ACM Research, Inc.

Good morning and thank you for standing by. Welcome to the ACM Research Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ujia Zai, Managing Director of the Blue Shirt Group. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us on today's call to discuss second quarter 2023 results. We released results before the US market opened today. The release is available on our website, as well as from Newswire Services. There is also a supplemental slide deck posted to the investor portion of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang, our CFO, Mark McKechnie, and Lisa Tsang, 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, and 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 the risk factors and elsewhere in ACM's filings with the SEC. 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 includes stock-based compensation and unrealized gain, loss, and trading securities. Our GAAP results in reconciliations between GAAP and non-GAAP amounts. You should refer to our earnings release, which is posted on the IR section of our website in slide 12. With that, let me now turn the call over to David Wang, who will begin with slide three. David?

Thanks, Yujia. Hello, everyone, and welcome to ACM's second quarter 2023 earnings conference call. Please turn to slide three. For the second quarter, revenue was $144.6 million. upper 39 percent from the same quarter last year. Sheemans were 153 million upper 37 percent from the same quarter last year. Gross margin was 47.6 percent and operating margin was 22.4 percent. We achieved record revenue and EPS as our operating and industrial supply chain largely returned to a new normal following several years of COVID-related disruption. This result was driven by strong, mature notes sent in by our China customer. Market share gained under penetration of a new product, a new customer. Let me touch on each of this, beginning with mature note investment in China. Last year, following US-China trade restrictions, some industrial analysts predict China's WFE market will be declined dramatically. At that time, we predict a fairly quicker shift to spending on mature notes in China. After I expected the pulse as industrial adjusted to the new export regulations, our prediction appear to be playing out as we are now seeing broader sign that China is indeed speed up its capacity expansion in mature nodes. This is driven by the substantial gap between China's mature nodes capacity and their market consumption. We see continuing investment in 28nano and 45nano and above from under fab capacity. We also see the ramp-up of EV production in China as a driver of China-based investment in both power devices and other 28 and 45 nanodevices. This creates a good timing for us that we believe is still in early stage as China intensify effort to boost its domestic semiconductor capacities capabilities. We believe we are well positioned to benefit and further increase our market share. due to our strong market position, leading differentiated technology, and a broad multi-product portfolio. Moving to product, please turn to slide four. Single-weaver cleaning, Tahoe, and semi-critical cleaning grow 55%. In the last few years, we introduced and began ramping our semi-critical product line, including AutoBench Then last year, we introduced bevel etcher on high temperature STM tools. Over the past quarter, we introduced super critical CO2 dry. Now, ACM has one of the broadest cleaning product portfolio in the industry, covering nearly 90% of all cleaning process staff. We believe this product portfolio will play a key role among mature nodes, development in China, and advance notes in our international effort going forward. ECP, Furnace, and other technologies declined 7% due to quarterly fluctuation. However, for the first six months of 2023, ECP, Furnace, and other technology grow 40% year-over-year. Growth in this category was driven primarily by ECP product cycle with some contribution from Furnace. Our higher temperature anneal and LPCVD furnace, including sitting nitride and poly and ARD, have expanded to multiple customer and are under evaluation. Advanced packaging includes DCP. Service and spell grow 14% in Q2 and 58% year-over-date. This category includes a range of packaging tools including coder, developer, scrubber, PR sweeper, and wet etcher, and 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 industry looks for packaging innovations, such as 2.5D and 3D in the puzzle, and find out to drive the higher performance for new applications such as AI and GPT. Finish up on products. We continue to make good progress on self-efforts with our new track and PCVD platform. We're in active discussion with our key customer, and we are planning to deliver more evaluation tools this year. Similar to our leaning, plating, and furnace product line, our track and PCVD platform have a proprietary technology that we believe we're making them winner with major customer both in China and outside China. Moving on to customer, please turn to slide five. We continue to make progress on customer both inside China and internationally. In China, we believe ACM tools are now used by nearly all of the semiconductor manufacturers. Our sales and service team are working to expand their deployment of each of our major product line across our growing customer base. In addition to our current customer, we are also seeing a good number of well-founded new entrants. Our team has done a good job of getting good traction for our product with these customers. As this, our new customer, This will be reflected in our shipment this year until customer acceptance at a later date. Also, as some of you may have heard, on July 21, 2023, Huahong Semiconductor, a greater strategic customer, announced the pricing of its Shanghai stock market IPO and expected to start trading soon. The total proceeds were 21.2 billion RMB, or approximately 3 billion US dollars. In the US, evaluation at our key customer is progressing well, and we remain optimistic for qualification later this year. In Europe, we announced an order for our first evaluation tool from a major semiconductor manufacturer in the first quarter of this year. The tool is planned for delivery in early Q4, and we are beginning to build a local service team to support effort. To support our growing initiatives, we continue making progress on facility expansion in China and other regions. Please turn to slide six. In China, construction of a lingang production and R&D center is nearly completed and expected to begin initial production later this year. In Korea, as noted in prior call, we have increased our commitment in this region. We believe a strong commitment to Korea will improve our relationship with our key customer SK Hynix and others. In Q1 of this year, we completed the purchasing of a land in a high-tech area outside Incheon as a site for new R&D and production centers. In the U.S., as noted last quarter, we leased a facility in Oregon to add to our service support and demonstration capability for R&D and custom activities in the region. As a reminder, for 2023, we expect to spend about $100 million capex. This includes continual investment in our lingang facility, remodeling for new headquarters for ACM Shanghai, and our other investment in Korea and the US. 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 the range of 515 to 585 million US dollars. The range of outlook reflects among other things, management's current assessment of the continuing impact from the international trade policy together with the various expected spending scenario of a key customer, supply chain constraint, and the timing of acceptance for the first tool on evaluation in the field. Now let me turn the call over to our CFO, Mark, who will review in detail our second quarter results. Mark, please.

