Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ACM Research Second Quarter 2021 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. Now I will turn the call over to Mr. Gary Dvorchak, Managing Director of Blueshirt Group. Mr. Dvorchak, please go ahead.

Thank you, and good morning, everyone. Good evening in China. Thank you for joining us on today’s call to discuss second quarter 2021 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as from newswire services. There is also a supplemental slide deck posted to the investor portion of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ACM’s current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ACM’s filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM’s opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide on this call would be on a non-GAAP basis, which excludes stock-based compensation, a loss relating to a change in fair value of financial liability and an unrealized gain in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website. With that, let me now turn the call over to Dr. Wang, who will begin with Slide 3. David.

Thank you, Gary. Good day, and welcome to today’s call. We had another productive quarter with solid financial results. We delivered record revenue and shipments with good profitability. Second quarter results reflect ACM growing customer base, technology leadership, expanding product line and increased production scale. Revenue grew to 54 million, up 38% year-over-year. Shipments were 82 million, up from 45 million in the second quarter of 2020. We delivered a good balance of growth and profitability, with 40.5% gross margin and 10.4% operating margin. We are committed to drive profitable growth as we increase our investment in R&D to drive innovation, further strengthening our existing product portfolio and grow our addressable market with new products. On the bottom line, we reported $0.19 of net income per diluted share compared to $0.29 in the same period last year. We ended the quarter with 70 million in cash. In addition, we held SMIC’s stock market share of 31 million as of quarter end. I will now discuss the recent operational highlights on Slide 3. First, our Q2 revenue growth was broad-based, driven by current and new products and current and new customers. Our wet cleaning and other front-end tools represent 85% of total sales in Q2. We had good growth from our flagship SAPS product with incremental contribution from our semi-critical tools, advanced packaging, other products and services that grew significantly to 15% of sales versus about 3% last year. The strong growth of this group was driven by advanced packaging tools, including weather, etcher, stripper, developer, and colders, along with a significant increase in our service and spare parts business. The first-generation semi-critical and advanced package tool accelerated our revenue growth and further strengthened our position as a leading supplier in the China semiconductor industry. The higher mixing of the product, however, partially diluted our gross margin during this introduction stage. We entered this new market segment to capture the strong demand from our China-based customers and to deepen the moat for our flagship product against competitors. In Cleaning, our newer semi-critical tools, the ACM flagship SAPS, TEBO, and Tahoe products, cover more than 80% of the total Canadian market opportunity. In advanced packaging, our newer ECP AP product line expands our current portfolio with highly differentiated products. Put it all together, we remain committed to our 40% to 45% corporate gross margin target. As part of our normal product management, we expect improvement in gross margin for our semi-critical and advanced package groups. This will come from tightening feature content as we model and range of options for customer evaluation and cost reduction in later generation models. We also expect a cost benefit from volume production. Meanwhile, gross margins for our flagship cleaning products remain consistent with the past periods, which we expect to continue. ACM's strategy is to enter a market with advanced differential products, such as our flagship commuting product and our ECP tools, with advanced further stores and other new innovative products. This product allows us to win major customers and provide us the profits to fund future product developments. It also allows us to enter middle range or lower-end products that may come with a lower margin in the early stages but allow us to capture a much larger market opportunity as we scale the business. We remain committed to our gross margin target, which we believe we can achieve by balancing continuous innovation at the high end with disciplined product management cost, engineering, and production scale. Let’s turn to Slide 5 to discuss ACM growing customer base. We have five major front-end customers in foundry, 3D NAND, and DRAM. In 2021, we expect Qualcomm to remain our top two customers. We expect good growth from them this year. However, each may represent a lower percentage of total revenue as we expect to see significant growth from other customers. We also expect contributions from SMIC, SK Hynix, and CXMT. Importantly, we recently secured new orders for several tools from SMIC for the second half of the year. During the past 12 to 18 months, our team has done a great job broading ACM tool content at SMIC, including a full range of products and ECB tools. We are gauging indications of higher demand from SMIC in 2022, but it is still early. SMIC's demand is subject to further licensing progress by them with other U.S. equipment suppliers. We recently added a number of new China-based semiconductor customers, who manufacture power, analog, CMOS image sensors, compound semiconductors, and other devices. These customers include four of five Tier 2 players and a handful of new Tier 3 and other customers. Although it is a relatively small new Tier 2 and Tier 3 customer, as a whole could contribute 10% more. As newer customers are investing in new capacity to support the growth of IG, ALT, and EV technology. ACM has good penetration with a range of tools, including semi-critical ECP and the furnace products. Our third customer growth is advanced packaging and other processing customers. Top customers have include wafer works. In Q1, we discussed the order from two advanced packing houses, and we now expect to add more customers as we move through the year. Collectively, we expect significant growth from this group through increased industry focus on advanced packaging penetration of new customers and a new product cycle for ECP tools. Looking ahead, we believe that our current customer base represents a significant opportunity for ACM. Most of these customers are still in early or middle stages of the multi-year capacity expansions. We remain committed to further broadening our customer base as we believe every major semiconductor manufacturer can benefit from our technology. Please turn to Slide 6. We delivered total shipments of 82 million in the second quarter, a new record in the Company’s history. Shipments in Q2 were 28 million higher than