Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ACM Research Second Quarter 2022 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. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will call - I will turn the call over to Gary Dvorchak, Managing Director of the Blueshirt Group. Mr. Dvorchak, you may begin.

Thanks, Harman, and good morning, everyone. Thank you for joining us on today's call to discuss second quarter 2022 results. We released results before the U.S. market opened today. The release is available on our website, as well as through 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 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 will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain or 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 website. With that, let me now turn the call over to David Wang, who will begin with Slide 3. David?

Thanks, Gary, and good afternoon, everyone, and welcome to the ACM Research second quarter 2022 earnings conference call. Please turn to Slide 3. Our second quarter results represent a solid recovery following the Shanghai COVID restriction in the spring. We delivered strong revenue and profitability as our facility returned to normal operations. As we had expected on the Q1 call, the restrictions turned out to be temporary. The Chanana facility was reopened on the closed loop production process in late April. As of July 1, operations in Shanghai were largely back to normal. I want to sincerely thank our employees, business partners, and customers for their dedication as we navigated the COVID pandemic. Let me share some financial highlights for the quarter. Revenue of $104 million was up 9%. Revenue includes shipments of tools in the second quarter that could not be delivered in the first quarter due to the restrictions in Shanghai. A strong product cycle from ECP and incremental business from new customers also contributed to this growth. Shipments were $112 million compared to $82 million last year. Gross margin was 42.4%, within our normal range of 40% to 45%. Operating margin was 21.1%. We ended the quarter with $469 million of cash, equivalents, and time deposits. For the first half of the year, revenues grew by 50%. Cleaning tools grew 27%, while ECP grew 490% and contributed 20% of sales. Demand from our top China customers remains strong. We believe many of our customers are in the early to middle stages of multiyear expansion plans, and we see good growth opportunities for the next several years. We hold a significant share of the China market with our chamber cleaning tools based on our technology, execution, and new products. We had incremental revenue contributions from the ECP product cycle for both front end and back end with multiple customers. We are gaining market share in China with both ECP and advanced packaging products. Over time, we target 50% market share in China and 25% share globally. We aim for a similar trajectory for our furnace product cycle in the coming years. Additionally, we are building a longer-term opportunity with the introduction of two new product categories, which are on track for later this year. I will now highlight a few recent announcements. On April 21, we announced that our 18-chamber 300-millimeter C VI single wafer tool was qualified for mass production by a mainstream memory chip manufacturer in China. This tool provides 20% more throughput than our slot chamber tool while maintaining a similar footprint and is an important tool to support higher volume production lines at one of our key memory customers. We expect the 18-chamber cleaning platform to play an important role with this customer and others for 3D NAND and DRAM. On July 12, we introduced a new Post-CMP cleaning tool for silicon and Silicon Carbide wafer substrate manufacturing. This tool expands our product portfolio by serving as a cleaning step following technical mechanical polishing CMP used in manufacturing high-quality substrate. I will now provide some highlights of our major customer initiatives. I will start with the U.S. We recently delivered two ULTRA Cs, which are chamber cleaning tools, to a major U.S. semiconductor manufacturer. This is a great achievement for ACM and a testament to our technology and our North American sales and marketing operations. We delivered the first tool in June, which our customer is evaluating based on its unique technology features. We also delivered the second P52 in the middle of July. Our target is to qualify both tools and put them into production by the end of the year. We have a full science service team in the U.S., and we now have an engineering team visiting from Shanghai to support installation and evaluation. We believe a successful result here could lead to follow-on orders with this customer at several sites, and perhaps additional interest from other major customers in the U.S. and Europe. Next, we remain engaged at a channel-based facility of three larger international semiconductor manufacturers. The first is a global IDM with a China-based packaging facility. We delivered the first Ultra CTR web-stream system in Q4 2021, followed by a second in Q1, and we received additional orders for delivery later this year. We are hopeful that success with our first product could lead to broader adoption of other WLP products at this important customer. The second is a regional Asia-based semiconductor player with a China-based fab; we delivered the ultra ECP MAP development tool in Q1 and the customer has begun its evaluation with our service and process team. The third is a major global semiconductor manufacturer with a China fab; we delivered the Ultra Ultra C SAPS V 12-chamber cleaning tool in Q2, and we are moving forward with evaluation. Looking into the second half of the year, demand for our tools is strong, and we have good visibility through the year, and we are starting to receive orders for the first half of next year. We expect solid growth in 2022 and beyond from our core cleaning products. The ramp-up of our ECP products and increased shipments of our furnace products reflect our commitment to gaining additional share in the $8 billion market addressed by our current products. We have two important new product extensions; in cleaning we have a supercritical CO2 dry tool and in the furnace segment, we have ARD, both of which are on track to be delivered in the second half of this year. Furthermore, we are on track to double our addressable market opportunity with the upcoming introduction of two new product categories, also in the second half of this year. Now let's discuss our capacity expansion plans. We continue to add capacity to our Chuansha facility. We moved our parts inventory into our third building, which frees up an additional 5,000 square meters at our second building for final assembly. We remain committed to growing our production capacity to $625 million this year, and our Lingang construction project is on track. We plan to complete the first production building in early 2023, with initial production to start by mid-year. We are also planning R&D centers in Wuxi and Beijing to support several key customers, and we are considering a more meaningful investment with a potential production facility in South Korea. We currently have about 100 R&D engineers and supporting staff, along with four production facilities. A larger presence in South Korea with meaningful production capacity will establish a local footprint with major players and provide our global customers with a secondary production center to ensure continuity. Before I provide our outlook, I'm pleased with the progress we have made with our new auditor. On May 19, we appointed PCAOB-compliant auditor, Armanino, as our independent public accounting firm for our first-year 2022 audit. On June 30, this was ratified by our shareholders. Following our 2022 annual audit and filing of the 10-K, we expect to be removed from this designation by the SEC pursuant to the U.S. Holding Foreign Companies Accountable Act. I will now provide our outlook. We have a strong order through year-end. Due to a tight supply chain environment, we are keeping our outlook unchanged in the range of $365 million to $405 million. The range of our outlook considers, among other factors, continued expansion of production and shipping operations in Shanghai, as well as potential sales interruptions in the supply chain and continued demand by our customers. Now let me turn the call over to Mark, who will review the details on our first and second-quarter results. Mark, please.