Thank you, David. Good day, everyone. Please turn to slide 10. Lest I note otherwise, I will refer to non-GAAP financial measures which exclude stock-based compensation and unrealized loss on trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Also, unless otherwise noted, the following figures refer to the second quarter of 2023. Comparisons are with the second quarter of 2022. I'll now provide financial highlights for the second quarter. Revenue was $144.6 million, up 38.5%. Total shipments were $153.4 million, up 37%. Revenue for single wafer cleaning tools and semi-critical cleaning was $112.5 million, up 55%. Revenue for ECP furnished and other technologies was $19.1 million, down 6.7%. For the first six months of 2023, this category grew by 39.6% versus the prior year period. Revenue for advanced packaging, including ECP services and spares, was $12.9 million, up 14.3%. Gross margin was 47.6%, up from 42.4%. This exceeded our normal expected range of 40% to 45%. The increase in gross margin was primarily due to a favorable product mix, improved gross margins for specific product lines, and a favorable impact from fluctuations in the remnant B to US dollar exchange rate. We expect gross margin to continue to vary from period to period due to a variety of factors, such as sales volume, product mix, and currency impacts. Operating expenses were $36.3 million up from $22.3 million. The increase was due to higher R&D, sales and marketing, and G&A costs in support of our new customer and new product activities, and a boost in the post-COVID travel. Operating income was $32.4 million up from $22.0 million. Operating margin was 22.4% up from 21.1%. We recorded a realized gain of $3.9 million from the sale of trading securities for the quarter. Recall that realized gains are included in the non-GAAP earnings. Income tax expense was $7.6 million, down from $7.7 million. Recall that as a result of the change in Section 174 of the US Internal Revenue Code, our effective tax does remain elevated, primarily due to the requirement to capitalize and amortize previously deductible research and experimental expenses. Net income attributable to ACM research was $31.3 million, up from $14.6 million. Net income for diluted share was $0.48, up from $0.22. Now I'll review some selected balance sheet items. Cash and cash equivalents, restricted cash, and time deposits were $376.1 million at the end of the second quarter versus $381.7 million at the end of the first quarter. Total inventory was $471.1 million at the end of the second quarter, generally flat versus the end of the first quarter. Capital expenses for the second quarter were about $6.7 million. I'll now provide an update on our auditor. On July 21st, 2023, Armonino informed us that it will resign as our independent auditor, effective as the earlier of A, when we engage a new auditor, or B, the filing of this year's third quarter 10Q reports. They advised us this was due to their decision to exit from the practice of providing financial statement audit services to all public companies. As a result, our audit committee has begun the process to select and appoint a new auditor. We filed an 8K with the full details on July 27, 2023, and I would note that we've also seen a number of similar filings from other Armanino clients. Regarding the search for a new auditor, We are considering several options, including U.S. and China-based auditors. That concludes our prepared remarks. Now let's open the call for any questions that you may have. Operator, please go ahead.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. The first question comes from Quinn Bolton with Needham and Company. Your line is open.