revenue. The difference largely represents shipments of first tools awaiting customer acceptance. We view this as a positive indicator as it reflects demand for new products and from new customers. This level of shipments is a testament to ACM’s production team in our Chuansha factory. We are scaling capacity to meet strong customer demand in a generally high supply chain environment. Our in-house high-performance factory and the efforts of our manufacturing team are helping us manage near-term supply chain constraints. That gives us confidence in our ability to meet customer demand entering the second half of this year. We plan to begin production in the second building of our Chuansha factory in the third quarter of this year. We have increased our capacity plans and now targeted a run rate at the end of Q4 of this year that represents more than 500 million of annualized production capacity, up from 350 million at the beginning of this year. We expect to further increase production capacity in 2022. Our R&D center in the Lingang region of Shanghai, with one million square feet of floor space, will enable us to increase our annual production capacity to $1.5 billion. We completed additional architecture and design work in the second quarter, with initial production planned to start in the beginning of 2023. Please turn to Slide 7. We continue to invest in new products to broaden our offering. Today, I’m pleased to announce the TEBO extension to our cleaning product line. This product uses a wet-edge method to remove dielectric metal and organic materials films as well as contaminants under the wafer edge. ACM's edge approach minimizes the impact of edge contamination for later process steps, thus improving manufacturing yield. The Bevel Etch product leverages ACM’s web processing expertise to deliver performance benefits compared to joint approaches. In the consumer, less chemical, and supporting a broad range of device types and process steps, including 3D mass, DRAM, and advanced logic process, we expect to ship our first tool for high-volume manufacturing to a China-based logic manufacturer this quarter. Additionally, with ACM proprietary technology, this new Bevel Etch product can achieve more accurate and efficient wafer centering alignment. This will enable our precise Bevel Etch and will enhance product yields and wafer throughput. In addition, we are currently developing advanced technology to deepen our leading market position, where we will add more products to our portfolio in 2022. We remain bullish on our ECB product line, especially for smaller geometry requiring advanced plating solutions. Meanwhile, back-end advanced packaging is becoming increasingly important as industries look for packaging innovation to drive higher performance as the industry moves beyond traditional processes. Our ECP product line includes ECP math, a front-end tool for damaging copper interconnections, the ECT TSV, also for front end, and ECAP for advanced packaging. We believe the total global market for ECP will triple from $500 million last year to up to $1.5 billion in the coming years. Although we did not recognize revenue in the second quarter, we delivered three first tools to three customers. We expect to deliver higher volume ECP tools in the second half of this year, with a good revenue contribution from repeated shipments in Q3 and Q4. We also continue to see strong interest in our ultra FM furnace joining process tool portfolio. We delivered several first tools, including TEBO in the first half and expect to deliver additional units as we progress through the year. We remain on track to add a high-temperature oxidation process to our furnace product line in the third quarter of 2021. Building on that, the next major development in our furnace roadmap is to the batch economic layer separation or ALD process. We view this as the most challenging and promising product for advanced manufacturing nodes. We expect the furnace product cycle to become more meaningful in the 2022 time frame. We are making significant R&D investments in two major new product categories to achieve our goal of doubling our total addressable market from $5 billion today to more than $10 billion. We continue to bring in top engineering talent to support these programs and are confident our team will deliver products and move forward with customer evaluations on the first product line in the first half of next year and the second product line in the second half of 2022. I’m happy to report we made good progress with potential U.S. and Taiwan-based customers since our last call. Despite COVID-related travel restrictions, our team is heavily engaged in business development. We are confident that we can secure orders from at least one new major Tier 1 global semiconductor manufacturer in 2021. Before I provide our updated 2021 outlook, let’s discuss the status of the stock market IPO of ACM Shanghai. We continue to make good progress. On June 10, 2021, the Shanghai Stock Exchange Commission received ACM Shanghai’s application for registration with the IPO to the China Securities Regulatory Commission, moving us a step closer towards our goal. We are hopeful that the CSRC approves and completes our registration soon. When we receive CSRC approval, we estimate that the insurance process will take another one to two months. Keep in mind that the timing is subject to numerous factors outside ACM Shanghai's control. We are confident that an eventual stock market IPO combined with our NASDAQ listing can provide a strong foundation to accelerate our mission to become a major global player in the semiconductor equipment industry. Now let’s move to our 2020 outlook on Slide 8. Our guidance reflects optimism about our growth opportunity for 2021. Based on our strong results through the second quarter and improved visibility for demand and our supply chain through year-end, we have raised our outlook for the full-year. We now expect revenue to be between $225 million and $240 million, up from the previous range of $205 million to $230 million. The revised revenue range represents 48% annual growth at the midpoint. Our updated outlook for 2021 is based on several key assumptions: first, the global COVID-19 situation continues to improve; second, stability in U.S.-China trade policy; third, a range of spending scenarios for the production ramp of key customers; fourth, variance in the trajectory of the DRAM recovery; and finally, a range of timing of customer acceptance of first tools. Our results and outlook demonstrate the successful execution of our strategy. Our strong growth supports additional R&D spending on new products. We are building our global sales and marketing resources to penetrate new customers in new regions, and we are scaling production capacity to support our long-term growth plan. Our mission to become a major economic supplier in the global semiconductor industry remains on track. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners, and shareholders for their continued support and confidence in ACM Research. I will now turn the call over to Mark to discuss the financial results in more detail. Mark, please.

