customer kind of an advantage of our proximity on the center, manufacturer closing. I see that is a more big impact, right? So, I mean, I should say, I would say the customer still consider a faster tool pricing and also the, you know, stability of tool as a major consideration. and not just, you know, have to select domestic. I think that's a real fair market. We want to also share that market with other players in domestic and also outside China. It's really, you know, finally, it's really a solution game, right? Your cost, your service, your product, you know, quality. I look at that as more major.

Perfect.

And then my last question regarding, you know, initial sales to, you know, a large uh a u.s company um and i think i thought that i heard you say you thought you would get acceptance of those two tools and additional orders uh from that customer um this year is is did i hear that correct yeah i think we're pro we think you qualify that tool and hopefully you know we're uh you know they're they're continuing expansion plan and we got a repeat order right that's what we're expecting

Great.

And is that, you know, with that customer, is that, you know, some complex, you know, stuff like gate all around or something like that? Or is there a technology shift where it's opening up an opportunity for your products with that customer that maybe didn't exist before?

Well, I really cannot talk too much about that, right? We do have NDA. You know, we even cannot talk, you know, is the customer, is the logic or memory cannot talk either. So I really cannot comment your question. Sorry.

Okay, that's fair. And then I think in a conference call or two ago, you mentioned, but this is my last question, that you would expect sales, you know, or shipments, I should say, outside of, of domestic china in calendar 23 a target of about 10 of those shipments um you know outside of that market is that still the number we should be thinking about or did i remember yeah i should say probably five to ten it really hard to give you that fixed number now maybe by end of this year i'll give you more detail but that's you know talking right now five to ten that's a go all right sounds perfect great no other questions thank you thank you thanks christian

Our next question comes from Chaolin Singh with Credit Suisse. Your line is open.

Okay. This is Chaolin. Thank you, Debbie and Mark. My first question is, is that the revenue by region, is that based on ship to location or the customer headquarter region?

And we're saying that is based on the, it's not by actually quarter. We're talking about the delivery to China territory, right? final location we're talking about.

Okay, so that's more like shift to the location of the fat.

Let me clear that. And well, let's say Hynix exclusion, let me make sure. Hynix, we don't have that actually to the China location or considered as, you know, for Hynix, right? Hynix has both fat in China and also in Korea. So, did I answer your question?

Yes. So actually, my next question is also relating to this important customer. So I'm curious that how much manufacturing capacity are we preparing for this and any other international customers by end of this year or next year?

Okay.

In Korea, the production capacity in Korea. Because I'm just thinking that if any, yes.

Okay, I think there, let me clear, Korean capacity or expansion, and we're going to, well, doing from now on, right, as I said, you know, we're expanding investment, including increased capacity. And that capacity at the moment, we can say some of them is still using for China market, because, you know, we have a co-development tool between Korea and Shanghai. And also, that capacity also will be prepared for a secondary manufacturing center, and to supply customers outside China, right? So that's a tool function in there in Korea. I make sure I answer your question. Does that answer your question, Charlie?

Yes. Yes, because I'm just thinking that with the U.S. trip, if any of our potential, I mean, U.S. or non-U.S. set customers going to expand in U.S., would they have to only purchase any ME Clean, Furnace, or ECP from our Korean production side instead of from our Shanghai production side in the next few years?

Well, obviously, every customer needs their, you know, they call it business continuity, right? Because even natural disaster. So always asking two sides, even three sides of manufacturing. So, you know, you're asking customers they prefer at least two locations. and something happened, they still have a second source, can continue, you know, providing the tool. So that's exactly what we're designing here, as I call the business continuity, and to really, you know, make sure we can supply to all the customers in the world.

Okay, thank you. And next question, I'm not sure if I missed this earlier, would you, Mike, give us an idea on the R&D ratio into 2023 after the major increase last year.

And let Mark answer a question. He knows more money. I don't have much money. He's better.

Yeah, Talia. In 2022, if you go through the numbers, the non-GAAP basis, it was about 15.3% from 12.7% in 2021. We think that's about the level we'd expect in 2023. You're on the 15% or so.

I understand. Thank you. And maybe my very last question is that I know previously some other analysts also asked about the very exciting revenue growth in 2023. And David discussed earlier that a portion of that will come from the tier two, three FAB customers in China. So I'm still quite curious here because or if you look at the FAB customer in China, tier two, tier three FAB, how would you comment on your market share with these tier two, three FABs in China last year versus the market share outlook for this year?