Hey, guys. Congratulations on the very strong second quarter results. I guess, you know, kind of big picture question for the second half of the year. I know you're not increasing your 2023 guidance, but since you're not increasing the guidance, it looks like revenues may flatten out or at least grow at a much, much slower rate in the second half. How are you thinking about the second half? Was the second quarter really that sort of COVID supply chain catch up and you see more normalization now? Or just any thoughts you could share on the second half or the shape of revenue in the second half would be helpful.

Yeah, okay, Quinn. In general, actually, looking at the last couple of years, our second half year was stronger than the first half year, right? I think that trend probably continues. And regarding to the supply chain, I should say it's much better than last year, but still feel some components get constrained. I'm thinking maybe second half of this year are going to improve further for supply chain. Mark, anything you want to add on?

Yeah, you bet. Our overall outlook, obviously, we factor in. We're looking at a flattish overall capex for overall China. I think there's a lot of debate about that. But, you know, we see better growth from our new products, share gains, and new customers. First half, second half, I mean, you can look at the numbers, but it's about 40%, 60%. And so... You know, we'd expect Q3 to be up. And, you know, depending on where the year plays out, Q4 could be down, which is that's a normal type seasonality for us. Yep.

Got it. So sort of perhaps a return to more of a down fourth quarter, you know, post a couple of years of COVID where I think seasonality was largely out the window. Got it. Second question, just more for you on the auditor. I know that this has been a thorn in your side for probably a couple of years now. To the extent that you select a China-based auditor, can you just sort of walk us through, I believe there's now a process in place where PCAOB has oversight of China-based auditors, and so if you select China, that shouldn't have any impact on your listing status in the U.S. But I know it's been a subject that's raised lots of questions, so can you just walk us through the latest implications to the extent you do select a China-based auditor? Thanks.

Yeah, you bet. No, thanks for that question, Quinn. So I think, as you know, yeah, last year we did cut over to Arminino as a U.S.-based auditor, and they completed a good audit for our 2022. It was signed by, you know, officially a U.S. auditor. But yeah, the rules, you know, there was a positive development late last year. The PCAOB was able to inspect the China auditors to And so the so-called HIFCA Act, which would result in a delisting if you were on a certain list three consecutive years in a row, that became moot, at least for the foreseeable, now that we believe the PCOB has been granted the inspections in China. So that's why we pointed out in terms of Our possibilities range, you know, a U.S. auditor, we could certainly go with a China-based auditor as well and maintain our listing at this point.

Great. And then a final quick one for me. David, you mentioned sort of expanding placements of track and PECBD this year. Can you give us sort of any sense how broad you may be able to go with those evaluations to an expanding customer base or to an expanding base within your existing customers? with track and PECVD?

Yeah, actually, as I mentioned, we do have also differential technology with the PECVD, right? So now we actually have two models, one for memory application, another one for the real logic, right, boundary application. So this year we're working with probably both side of customer, and we try to get the evaluation going on. and obviously revenue will come next year, right? So PCVD is a huge market and also has a, you know, really our second drive product other than our furnace. We have a really, you know, high expectation and also we put a lot of effort and put the both, you know, on this product and also expecting and, you know, very good outcome, good future and the driver ACM continue to grow. in the next few years at a high growth rate. So it's an exciting product.

Thanks, David. Thanks, Mark.

Thank you, Queen.

Please stand by for the next question. The next question comes from Suji Da Silva with Roth Capital. Your line is open.

Hi, David. Hi, Mark. Congrats on the progress here. So just Just to dig in a little bit on the ACP furnace category, I want to make sure with the decline here, is the furnace products uptake, the newer products uptake still ramping? Or within, is there just supply chain catch-up across that category?