Thank you, David, and good day, everyone. Please turn to Slide 5. Unless 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. Before I provide the normal review, I want to address the impact of the COVID restrictions in Shanghai on our business. As a result of the restrictions for the first half of the year, we experienced a negative impact on revenue and shipments, and overall results were below the original plan established prior to the restrictions. In addition, 13 tools that could not be shipped to customers in the first quarter were subsequently shipped in the second quarter. To quantify these 13 tools amounted to $24 million in shipments and $12.9 million in revenue. Qualitatively, we had higher operational costs and some inefficiencies across different groups during the restrictions. The restrictions also impacted our operating cash flow, primarily due to the relatively high percentage of shipments occurring in the latter half of the quarter affecting our accounts receivable. With the easing of restrictions, we are now focused on delivering tools to meet the demands of our customers. I'll now provide financial highlights for the second quarter. Revenue for the second quarter of 2022 was $104.4 million, up 93.8% from the second quarter of 2021. Total shipments were $112 million versus $82 million in the year-ago period. Revenue for single wafer cleaning tools, which includes SAPS, TEBO, Tahoe, and supercritical cleaning was $72.6 million, up 59.7%. The cleaning mix as a percentage of total revenue was 69.5% versus 84.4% last year. Revenues for ECP, furnace, and other technologies were $20.5 million or 19.6% of sales compared to no contribution in the year-ago quarter. Revenue for Advanced Packaging, excluding ECP, services, and spares was $11.3 million, up 34.6% or 10.8% of sales versus the mix of 15.6% last year. Gross margin was 42.4%, up from 40.5% in the prior year, which is in line with our normally expected range of 40% to 45%. We expect gross margin to continue to vary on a quarterly basis due to several factors, including product mix and manufacturing utilization. Operating expenses were $22.3 million versus $16.1 million in the second quarter of 2021. The majority of the increase was from R&D personnel for new product development and other factors, as well as increased SG&A costs to scale the business in China and new global markets. Operating income was $22.0 million versus operating income of $5.7 million in the year-ago period. The large increase in operating income is due primarily to leveraging our top line. Our operating margin was 21.1% compared to 10.5%. Unrealized loss on trading securities was $0.4 million in the second quarter of 2022 versus an unrealized gain of $3.8 million in the year-ago quarter. This non-cash item is excluded from our non-GAAP results. Income tax expense was $7.7 million. As described in our earnings release, the change in the U.S. Internal Revenue Code Section 174 that went into effect on January 1, 2022 has caused a meaningful potential increase in ACM's effective tax rate for the full year. We're still evaluating the impact of the new tax provision for 2022, and we note that Congress is considering legislation to further capitalize requirements in later years. Net income attributable to ACM Research was $14.6 million versus net income of $4.1 million in the year-ago period. Net income per diluted share was $0.22 compared to net income per diluted share of $0.06 in Q2 of 2021. I will now review selected balance sheet items. Cash and cash equivalents, restricted cash, and time deposits were $468.9 million at the end of the second quarter compared to $533.1 million at the end of the first quarter. Total inventory was $288.1 million at quarter-end, up from $271.5 million at the end of the last quarter. This included finished goods inventory of $103.4 million, work in process of $45.7 million, and raw materials of $139 million. Net cash used in operations was $33.6 million, with net income offset by an increase in accounts receivable and inventory. As I mentioned previously, our receivables were higher due to the relatively higher percentage of shipments made in the latter part of the quarter as a result of the Shanghai COVID restrictions. In closing, demand for our tools remains solid, and our operations have returned to a more normal level. We will continue our investments in new products, new customers, and capacity as we continue forward on our mission to become a major player in the global semiconductor industry. Now let's open the call for any questions that you may have. Operator, please go ahead.