Yeah, actually, you look at the number, we just see there are in the script, and about 20% represented right now in last year, right? And I continue to see that number will continue to increase. and because i you know we see their new customer come out and also some second tier and third tier customers like you know someone's expansion too so it's a it's a we see that a group uh occupational increase yes

And another question more on the revenue recognition side is that for the kind of advance note restricted by the U.S. regulation, the U.S. October 7th regulation, for any tools, either the repeated tools or the new tools that we should to any of these FAB customers, are all those related revenues already up in the fourth quarter?

Let me see this way. Well, and there's obviously in the fourth quarter, there's some revenue coming from there, right? And, you know, I'm also expecting still some revenue contribution even this year, too. And obviously, you know, we'll follow, you know, strictly for the U.S. in a trade and regulation, which is, you know, no U.S. part and no U.S. technology involved, right? That's our baseline there. But I still see some going on, but obviously has been reduced, you know, as compared last year.

Okay. Understand. Thank you, David.

One moment for our next question.

We have a question from Suji DeSalva from Ross. Your line is open.

Hi, David. Hi, Mark. Congrats on the progress here. Expecting growth from some of the newer products to show up materially in 23 here. What is maybe the competitive landscape on some of the newer products, the furnace and the C-MAP? How is that different from the traditional Caps-D-Bo products?

Yeah. Okay, let's put it this way. So we're growing. I think this year we're still continuously our new product in cleaning, right? I just mentioned in the script. We do have a Bible etcher and also new drawing technology, including supercritical CO2. And also we see the opportunity, you know, for even a single way for SPM. So it's still a lot of expansion, our cleaning product, which is a cover almost 90% of cleaning process staff, right? Also, we see some of this differential technology when it deals to the international customer, right? Korea and the US, Europe. And more than that is also we have the copper plating and furnace, right? And copper plating gained a lot of market share last year. We continue to see that trend continues going on. Also, we're expecting our copper plating will get into the market, you know, in Korea and in Taiwan, even beyond, right, Europe. And another one, the furnace product, and we do have, you know, high-temperature neol, oxidation, Vacuum NEO, LP-CVD, including Nitrify, Poly, Depoly. It has been expanded to multiple customers in China. And also last year, we did also introduce two new ARD furnace products to the market. And with also proprietary design of ARD furnace, we see that there is also penetration to the market in China, also in outside China. So we'll see that real three product will be driving continuously our growth for 2023. And then that's what so far we say. But then also our two new individual product, TCVD and the track will take time. I think we need almost a year to evaluate the customer side, maybe also put in multiple customer side.

And then that revenue contribution will be probably to 2024 NBR. Okay. All right.

Thanks, David. And then with the growth in China from the shipments, can you distinguish what's happening in China in the foundry logic market versus the memory market to understand the different dynamics there in support of your 23 forecast?

Okay. Let's move this way. I still say we're seeing a maternal growth. Obviously, mostly it's in the logic and the power device analog. you know, maybe some of the, you know, compound semiconductor, right? So we see that trend, that total ratio will increase in China. And I still say on memory, I still see some growth, but they're, you know, relative ratio-wise, probably not grow faster as, you know, as this mature note market, right? And then last year, we are about their market 15%, right? Come from memory, close. Maybe more than 15% come from memory market. This year, I should say, probably might be another range or maybe a little bit slightly lower. That's what we're looking right now. Hey, Mark, anything you want to add on that?

Yeah, no, I don't think I'd add anything, David. I think you covered it well. Yep.

Okay, great. That's really helpful color, Dave. Thank you. Thanks, guys. Thank you. Thanks, Sujit. Yep.

Thank you, and I'm showing no further questions in the queue. I'd like to turn the call back to Mr. David Wang for closing remarks.

Okay, question so fast. Just give me one second. Let me get it. Okay. Thank you, operator, and thank you all for participating on today's call and for your support. Before we close, Gary is going to mention our upcoming investor relations events. Gary, please. Hey, David, thank you.

On March 14th, we're going to present at the 35th Annual Roth Conference in Dana Point, California. Attendance of the conference is by invitation only for clients of Roth. If you're an interested investor, contact your Roth representative to register for the conference and request a one-on-one. This concludes the call, so you may all now disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research fourth quarter 2022 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. I would now like to hand the conference over to your speaker today, Gary Dvorak, Managing Director of the Blue Shirt Group. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on today's call to discuss fourth quarter 2022 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's also a supplemental slide deck posted to 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 McKechnie, and Lisa Fong, 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 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 and an unrealized gain loss in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website, and refer to slide 12. With that, let me now turn the call over to David Wong, who will begin with slide three. David?