Right, great. Actually, our furnace, by end of last year, we only have three customers. However, this year, we're expecting to increase the more customers, right? Probably By end of this year, we're hoping our customer base becomes double digit. So revenue-wise, yes, now they're as quickly as contribution as the carbon plating. However, you know, our customer base increases quite dramatically, right? And now we also have other, you know, high-temperature NEO and also LPCVD and Nitrile Poly Depoly. And also we are two of, we call them ALD process, you know, tools on the custom qualification process and to show the very promise data. So we'll see that will be, you know, play and probably next year, right? More of a contribution to revenue. And I said, this is also quickly growing market, you know, for us.

Okay, great. That's good progress there. For the Korea operations, David, could you give us what the next milestones are as you start to, you know, get the land there and try to build that out? Just give us some kind of things to look for in the next several quarters to keep track of.

Great. Actually, you know, Korea and, you know, SK Hynix become a customer in 2011, right? It's a really long-term relationship. We sell a lot of tools onto the Wuxi Fab, and obviously now they're building more of their, probably building factory more advanced nodes most likely they couldn't probably focus on the Korean side. That's really make us to the you know our effort more focus on the Korean market and that's why we're going to increase investment and we're still going to hire more army people and like our foreigners and DCVD and also their track is real joint development team in Shanghai and Korea. So we're now really fully engaged with Hynix regarding not just only cleaning, right? Cleaning actually will have about 90% of their process staff we can cover and also engage with the cover plating. And further, we're gonna also obviously further in the PCVD and also track. We'll probably become the major supplier in the future for Hynix. We want to be a strong R&D and also their manufacturer base in Korea. We're really helping us expanding our technology and further to, you know, U.S. and Taiwan and region and also Europe market. So we have a really, you know, dual R&D manufacturer center is really what make ACN to be in real flexible with a dynamic, you know, status situation.

Okay, great. That sounds like a good option. And then lastly, just one last question. Just on your advanced packaging, with the talk in the market of AI and high bandwidth memory, co-ops at ESMC and Intel's eMib, all these areas, I'm just curious, you see an exposure there to the growth in AI, Gen AI, or maybe is that advanced nodes versus trailing nodes? Just give me a sense of the advanced packaging opportunity. You may be able to leverage you there.

Yeah, actually good. And the ACN has a real good product lined up, right, for their real advanced packaging. And we have a really, you know, flagship of their tool, copper plating. Also, we have a wider, you know, copper wire process tool, including coater, developer, wire etcher, you know, stripper. and cleaning, right? So it's real well preparation. Also, we do have a SFP strategy and also for, you know, this advanced packaging application. So we are well positioned. And like I said, yes, we're fully engaged with their, you know, all their top tier customer. And also we have also engaged with their demand, you know, customer in China too. So it's really, I see the very growing in the market. And like I said, AIGPT definitely driving high high end of the advanced packaging and application. So our products are really prepared for this application. Okay.

Thanks, David.

Please stand by for the next question. The next question comes from Christian Schwab with Craig Hallam Capital. Your line is open.

Great. Thanks for taking my question. You know, in the prepared comments, we talked about market share gains, you know, inside of China. You know, do you think that, can you give us an elaboration on that? Are we gaining market share, you know, across all product lines, or is it more, you know, targeted at cleaning and ECP and furnace? Any color there would be great.

Yeah, actually, look at the cleaning, right? And the Canadian product, well, we include the 55%. You know, I mean three years ago. We only have our single wafer or semi-critical tool. They're mostly in a single wafer side However, our last year, you know two three year introduced AutoBench, which is really, you know major I call the market for their 45 nano Technology and above by also including power device. So this is really driving our cleaning tool continue, you know increase and obviously cover plenty and also increased quite quite a lot right now we're definitely number one uh you know uh in their like a local supplier you know cleaning number one also the cover plate number one and also irsa you know their foreigners wise as i mentioned will continue increasing customer base and that will be also their uh you know i look in the next few years will also become bigger driving for the revenue too More than that is also where now spread are cleaning and copper plating outside China. That's really a big sign. We see that gain their intention or gain their interest from their top-tier customer outside China.