Thank you, David, and good day, everyone. We delivered solid financial results in the second quarter. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized gains in trading securities. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our earnings release. Now on the second quarter, as shown on Slide 9, revenue was $53.9 million, up 37.9%. Revenue for single wafer cleaning tools, which include SAPS, TEBO, Tahoe, and our semi-critical cleaning, was $45.5 million, up 36.4% and $33.3 million. We had no revenue for ECP furnace or other technologies during the second quarter. As David noted, however, we delivered three first tools in the quarter and expect more revenue contribution in the back half of the year. Revenue for advanced packaging, excluding ECP, services, and spares, was $8.4 million, up from $1.2 million in 2020. Total shipments were 82 million versus 45 million in the second quarter of 2020 and 74 million in the first quarter of 2021. This includes deliveries for revenue in the quarter and deliveries of systems awaiting customer acceptance for potential revenue in future quarters. This represents another quarter of record shipments, a great accomplishment by our production team given industry-wide supply constraints. Gross margin was 40.5% versus 49.7%. This was at the lower end of our normal expectation range of 40% to 45%. The decrease in gross margin, as David mentioned, was due in large part to product mix. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses were $16.1 million versus $11.2 million. The increase in operating expenses reflected higher R&D on new products, our expanded U.S. sales team, and legal costs related to our U.S. civil suit and the China STAR market IPO. R&D expenses grew by 52% to $7.7 million or 14.2% of sales versus $5.5 million or 12.9% of sales last year. The increased R&D intensity reflects ACM’s commitment to new products and innovation. We expect to continue to increase our R&D spending in 2022. Operating income was $5.7 million, down from $8.2 million. Operating margin was 10.5% versus 21%. Unrealized gains on trading securities related to the change in the market value of our SMIC investment were $3.8 million in the second quarter of 2021. Note that we exclude this non-cash item from our non-GAAP results. Tax expense was $15,000 versus $1.9 million in the year-ago period. Net income attributable to ACM Research was $4.1 million versus $6.2 million in the year-ago period. Net income per diluted share was $0.19 compared to $0.29 in Q2 of 2020. Tax items and the effects of foreign exchange fluctuations on operating results provided a net headwind of $0.3 million or a penny per share in the second quarter of 2021 versus a net headwind of $0.9 million or $0.04 per share in the second quarter of 2020. We will now review selected balance sheet items. Our cash balance was $70.2 million at the end of the second quarter versus $78.8 million at the end of the first quarter. In addition to the cash balance, we also had trading securities of $31.3 million related to our SMIC investment. This includes a significant unrealized gain from our original purchase price. Total inventory was $136.9 million at the quarter end, up by $33.6 million from the prior quarter. The quarter-on-quarter increase was driven by two items. First, finished goods inventory grew by $68 million to $64 million. This represents first tools that have been delivered to customers for evaluation and are carried on our balance sheet at cost pending customer acceptance. The second item is work in process and raw materials, which in total grew by $16.8 million from the prior quarter. This was due to purchases to support shipment growth expected for the remainder of the year. Short-term borrowings at quarter end were $22 million, down from $23.5 million at the end of the first quarter. Long-term borrowings were $18.7 million, up $1.3 million from the first quarter. Cash flow used by operations was approximately $10 million for the second quarter, but it was slightly positive for the first half of the year. For 2021, our base case plan for capital spending is about $15 million. This includes $2.8 million already spent through the first half of the year. Our 2021 investments will be primarily focused on capacity increases at our factories, investments to support our R&D programs, and planning and some initial spending in Lingang. In sum, we continue to execute on our strategy. We are participating in the growth of major new line IC fabs, we are ramping production, and we are developing and delivering new products to a growing list of customers. We are positive about our opportunities in China and expansion outside of China. We remain committed to achieving our mission to become a major player in the semiconductor equipment market. Let’s now open the call for any questions that you may have. Operator, please go ahead.