Thanks, Gary. Hello, everyone, and welcome to ACM Research Fourth Quarter and Physical Year 2022 Earning Conference Call. Starting with the fourth quarter results, revenue was 108.5 million compared to 95.1 million last year. Ships were record 193 million, upper 69% year over year. Gross margin was 49.6%, and non-GAAP operating margin was 17.7%. As anticipated, as a result of U.S. export restriction, Several customers reduced production at their advanced nodes facility. We also experienced some delay from our supplier due to supply chain constraints. Despite the impact to our first quarter revenue, we are pleased with our results. For the full year, 2022 marked another year of progress on our mission to become a major supplier to the global semiconductor industry. We delivered 50% year-over-year top-line growth during the COVID-19-related restrictions, supply chain disruption, and increased trade regulations.

As a result, demonstrates were driven in part by our multi-product portfolio strategy. Turn to slide four. We are focused on deepening our position in Canadian, our core product segment.

In 2022, our Canadian product grew by 44% to 272.9 million driven by our single wafer cleaning tools and continual penetration of a semi-critical old bench tools. We expect the old bench to play a key role for mature nodes development in China and going forward. We instilled several important new cleaning tools, including bevel edge tool, high temperature SCM single wafer cleaning tool, and the high temperature IP dry tool and the supercritical CO2 dry tool for DRAM, which is important for our international efforts. ACM now has one of the broadest cleaning product portfolio in the industry, covering nearly 90% of all cleaning projects there. The ECP and the furnace and other technologies revenue more than doubled year over year to 77.5 million and represent 20 of our revenue mix this was driven by significant contribution from our ecp planning tools with increased penetration at our top customer for both ecp map for front end and ecp ap for the back end we expected a strong product cycle in 2023 from our furnace products Our higher-temperature NEO and ALT-CVD furnace, including silicon nitride and poly-D-poly, have expanded to multiple customers. We expanded our furnace platform with the introduction of a thermo-atomic layer separation, ALD, ultra-FNA furnace tool. We delivered the first ALD tool to a customer in September and second one to another customer in November.

2022. Advanced package, not including ECP.

Service and spell and other process tools grow slightly year over year. This segment includes a range of packaging tools, including coater, developer, scrubber, PR stripper, and wet etcher, and also service and spell parts. ACM is the only company that offers both a full set of wet tools and advanced plating tools. we believe advanced packaging will become more important as the industrial looks for packaging innovation, such as 2.5D and 3D in the puzzle, and find out to drive the higher performance, particularly in China. In Q4, we added two major product categories, Ultra Litho Track Coaster Developer Tool and Ultra P-Max P-CVD Tool. We estimate these two new tools double our server-developed market, or SAM, to $16 billion. This major new category reinforces ACM's position as a multi-platform company. Our ultra-lethal track coating development tool is a natural evolution of our expertise in cleaning, coating, and development systems which we have built over the past decade. With our core competence in software and robotics, combined with our improving standalone culture developer tool performance, we are well positioned to competing in the 3.7 billion track market. We believe many global logic memory manufacturers are seeking a second track supply source. Our proprietary architecture design enables ultra-lethal track to process 400 or even more wafers per hour, which is required for the next generation of lethal tool, specifically designed for memory manufacturer customer. The tool has multiple features that enhance performance across defectivity, throughput, and cost of ownership. We deliver the first ultra-lethal track code developer ARF tool to a domestic Chinese customer in the fourth quarter of 2022, and plan to deliver an inline model later this year.

We have also begun development of a KRF model.

Our Ultra PMAX PE-CPE tool marks ACM's entry into a new process area for front-end semiconductor manufacturing. We believe our proprietary design provides better film uniformity, reduce film stress, and improve particle performance. We target this product for global logic and memory manufacturing. Expect a good attraction for 28 nano and above logic customer, which we view as a major expansion opportunity in China. We believe this is aligned with China's focus on adding manufacturing nodes capacity adding mature node capacity to match domestic consumption. We expect to deliver our first PCVD tool to IC manufacturers soon. We also expect our ultra PMAX PCVD tool to be used in critical process for memory fabrication. We look to those two new product category to provide another leg of growth to ACM in 2024 NBL. These tools are used by nearly all of the Chinese-based semiconductor manufacturers. Our sales and service teams are constantly working to gain better traction with each of our customers across each of our major product lines. Our 2022 results demonstrated impressive growth for our core Canadian tools and a good product cycle in ECT. We expect a similar product cycle for foreigners in 2023, and a long-term contribution from TRAC and PCVD.