Great. A question for Mark. Given the supply chain issues and COVID costs are kind of behind us, um or or at least um greatly diminished um is it time to potentially raise the gross margin uh target range for the company on a consistent basis or is there just still too much volatility and mix to raise it at this point yeah um i'll take that so on the gross margin you're correct i mean we've we've come in at the upper end of our range or maybe a little better

past few quarters or so. Christian, I think we, you know, our gross margins are quite dependent upon product mix, new products and old products, and we have a range across them. I think for now, you know, we're going to keep our 40% to 45% range. Of course, we always like to do as well as we can, but we're not ready to move that range higher. Okay.

Okay, great. No other questions. Thanks, guys. Great quarter.

Thanks for being here.

Please stand by for the next question. The next question comes from Challian Singh with Credit Suisse. Your line is open.

Hi, Debbie. Hi, Mark. Thanks. for taking my question. The first question is about the customer new order momentum. Can you talk more about the recent customer new order momentum? Do you see that improving or compared with the first half of this year? And can you talk about the order momentum by front end and back end? Because we are thinking that back end equipment order has earlier corrections. We are thinking that As of now, the back-end order may have some improvement, especially from the Chinese customers. Thank you.

Okay. Actually, as you see, our front-end customer, you know, existing customer, obviously, you know, they're continuing spending, right? And that's driving our growing. Also, we see significant of a second-tier, third-tier customer order coming in. That's really also become actually driving our shipment and also driving our revenue too. So that's one side and the end. And also the back end really depends. Some customers still, I call pausing, and some customers still it's kind of investment too, right? I should say this year obviously not good as last year, right? So looking forward, I should say still keep going, but maybe some customers still slow down, but there's some customers invest for backend. But we'll see, you know.

Okay. So from NU, we understand that there are many, many tier two, tier three emerging thefts in China. I mean, ASML talked about the same a few weeks ago. But we are just thinking if we look at the front end revenue exposure, would you say that right now the revenue contributions or from the older momentum, would you say it's about maybe one-third from these tier 2 to 3 customers already or even maybe half of the new orders from the tier 2 to 3 customers? Thank you.

Yeah, I really cannot give the real breakdown, right? I mean, this is real dynamic moving. For the end of this year, we can give you really what's the top 10, whatever, you know, 10% above customer, right? I can say some, you know, second tier. The third tier customer will become, obviously, adding to our 10% customer end of this year, right? That you can see the people, I mean, all the second tier grow. But this moment, I really cannot break it down, you know, percentage-wise. But I can, you know, significant kind of, I can say, shipment revenue come from their second tier, third tier customer. You know, they're all driving for the mature nodes.

Okay. Significant revenue and shipments from, okay.

Yep. Increase, right? Okay. Compound price.

Okay. Oh, do you mean significant revenue streamers from the tier 2, 3 customers, or do you mean the significant increase in revenue streamers?

Increase.

Increase. Increase. Okay. Thank you. And next question is, when you look across your product, across cleaning, corporate team, do you still have any tools that with over six months' retail, or even, say, 10, 12 months' retail, Because we still hear from a small number of international equipment suppliers that there remain some tools still with over six months lead time. So I'm just wondering if it's the same for ACM. Thank you.

Yeah. Actually, last year, we do have a real experience, a long leading time. Some product, 10 months, some time, even more than 10 months. This year, actually, that time has been shrinking. actually every still between five to seven months depends on product and also depends on you know specific components we'll have to you know get in the hand so has been you know improved and you know we're expecting continuing improve

Thank you, Debbie. And next question is that when I look at the revenue by region, it's very good. It's very great to see that the revenue from China actually grew quite decently in second quarter, although that's still just 7% revenue. So I'm just wondering if this increase mainly from the front end or back end business.

You mean outside China?

Yes.