Thank you. We have our first question from Patrick Ho from Stifel. Your line is open. Please go ahead.

Thank you very much. Congrats on the outlook. Maybe for David or Mark, the semi equipment industry has gone through a lot of supply chain constraints over the past quarter. Given your results and your outlook, it looks like you are managing it very well. Can you just qualitatively give a little bit of color on whether you are seeing any supply constraints? Your supply chain is probably a lot different than some of my American companies. But I was just wondering how you see supply chain constraints during the quarter or going forward?

Okay. Thank you. Actually, you can see that the market is moving; the components of supply are getting tighter. So we do see some long-leading items taking longer. The only way we manage that is by projecting for the half year and beyond. We are looking for early purchases. We do see some components getting longer, which impacts us. However, we have pretty much good control. We feel comfortable about our revenue this year, and we are also confident about our shipments this year, too.

Great. That is helpful. And maybe as my follow-up question for Mark. Gross margins are between the 40% to 45% range. There are a lot of moving pieces each quarter. As we look at the high shipments in relation to first-time tools to customers, how do you balance that versus your overall operations? If you get a quarter of multiple systems, that could put pressure on gross margins and take you out of that range. What are some of the steps that you are taking to try and ensure that the gross margin remains within this range, given the number of evaluations being conducted in the field?

Great. So yes, Patrick, I will comment on that, and maybe, David, if you want to add to it. Look, Patrick, it is both an art and a science. Right now, demand is quite strong, and we are focused on our production. We do what we can to balance our revenue items versus our first tool shipment items and to balance the gross margins. But many times, our customers have strong demands, and we do what we can to support them. It is crucial for us to focus on innovation at the high end, but we are also moving to deliver to round out the product market to create a moat between us and our competition. So we feel very comfortable that we can balance all the items to deliver gross margins in the range of 40% to 45%. David, do you want to add anything?