I will now provide a detail in our 2022 customers. Turn to slide five. For 2022, we had three 10% customers.

Huagong Group remain our top customer at 18% of sales. SMSE was the second largest at 15%, and 1TC was our third at 10%. 6MT and SK Hynix also contribute, but we are less than 10% and 5% respectively. We had a stronger contribution from second and third tier semiconductor manufacturer, including power, analog, CMOS image sensor, compound semiconductor, and other devices. Although none of them individually was a 10% customer, this customer group represent about total 20% of our 40-year sales. For 2023, we expect a growth from our China-based customer with a sheer gain in our core cleaning tool and ECD and the furnace product cycle. We also anticipate initial sales to the US and European market We have two Canadian tools at the U.S. facility of a large U.S.-based manufacturer. Evaluation is going well, and we are optimistic it will lead to additional orders from them in 2023. Today, we announced an order for our first evaluation tool to a top-tier European customer. The tool is planned for delivery in early Q4 this year, and we are beginning to hire a service team to support it. We are optimistic this could lead to a repeat orders of this product, orders for our other products, and open the door for other potential major customers in the region.

Next, I want to detail our planned investment in new facility.

Please turn to slide six. Construction of a ring-down production R&D center is nearly complete. and remain on track for initial production in the second half of this year. Our link-down campus will include one-minute square feet and include two R&D buildings, two factory buildings, and one accelerator factory. The accelerator factory will be equipped with a clean room R&D lab of the same grade as our customer IC production line to speed up R&D and product process verification. Upon completion, the Lingang campus is expected to have an annual revenue production capacity over $1.5 billion. We are moving forward with the purchase of a new full-owned headquarter for ACM Shanghai in Zhangjiang area of Shanghai, the Silicon Valley of China. We paid about $47 million for their building in the fourth quarter and are moving later this year. This is an important addition for ACM that will provide stability for employees, help us attract new talent, and allow us to invest in world-class R&D centers to speed up the development of our tools. To support our international expansion, we will increase our investment in Korea. This will serve as a second source of production capacity for business of continuity. and will provide additional access to a greater pool of R&D talent. We already have a team of about 70 local R&D engineers who have co-developed our furnace, track, and PECVD product with our Shanghai R&D team. This facility will be in the proximity of several major semiconductor manufacturers, which we believe will help achieve greater traction.

For 2023, we expect to spend about 80 to 100 million capex.

Our main project, including Lingang facility, capacity-adding Korea, and new ACM Shanghai headquarter, following this important investment.

Our major spending project will be complete for the next several years. We remain committed to our $1 billion revenue target presented to Slide 8.

We remain bullish on the domestic China semiconductor market. We expect our China customers to continue to add or even speed up capacity as in mature nodes as made in China capacity is much lower than the local market consumption. Domestic demand for semiconductor will follow increased production of electrical vehicle and consumer electronics. The majority of our customers Demand has been for mature nodes production site, including 20 nano and above logic devices, power devices, and IoT. And we anticipate good growth for year to come. We believe we can achieve our $1 billion revenue target in near future from mainland China alone. Our model is based on 55% market share in cleaning, 50% in ECP, 35% in furnish, and 15% percent each for track and PCVD. You see upside potential from international markets. We are making good progress with Korea, US and European customers and expanding our global sales and supporting teams. We're also accelerating our R&D and action facility in Korea to be close to several major semiconductor players and provide a second side to supporting worldwide customers.

I will now provide our outlook for the full year 2023. Please turn to slide nine.

We reaffirm our 2023 revenue outlook to be in a range of 515 to 585 million. The range of our outlook reflects, among other things, the potential impact from current US-China trade policy and together with various expect a spending scenario of key customer, supply chain constraint, and the timing of acceptance for first tool on the evaluation in the field, among other factors. In conclusion, we are proud of the progress we have made in 2022 and excited for the opportunity that the line had in 2023. We remain committed to our mission to become a supplier to major global semiconductor manufacturers and to deliver innovative solutions to our customers. Now let me turn the call over to our CFO, Mark, who will reveal in detail our fourth quarter results. Mark, please.