Yeah, our majority is still, you know, and come from, you know, mainland China right now, right? But we see that, as I said, there are, you know, outside China, sales activity keep growing and more attention, you know, from the customer, as I mentioned, you know, in Korea. And Korea so far, you know, we have a high number of major customers. Also, we we see attraction for other packaging and customer in Korea, interest in operating tool. And the same thing, we also have customer from US, continue interest in other application tool. And also, we have also European customer, right? So we'll say in next few year, we're expecting a lot of happen for our international efforts and for cleaning, plating and also expecting furnace will also play another revenue driving in our international efforts.

Understand. Thank you. And if possible, may I just ask about furnace? Because I have been expecting some decent revenue growth from the furnace, but I see in second quarter it seems that uh still not yet a lot of new revenues from furnace so i'm just thinking uh can you share a bit more about the furnace i mean the i know you talked about this earlier already but i'm just thinking from the revenue perspective will be the major revenues new revenues from furnace coming from uh for to this year or maybe from 2024.

I will say, you know, we'll have a more customer base increase, right? I just mentioned earlier. And by the end of last year, we have three customers for Furnace. And this year, probably, you know, we're hoping by the end of this year, we can increase the total customer number to a double digit, right? So, again, revenue-wise, you know, it's hard to tell, right? New customer, you'll take time. So, I will say more of a revenue we expect is happening next year. or contribution.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Please stand by for our next question. The next question comes from Mark Miller with the Benchmark Company. Your line is open.

Congratulations on a very strong quarter. Just have questions about the eval tools in Europe and also U.S. When would you expect them to be revenues? Would that be next year probably?

Good question. Actually, we have two tools in evaluation, and we are expecting the tool to get a qualification end of this year, right? So either, you know, end of this year or begin next year. That's our expecting and become recommended revenue.

Are there any other tools outside of Europe and U.S., especially in China, that are EVA tools?

Outside China or inside China?

Inside China.

Oh, we also have an EVA tool, right, inside China. And, you know, we mentioned about their, Um, you know, foreign company have, uh, they have, uh, they have their, uh, manufacturing in China and we have a cover plate. Also have a Canadian tool. Also at the bottom of the packaging tool, right. In the, in those, uh, uh, foreign company, which has a factory in China. I will continue expecting, you know, expanding that they're based to obviously also have, uh, you know, evaluation tool into the Chinese customer too. Right. Which is, uh, uh, quite a bit in the furnace and some plating tool. and also our, you know, variety of a Canadian tool, right? And for instance, we have a Bible etcher and also supercritical CO2. And those tools are also in the customer for evaluation.

Just a couple of housekeeping questions. What was stock-based comp and cash from operations?

Yeah, hey, Mark. Stock-based comp was about, it's under press release, but about $2 million for Q2. And then... Cash flow from operations in Q2 was positive, about $6 million.

Thank you. Thank you, Mark.

Please stand by for our next question. The next question comes from Robert McKay with Blue Lotus. Your line is open.

Mark, thanks for taking my question. I wanted to ask about inventory levels. They've been a little bit high for a couple quarters. And I was just kind of wondering what the reason for that is and if we can expect to see that come down in later quarters. Yeah, thanks.

Hey, Mark, you want to take care of that question?

Yeah, I didn't hear the question.

Can you speak louder? I think his questions are regarding inventory levels. And, you know, a little higher, he said, you know, in the next few quarters is going to be a reduction or not. That's his question.

Okay. Yeah, we did not. Can you hear us on our end? We didn't hear that question.

Yeah, I can hear you. I can hear you. Okay.

Yeah. Okay. So David repeated the question. So it's about the inventory. Is that correct?

Yeah, exactly. Just wondering why it's a little bit high. Yeah.

Okay, so again, I didn't hear the question well, but I think I can address it if it has to do with the inventory. So our inventory at the end of the June quarter, there were three factors to it. So it was 471 million. It was split between raw materials, about 192. Work and process was 109.8. And then finished goods inventory was 168.9. You know, we did the finished goods inventory. A lot of that is tools that are under evaluation being evaluated by our customers. And so that is an important metric for us. In terms of our overall inventory levels, we are working on bringing them down a bit. We built some inventory, one based on our forecasts. But also, you know, given the supply chain tightness. But, you know, as David noted, some of the supply chain is loosening up. So we're looking to bring those inventories down to more normalized levels.

Got it, got it. Super clear. I don't know if you can hear me now.