Yes. Actually, you mentioned quite a lot. I want to add something really at this moment, I think, for us, we want to get the balance in our product portfolio. You will see that a year ago, most of our shipment was a single-wafer, which are normally higher margins. Those margins have remained stable. As we introduce semi-critical products and more advanced tools in the packaging, we see a spread of lower-margin products entering into the mix, which leads to margin dilution. However, as we continue to mature our products, even in the semi-critical tool sector, and also control our manufacturing costs, along with production innovation, we will see improvements. We are still confident in achieving our 40% to 45% gross margin target. Continued innovation and new product development will help our margins grow.

Great. Thank you very much.

Thank you.

Our next question comes from the line of Quinn Bolton from Needham & Company. Your line is open. Please go ahead.

On the ECP outlook, I was hoping you might be able to spend just a little bit more time talking about the ramp that you expect. If you could give us a sense of how many ECP tools you have waiting for customer acceptance and any thoughts on whether ECP might be able to get to 10% of revenue next year as it ramps and customers accept tools?

Okay. You are looking at the ECP product. We actually have three major categories: the de-masking process, which we call ECP math; and the second one, we call ECP major; and the third is our advanced packaging tool for their requirements. This year, we see a significant shipment to new customers. We are looking at probably 20 total tools being delivered this year, some of which are recording revenue, but most will likely not contribute to the next year's revenues. However, obviously, next year will be about receiving repeat orders, which will be a real increase in revenue for that product line.

So it sounds like if you have got 20-plus tools delivered this year, repeat orders could follow?

No, I’m sorry, not 20 million, 20 tools, not 20 million.

20 tools, wow. Okay. Got it.

Yes. That is quite a number.

Got it. So we can definitely get to 10% of revenue pretty quickly. Got it. And then Mark, just your thoughts on OpEx. I know you guys are increasing R&D to invest in all the new products. But as we look at the quarterly progression of OpEx, can you give us any sense as to what kind of increases you might expect into Q3? Do you anticipate OpEx increasing further in Q4, or might it follow normal seasonality and tick down a little bit in the fourth quarter?

Yes. I mean, we don’t give a lot of detail on our OpEx. We tend to guide on the top line. For the year, we think the OpEx would be around 28% to 29% of sales, which would be a good mix of R&D, sales and marketing, and G&A. So yes, you don't expect any significant changes in the back half of the year, and you should see a little leverage from the overall revenue growth.

Got it. Thank you.

Our next question comes from the line of Krish Sankar from Cowen. Your line is open. Please go ahead.

Hi, thank you for taking my question. I have two. First one, David, on the Bevel Etch using wet chemistry; who are the main competitors? It seems that most of them use dry. I am just trying to figure out who the comps are in the Bevel Etch process? And then I have a follow-up.

Great. In the last probably ten years, a lot of Bevel Etch has been accomplished through the dry etch process, which is quite effective. However, the wet process produces a much better profile and cleaner etching without almost any particles on top. This method reduces particle contamination and edge problems. Additionally, our innovative method ensures a very precise alignment to control the centering of the wafer, leading to much better control and higher yield.

Got it. Very helpful. And then just a follow-up on electroplating. Thanks for the color on the different drivers for electroplating. I'm curious; you mentioned the electroplating market could triple to $1.5 billion in the next few years. It seems like for the last few decades, this market has been under $500 million, and the throughputs are quite low. What will drive that tripling in the market size to $1.5 billion? Is it just these four drivers you spoke about, or are there additional factors like ASP increases or throughput reductions at play?

Yes. The major driving forces will come from Tier 3 and the adoption of 3D packaging. The process has remained quite stable. As we move towards higher wafer applications, there's an increased need for passive time in placing thicker layers. So we foresee further growth opportunities, especially with 2.5D and 3D approaches to packaging. We think this market continued to grow and project it could reach around $700 million this year, encompassing a broader range.