Thank you, David. Good day, everyone. Please turn to slide 11. Unless I note otherwise, I will refer to non-GAAP financial measures which exclude stock-based compensation, unrealized loss of trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. I'll now provide financial highlights for the fourth quarter. Revenue was $108.5 million versus $95.5 million last year. Total shipments were $197 million versus $117 million shipped in the year-ago period. Revenue for single wafer cleaning tools and semi-critical cleaning was $74.6 million versus $61.9 million. Revenue for ECP furnace and other technologies was $20.2 million versus $19.5 million. Revenue for advanced packaging, excluding ECP services and spares, was $13.7 million, approximately flat versus last year. Gross margin was 49.7%, up from 47.9% in the prior year. This exceeded our normal expected range of 40% to 45%. The increased gross margin versus the prior year period was primarily due to product mix and a positive impact due to the change in the remnant B to U.S. dollar currency rate. We expect gross margin to continue to vary from period to period due to the variety of factors such as sales volume, product mix, and currency impacts. Operating expenses were $34.8 million versus $25.1 million. We incurred higher R&D costs due primarily to increased personnel. Sales and marketing expense was higher due to promotional tools and personnel costs. Operating income was $19.2 million, representing 17.7% operating margin versus $20.4 million. Other expense net was $6.6 million. This was due primarily to the impact of the exchange rate changes on our payables and receivables for the period. Income tax expense was $2.7 million compared to $3.2 million in the year-ago period. The effective tax rate for the full year 2022 has increased primarily due to the requirement for tax purposes to capitalize and amortize previously deductible research and experimental expenses under IRS Code 174. That was effective January 1, 2022. The company's tax provision assumes the rule will not be overturned and is based on capitalization of all the R&D expenses for tax purposes. Net income attributable to ACM research was $12.6 million versus net income of $18.1 million in the year-ago period. Net income for diluted share was $0.19 compared to net income for diluted share of $0.27 in Q4 2021. I will now review selected balance sheet items. Cash and cash equivalents, restricted cash, and time deposits were $420.9 million at the end of the fourth quarter versus $473.2 million at the end of the third quarter. Total inventory was $393.2 million at year end, up from $327.8 million at the end of last quarter. This included finished goods inventory of $146.9 million, work in process of $79.1 million, raw materials of $167.1 million. Net cash flow from operations was $1.3 million for the fourth quarter. Net cash flow used in operations was $62.2 million for the full year. Capital expenditures for Q4 was $72.6 million. which included a $47.2 million payment for our new headquarters building in Zhongzheng and spending on our Lingdong factory and other items. Capital expenditures for the full year was $91 million. That concludes our prepared remarks. Let us open the call for any questions that you may have. Operator, please go ahead.

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. We have a question from Mark Miller with Bidsmart Company. Your line is open.

Congrats on another strong year in outlook. I had a question about the regional distribution of sales. Looks like China was down 20% sequentially. How much of that was due to the restrictions in China? Just wondering what produced that 20% decline in sequential decline in Chinese sales.

Yeah. I think it's real hard to give you a precise number. Obviously, there's a you know, there's a reduced investment in advance notes, and that percentage, how much contribution, I don't have a number right now. However, I should say there, also we say there are still strong demand in the mature notes, right? So that's the way we think this year our revenue continue to grow. Of course, also plus our new product, you know, deployment, especially ECB and the furnace.

In terms of other regions, that showed a nice uptick over prior quarter and year over year. Is that coming from the U.S. or Taiwan? I'm just wondering where the other region increase in revenues is coming from.

Actually, we're expecting some revenue this year will come from outside mainland China. Some revenue is back from Korea and some from U.S., And also expecting, you know, probably not real revenue from TSM from their, you know, Taiwan, but they're actually expecting customer, right, probably breakthrough in Taiwan this year, but not revenue.

Thank you.

Yep. Thanks, Martin.

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

Sorry about that. I was on mute. Hey, guys. Congratulations on the strong 2022 results and the very strong 23 outlook in the tough WFE environment this year. I guess a few questions. For David or Mark, can you just give us some sense, you know, at the 23 guidance of 515 to 585, do you expect any, you know, meaningful contribution from advanced nodes in China, or have you effectively zeroed out the advanced memory and logic nodes in that guidance?