Well, your sound is still live. Can you close the speaker?

I'm on my headset. I'll speak as loud as I can. I was wondering if there's a... kind of any information you can share on the orders from, you know, Hua Hong on its new expansion this year? Are we already factoring that into our revenue guidance?

Yeah, actually, you know, Hua Hong has been, you know, as I said, they're trying to, I mean, they're going to get IPO very soon, right? They're raising about probably, you know, $3 billion. So they have also multi-fab, you know, building in different locations, right? So it's really our strategic customer. We're expecting quite a bit of contribution for our revenue in the future, right? And this year, something happened also, you know, a lot of expecting next year, next two years. It's a great customer, and also we have a strategic relationship with our Canadian tools, a couple Canadian tools, our funders, right and it's wider acceptor you know evaluate and qualify in in your in the platform group so it's a it's great you know we're looking for customer community growth and also we'll continue you know give a better service supporting with our portfolio product to the phone group

Got it. Got it. Very clear. Once again, sorry for my microphone quality. I just wanted to follow up a question on the revenue guidance. I think, you know, our revenue guidance is still quite wide. And, you know, I was just wondering if there's anything you can share about why it remains so wide.

Yeah. Well, I mean, probably, you know, you're right. It's a little wider. I mean, that's true that I'm certain, right? So we're probably in the Q3 timeline, maybe more later of the guidance. And at this moment, I think improving will be keeping changing.

Got it. So is there just some uncertainty about some orders from the customers? Is that the reason for the wide range?

Can you repeat the question? Your sound is too small. Can you repeat again?

Yeah, I just wanted to know if the wide range is maybe due to some uncertainty about, you know, some customer orders or, you know, what kind of information do we need to be more certain about our guidance for the year?

Yeah, I think it's probably, you know, you're right. Some are still orders. Some are still, you know, components, shortage, right, both together. That would probably give us, you know, kind of wider projection right now.

Got it. Got it. Great. And then, uh, the last question I'll ask, and maybe I'll go back into the queue after is, uh, about the dividend. I think we, uh, you know, our Shanghai subsidiary issued quite a large, uh, dividend. And I was wondering what we, uh, what our plans are for that dividend, if we're just going to invest it in, uh, you know, what we're, what we're planning to do with that. Yeah. Thanks.

Great. Actually, you know, as we announced we have a dividend, right. And, uh, go to all the shareholder, you know, ACM Shanghai, uh, company. which is 82.5% will come to the ATM USA. We're going to use this money to invest in marketing and sales. We'll also continue to invest in other R&D, activity, demo centers in the U.S. and also we're planning other things. So we're going to put the money into the real, in-house sales and marketing and service capabilities helping Vara go to their first-year customer in the world.

Got it. Got it. Thank you very much. And sorry for my audio quality. I'll go back into the queue. Thank you. And congrats on the good work.

Thank you.

Please stand by for our next question.

Our next question comes from Mark Miller with The Benchmark Company.

Thank you for the second question. How should I think about modeling R&D for the remainder of this year?

Mark, I'm sorry. Can you repeat the question?

How should I think about modeling R&D expense for the rest of the year?

Oh, R&D expense. Yeah, let me get some thoughts on that. You know, R&D overall was about 12.7% non-GAAP in 2021. 15.3% in 2022. So, yeah, we're looking at, for the year, about 14% to 15% would be the right range for R&D.

Thank you. Yep. Thanks, Mark.

I show no further questions at this time. I would now like to hand the call back over to David Wang for closing remarks. Again, I show no additional questions. Thank you.

Thank you, operator. Thank you all for participating in today's call. And for your supporting, before we close, Yuja is going to mention our upcoming investor edition events. Yuja, please.

Thanks, David. From August 22nd to the 23rd, we will be presenting at the annual Needham Semiconductor and Semicat Conference. From August 29th to the 30th, we will be practicing at the 20th Annual Jeffrey 17 Doctor Conference in Chicago. On September 13th, we will present at the 10th Annual Benchmark TMT Conference in New York City. As a reminder, attendance at the conference is by invite only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with them. All right, so this concludes the call. You may now disconnect. Thanks.