Very helpful. Thanks a lot, David.

Thank you very much.

Our next question comes from the line of Charlie Chan from Morgan Stanley. Your line is open. Please go ahead.

Thanks for taking my question, and great results. David, good evening. Mark, good morning. My first question is about the lead time between your shipment and revenue. So maybe Mark, can you please remind us what is the lead time?

At this moment, our average time is around six months already. It is about two months longer than our previous four-month cycle. So that is how it stands now. Hopefully, over time, we can shorten that lead cycle. Currently, supply is still significantly constrained, with long-lead items taking much longer to obtain.

Okay, thanks. Yes, because I asked this because you talked about your annualized production, right? So if I look at the second quarter, your shipment is above $80 million, and the full-year production is exactly $350 million. So I’m thinking that when you try to expand your annualized production to $500 million, when will the Company’s revenue scale hit $500 million?

Well, that is a tough question. Again, remember, we normally do not finalize our quarterly revenue until the end of the year. This year, we expect our shipments to be significantly higher than last year. I can tell you that our shipments are on track to reach that $500 million revenue goal within the next year.

Our next question comes from the line of Donnie Teng from Nomura Securities. Your line is open. Please go ahead.

My question is really related to your customers. In your prepared remarks, you mentioned that you recently received new orders for several tools from SMIC for the second half of the year. I’m just wondering, was there any approval granted by SMIC for U.S. suppliers so that they can start to procure more equipment from ACM Research? Or is there any other reason behind this? For another customer like 1TC, it seems that 1TC is running out of its Phase I capacity expansion by the end of this year or maybe sometime next year. So just wondering if you could give us some updates on when 1TC might start potential Phase II capacity expansion.

Regarding licensing, there is a lot of different information flow in the market. We do see some industry players stating they have received licenses for major tools. We also heard that some component suppliers are also getting their licenses. So we see some tensions easing. However, I cannot comment on the exact volume or percentage of sales for SMIC. However, there is increasing demand from them to expand their capacities next year. We will see a more defined picture approach by mid-Q3. As for 1TC, their Phase 1 factory is almost at full capacity, and we are expecting that their second Phase fab should expand in the upcoming year, with construction anticipated to finish by the end of this year.

David, I have a follow-up on SMIC. When you say that you received new orders from SMIC, is that for the Shanghai fab, the most high fab, or like Beijing, more mature nodes like above 28-nanometers?

Yes, we have received orders from both Beijing for mature nodes and also from Shanghai. That is what we are seeing so far.

Okay. And my second question is probably for longer-term business expansion. Based on your sales scale, it seems like you have 80% of sales roughly from wafer cleaning tools, so that probably translates into at least more than 10% market share in China already in terms of wafer cleaning tools. So I think you are already the largest supplier and continue expanding market share in China domestically. However, I think that kind of market share has been pretty high, right? So inevitably, you need to expand to a more new product portfolio, as you just mentioned, like ECP advanced packaging, etc. On the other hand, previously, you were also trying to penetrate into overseas leading semiconductor customers. So I’m just wondering which targets are the priority right now, and could you kindly give us some updates on your expansion in the overseas market?

Both markets are important; both China and outside China. Our long-term goal is to make our revenue 50% from the China market and 50% from outside of China. We are working hard to build a strong presence in the U.S. and enhance our team in Taiwan, as well as further develop our sales team in Europe. We believe our technology offers significant differentiation, allowing us to serve key customers both domestically and internationally. We are also working closely with 1TC to expand our product portfolio not just for cleaning tools but also other products like copper plating and deeper integration for future advanced process requirements.

Alright, I have a follow-up. Previously, the impression was like you put more focus on expanding overseas customers. But in past few quarters, it seems like our new products or equipment are expanding more quickly than expected. Are we focusing more on domestic or international channels?

We are actively working on both fronts. We are focused on growth opportunities within China as well as internationally. While domestic sales play a critical role in our current revenue, we believe there are significant opportunities abroad that we will continue to pursue aggressively.