Yeah, let me give you a first shot. And I think we still see some, you know, properties still purchase going out. but obviously, you know, quite a reduce, right, compared to last year. And so that's not that much counting in our projection, you know, for our, this year's, I call it projection. And however, we do see, and also there's some speed up, and for the customer, even some new customer, right, in China for mature nodes, and also for their power devices. So that's, as we see there, our, revenue growth and from major from those customers right and plus as i mentioned and also other products spread out like ecp continue gain market share and the foreigners this year we think we're getting you know more rapidly with the market share too so that's the property factor right next one is also including some international uh contribution sales from from outside mainland china

I wanted to also ask just on the shipments, a very impressive number of 197 million. And in the fourth quarter, I know you don't guide to shipments on a go-forward basis, but can you just talk about, you know, was there anything special going on in December where the, you know, was there any business sort of, you know, either pulled out of the September quarter or perhaps pulled in? From March, you talked in a prepared script about some supply constraints. Hard to see the impact of supply constraints when you're at nearly 200 million of shipments a quarter. So just trying to get some sense on what's your outlook for shipment, perhaps qualitatively, since I know you don't give guidance for that number.

You mean the future or talking about last quarter?

Well, just, yeah, maybe, David, just talk about the strength in shipments in the fourth quarter. Was there anything unusual that led to such a strong number? And then any comments you might be willing to make about how you expect shipments to trend over the next few quarters?

I see. Well, actually last four quarter, Shiman is also impact by constraint, right? If we have no supply chain constraint, maybe ship more. That's obviously there. And plus this, you know, I call it trade restriction. Also the name is Shiman too. So anyway, I think next few quarter, we still can see that there are continual, you know, I call there, I'm not saying that quarter higher than the fourth quarter, right? But I should say next year and this year, we'll see that continue to increase, right?

Excellent. And then for you, Mark, obviously gross margin near 50%, well above your target range of 40 to 45. How much of the strength in the fourth quarter was due to that higher shipment level? I assume you're getting pretty good factory utilization at that kind of shipment level. Was that a big driver to gross margin, or is it really more just a function of the mix of tools that you shipped in December that led to that near 50% margin?

Yeah, Quinn, it's going to be predominantly about the mix of products.

The absorption helps a bit, but it's not a big portion. It's really about the mix. And I said in the prepared remarks, we also had some benefit from the currency rates. But It's mainly about mix, Quinn.

Can you quantify the FX impact, Mark? I mean, my guess is your mix with furnace and ECP driving a lot of the growth in 23. It sounds like your mix is going to stay pretty healthy in 23.

We're not changing our 40% to 45% gross margin target, Quinn. We're in a... It's a competitive industry in general, and we certainly want to work well with our customers, but 40% to 45% is the right target longer term. Understood.

Thank you, Mark. Thank you, David.

Thank you.

Thank you, and we have a question from Christian Schwab with Craig Hallam. Your line is open.

Hey, guys. Congratulations on that. on strong execution and guidance. David, you know, you're not alone in seeing tremendous strength out of the Chinese domestic market, you know, applied materials and their ICAPS business, you know, spent half the call talking about it. So when you look at China, And in your commentary about adding, you know, mature nodes at 28 nanometer IoT power sensors, probably a smaller market, but in saying that it does not, the capacity within China does not meet domestic demand, I think is the way you worded it. How many years of strong capital equipment spending do you think it would take for that to occur? Is that like a three to four, five, six year adventure? You know, how long do you think that would take?

Okay, good question.

I should say still, I just mentioned, you know, all electric vehicle, other consumer electronics, right? There's a lot of consumption rate in China for the, you know, 28 and a half bar of chips. And I, you know, I look at customer or a new customer expansion plan, I would say probably this trend will continue to go another at least three years. And I see there probably three year timeline. I mean, again, it really depends on the real situation, but we see that trend going up.

Great. And we've also heard from some different companies who sell into domestic China market that there seems to be a reinvigorated effort to buy from domestic Chinese suppliers versus international providers into the capital equipment marketplace if there is good and competitive markets and products available, which of course you have. So do you see your growth potentially benefiting from that over the next three years as well?

actually i think for mature nodes is pretty same right this moment you know that the other restriction regulatory not limited to the maternal right so i see that it's still everybody can sell so we're not a specific say they have to you know buy domestic whatever you know we're doing however because of the last two years three years you know the constraints applying and traveling and the people That's real maker, our R&D team in Shanghai really make understanding, right? We still can't go in with service customer. Maybe that will give our customer kind of an advantage of proximity, R&D center, manufacturer closing. I see that is a more big impact, right? So, I mean, I should say, I would say the customer still consider a faster tool pricing and also the, you know, stability of tool as a major consideration. and not just, you know, have to select domestic. I think that's a real fair market. We want to also share that market with other players in domestic and also outside China. It's really, you know, finally, it's really a solution game, right? Your cost, your service, your product, you know, quality. I look at that as more major.

Perfect.

And then my last question regarding, you know, initial sales to, you know, a large uh a us company um and i think i thought that i heard you say you thought you would get acceptance of those two tools and additional orders uh from that customer um this year is is did i hear that correct yeah i think we're pro we think you qualify that tool and hopefully you know we're uh you know they're they're continuing expansion plan and we got a repeat order right that's what we're expecting

Great.

And is that, you know, with that customer, is that, you know, on some complex, you know, stuff like gate all around or something like that? Or is there a technology shift where it's opening up an opportunity for your products with that customer that maybe didn't exist before? Sure.

Well, I really cannot talk too much about that, right? We do have NDAs. You know, we even cannot talk, you know, is the customer, is the logic or memory cannot talk either. So I really cannot comment your question. Sorry.

Okay, that's fair. And then I think in a conference call or two ago, you mentioned, but this is my last question, that you would expect sales, you know, or shipments, I should say, outside of, of domestic china in calendar 23 a target of about 10 of those shipments um you know outside of that market is that still the number we should be thinking about or did i remember yeah i should say probably five to ten it really hard to give you that fixed number now maybe by end of this year i'll give you more detail but that's you know talking right now five to ten that's all go all right sounds perfect great no other questions thank you thank you thanks christian

Our next question comes from Chaolin Singh with Credit Suisse. Your line is open.

Okay, this is Chaolin. Thank you, Debbie and Mark. My first question is, is that the revenue by region, is that based on ship to location or the customer headquarter region?

And we're saying that is based on the, it's not by actually quarter. We're talking about the delivery to China territory, right? final location we're talking about.

Okay, so that's more like shift to the location of the fat.

Let me clear that. And well, let's say Hynix exclusion, let me make sure. Hynix, we don't, we don't have a data set actually to the China location or considered as, you know, for Hynix, right? Hynix has both fat in China, also in Korea. So, did I answer your question?

Yes. So actually, my next question is also relating to this important customer. So I'm curious that how much manufacturing capacity are we preparing for this and any other international customers by end of this year or next year?

Okay.

In Korea, the production capacity in Korea. Because I'm just thinking that if any, yes.

Okay, I think there, let me clear, Korean capacity or expansion, and we're going to, well, doing from now on, right, as I said, you know, we're expanding investment, including increased capacity. And that capacity at the moment, we can say some of them is still using for China market, because, you know, we have a co-development tool between Korea and Shanghai. And also, that capacity also will be prepared for a secondary manufacturing center, and to supply customers outside China, right? So that's a tool function in there in Korea. I make sure I answer your question. Does that answer your question, Charlie?

Yes. Yes, because I'm just thinking that with the U.S. trip, if any of our potential, I mean, U.S. or non-U.S. FAB customers going to expand in U.S., would they have to

only purchase any I mean clean furnace or ECP from our Korean production side instead of from our Shanghai production side in the next few years well obviously every customer neither you know they call a business community right because even natural disaster so always asking two sides even three side manufacturing so you know you're asking customers they prefer they prefer at least two locations and something happened, they still have a second source, can continue, you know, providing the tool. So that's exactly what we're designing here, as I call the business continuity, and to really, you know, make sure we can supply to all the customers in the world.

Okay, thank you. And this question, I'm not sure if I missed this earlier. Would you, Mike, give us an idea on the R&D ratio into, 2023 after the major increase last year.

And let Mark answer a question. He knows more money. I don't have much money. He's better.

Yeah, Talia. So in 2022, if you go through the numbers, the non-GAAP basis, it was about 15.3% from 12.7% in 2021. You know, we think that's about the level we'd expect in 2023, around 15% or so.

understand thank you and maybe my very last question is that i know previously some other analysts also asked about the the the very exciting revenue growth in 2023 and david discussed earlier that a portion of that will come from the tier two three uh fab customers in china so i'm still quite curious here because uh uh or if you look at the FAB customer in China, tier two, tier three FAB, how would you comment on your market share with these tier two, three FABs in China last year versus the market share outlook for this year?