Yes, and sorry, we should probably move on to the next question. Yes.

Our next question comes from Chaolien Tseng from Credit Suisse. Please go ahead.

Okay, thanks. David, you gave a strong indication on SMIC. Can you talk a little about SMIC? I am just curious, they have been doing pretty well compared to all the other major players in China. It seems that business is a little bit lower with SMIC?

Yes. We do see that business pick up, particularly in both Beijing and Zhangjiang. We are working closely with them, and we've received some specific orders for their new factory, along with their ongoing expansions. The future looks promising as they continue improving their technology and increasing capacity.

Our next question comes from the line of Suji Desilva from ROTH Capital. Your line is open. Please go ahead.

Hi, David, hi Mark, congrats on the progress here. On the global customer, I know you said you are going to ship this calendar year 2021, and since you have the six-month lead time, I guess you have the visibility there. Just trying to understand if this is a production volume or pilot volume, and if it is for SAPS, TEBO or back-end advanced leading nodes?

Well, I really couldn’t disclose specifics about the products they are buying right now. We are not at liberty to discuss individual products. We expect these to be evaluation tools, and we hope to receive repeat orders later. This is a good opportunity, and our engagement with the customer is strong.

Our next question comes from the line of Chi Tsai from Jefferies. Your line is open. Please go ahead.

Hi David, hi Mark, thank you for taking my question. Could you share more color on your IPO progress? You said it will take another one to two months. So can you share what kind of process you have left with the CSRC?

We have gone through a series of Q&A with CSRC and have provided all the necessary information thus far. Right now, we are in their internal processing stage to get a final review. We are excited to be among the first publicly traded U.S. company with foundational operations in China, and we believe it will be beneficial for ACM’s overall growth strategy.

Thank you very much. My second question is regarding your R&D expenses. I think you have a very big jump in your first half R&D expenses. Can you give us some indication of whether that level will stay, let’s say, in the high mid-teens going into the next two to three years?

Yes. As I mentioned in previous calls, we want to balance profitability with growth opportunities. Over the last couple of years, R&D has been about 10% to 11%, but this quarter we are at 14%. I think 15% would be a good target to maintain going forward. We strategically invest in R&D with focused projects, and aim to keep our gross margins within the 40% to 45% range.

Thank you. That is very helpful. Congrats on the business.

Thank you.

Great, thanks. Next question please.

Our next question comes from Christian Schwab from Craig-Hallum Capital. Your line is open. Please go ahead.

Hey, great quarter. I tried to sneak in two quick questions. I will just ask them quick. Recent news on a leading customer's bond default, is that potentially going to have any impact on you? Is question one. Question two, what happens if YMTC gets put on the entity list, would we have some flexibility there?

Yes, on the first question about the bond defaults. David has previously addressed this. We believe the operations of that customer are solid and our thought is that financing should remain available as long as their operations continue to execute. The issue seems more associated with ownership than operational viability. As for the entity list and YMTC, they're an important customer. We're hopeful they won't be placed on the list, but we do feel confident about some operational flexibility if they are added. This will depend on U.S. suppliers' ability to obtain licenses.

Great, thank you for letting me sneak in two quick questions. Again, congrats on a good quarter.

Great. Thanks Christian.

Thank you.

That wraps up our Q&A session. I will turn back the call over to Gary.

Guys, I think that is it. I’d like to thank the operator and everyone for participating in the call. I just want to mention some upcoming Investor Relations events. On August 24th, we are going to present at the Needham Second Annual Virtual Semi-Camp and EDA conference. On August 31st, we will present at the Jefferies Virtual Semiconductor, IT, Hardware, and Communications Infrastructure Summit. In addition, we will present at the Jefferies Asia Forum on September 9th and the 22nd Credit Suisse and Asian Technology Conference on September 10th. Attendance at these conferences is by invitation only for clients of each respective firm. So interested investors, please contact your respective sales representative to register for one-on-one meetings to secure time. So this concludes the call. Thank you, everyone, and you may now disconnect.

Thank you, bye.

This concludes today’s conference call. You may now disconnect. Have a great day.