Yeah, actually, you look at the number, we just see there are in the script, and about 20% represented right now in last year, right? And I continue to see that number will continue to increase. And because I, you know, we see their new customer come out and also some second tier and third tier customers, like, you know, someone is expansion too. So it's a, it's a, we see that a group, uh, occupational increase. Yes.

Mm-hmm. And another question more on the revenue recognition side is that for the kind of advance note restricted by the U.S. regulation, the U.S. October 7th regulation, for any tools, either the repeated tools or the new tools that we ship to any of these FAB customers, are all those related revenues already booked in the fourth quarter?

Let me see this way. Well, and there's obviously in the fourth quarter, there's some revenue coming from there, right? And, you know, I'm also expecting still some revenue contribution even this year too. And obviously, you know, we'll follow, you know, strictly for the U.S. in a trade regulation, which is, you know, no U.S. part and no U.S. technology involved, right? That's our baseline there. But I still see some going on, but obviously has been reduced, you know, as compared last year.

Okay. Understand. Thank you, David.

One moment for our next question.

We have a question from Suji DeSalva from Ross. Your line is open.

Hi, David. Hi, Mark. Congrats on the progress here. Expecting growth from some of the newer products to show up materially in 23 here. What is maybe the competitive landscape on some of the newer products, the furnace and the CMAP? How is that different from the traditional SAP CBO products?

Yeah. Okay, let's put it this way. So we're growing. I think this year we're still continuously our new product in CUNY, right? I just mentioned in the script. We do have a Bible etcher and also new drawing technology, including supercritical CO2. And also we see the opportunity, you know, for even a single way for SPM. So it's still a lot of expansion, our Canadian product, which is a cover almost 90% of Canadian process staff, right? Also, we see some of this differential technology when it deals to the international customer, right? Korea and the US, Europe. And more than that is also we have the copper plating and furnace, right? And copper plating gained a lot of market share last year. We continue to see that trend continues going on. Also, we're expecting our copper plating will get into the market, you know, in Korea and in Taiwan, even beyond, right, Europe. And another one, the furnace product, and we do have, you know, high temperature neol, oxidation, Vacuum NEO, LP-CVD, including Nitrify, Poly, Depoly. It's quite there has been expanded multiple customers in China. And also last year, we did also introduce, right, this two new ARD furnace product to the market. And with also proprietary design of ARD furnace, we see that there also penetration to the market in China, also in the outside China, right? So we'll see that real three product will be driving continuously our growth for 2023. And then that's what so far we say. But then also our two new individual product, TCVD and the track will take time. I think we'll need almost a year to evaluate at a customer site, maybe also put in multiple customer sites.

And then that revenue contribution will be probably to 2024 and beyond. Okay. All right.

Thanks, David. And then with the growth in China from the shipments, can you distinguish what's happening in China in the foundry logic market versus the memory market to understand the different dynamics there in support of your 23 forecast?

Okay. Let's go this way. I still say we're seeing a maternal growth, obviously, mostly in the logic and the power device, analog, know maybe some of us you know uh compound semiconductor right so we see that there that trend that total ratio were increased in china and i still say on memory i still see some glow but they're you know uh relative ratio wise probably not grow faster as you know as this mature notes and market right um i think last year we are about their market 15 right come from memory close Maybe more than 15% come from memory market. This year, I should say, probably might be another range or maybe a little bit slightly lower. That's what we're looking right now. Hey, Mark, anything you want to add on that?

Yeah, no, I don't think I'd add anything, David. I think you covered it well. Yep.

Okay, great. That's really helpful color, Dave. Thank you. Thanks, guys. Thank you. Thanks, Sujit. Yep.

Thank you, and I'm showing no further questions in the queue. I'd like to turn the call back to Mr. David Wang for closing remarks.

Okay, question so fast. Just give me one second. Let me get it. Okay. Thank you, operator, and thank you all for participating on today's call and for your support. Before we close, Gary is going to mention our upcoming investor relations events. Gary, please. Hey, David, thank you.

On March 14th, we're going to present at the 35th Annual Roth Conference in Dana Point, California. Attendance of the conference is by invitation only for clients of Roth. If you're an interested investor, contact your Roth representative to register for the conference and request a one-on-one. This concludes the call, so you may all now disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.