Hey, guys, congratulations on the nice results and the strong recovery in the June quarter. David or Mark, just wanted to ask my first question around the 2022 guidance. I know you're keeping it unchanged at 365 to 405. But it sounded like you said that part of the reason you're keeping it unchanged was due to supply chain constraints. So I guess my question is, do you have the demand that could actually lead to upside and you're not changing it because of the supply chain? Or did I mishear your comment?

Okay, Quinn. Hello?

Yes.

Okay. As we said, everybody where that the supply chain continues, I should say, it is still very tight. That's the reason, even though we have very strong demand from customers, the uncertainty of this supply chain is why we're still keeping our projection for this year unchanged at 365 and 405.

But it sounds like maybe you might have actual demand that could allow you to achieve that, but you're keeping the annual target mostly because of concerns around the supply chain.

Well, I said if the supply chain really gets better or if we had a lending item can we deliver as we expect, probably, we can reach the upside of our projections, right? Therefore, at this moment we still have some surprises, right? Sometimes they say they can deliver next month. But when the time comes, it's a delay. So there's a certain part holding us in this way. That's why we're keeping this number without change.

Got it. Understood. David, second question for me. You've got a number of new platforms coming out in the second half. You've announced two of those, which are the supercritical dry in the ALD furnace tool and then the complete new platforms. Can you talk to us when you introduced those tools? When do you think you'd actually be able to start recognizing revenue for those tools? Could the supercritical dry and ALD furnace see revenue recognition in 2023? Or do you think the evaluations for those tools, as well as the new platforms that you haven't announced yet, you think this revenue recognition on those platforms is really going to start to kick in more in 2024? Just trying to think about the timing of these additional growth drivers? Thank you.

Yeah, great. Actually, those tools, as I mentioned, will come in the second half of this year. Normally, for the furnace ARD, and also we have the supercritical CO2 dry tool including auto, so two new product categories. When we put them at the customer sites, normally it takes about a year to a year and a half to gain full qualification. So I should say we're probably expecting real revenue to come out in 2024.

Understood. Thank you, David. Thank you, Mark.

Thank you.

One moment for our next question, please. Our next question comes from Suji Desilva with Roth Capital. Please go ahead.

Hi, David. Hi, Mark. Congratulations on the execution, especially with challenging conditions.

Hi, Suji.

Yeah. So just to kind of maybe elaborate on Quinn's question a little differently. I want to ask about the visibility in the sense that you have a backlog you were catching up from in the first quarter that showed up in the second quarter. Does any of that still remain for the third quarter? Or have you worked through the tools you couldn't ship during the COVID lockdown?

Okay. Mark, do you want to cover that?

Yeah, sure. Hi, Suji. So there were two factors, right? For the first half of the year. One is, you know, we did deliver all the tools we couldn't deliver in Q1, we delivered in Q2. But certainly, in the first half of the year, our overall production output was impacted. So no, we have not caught up with all the demand for the tools that we have from our customers. The lead times for our deliveries are longer than normal. And so really, if you look at the back half of the year, it's going to be about our execution on the supply chain side and our suppliers, yes.

Okay. Thanks, Mark. That helps to paint a picture there. And then David, perhaps, the foundries in China, SMIC and some others are starting to be able to deliver leading-edge nodes, maybe with or without EUV, and they have obviously a mix of trailing and leading-edge as they try to grow into. Is there an uplift potential for your addressable market as the foundries in China try to target the leading edges more? Or is that kind of nascent and maybe less of an opportunity versus what you're shipping today?

We are currently very focused on the 28-nanometer and above range for our media energy products. There is still a significant market in China where we can utilize both 45-nanometer and 28-nanometer technologies to produce these products. The potential in this area remains strong, especially with our cleaning products like the bends, which primarily utilize 45-nanometer and above technology, as well as some 28-nanometer. I believe this potential will continue to grow as new fabrication facilities come online for 28-nanometer and above.

Okay. Great. Maybe if I could sneak in one last quick question. On your U.S.-based semiconductor equipment partner. Any updates there on the, I guess, the development effort you are working with? Thanks.

We have successfully delivered Q2 to one of our major U.S. customers, and we expect those two tools to be qualified by the end of this year, which will lead to additional purchase orders along with other products that have generated interest. At the same time, we are collaborating closely with other customers in both the U.S. and Europe. Our goal is to target the global market. With our differentiated product, particularly in terms of capability and the future furnace, especially with ARD that we are currently developing, we see significant potential to introduce our products into the global market.

Okay. Thanks, David. Thanks, Mark. Congrats again.

Thanks, Suji.

One moment for our next question, please. Our next question comes from Donnie Teng with Nomura. Please go ahead.

Hi, David and Mark. Thank you for taking my question. Can you hear me?

Yes.

Congrats on the strong results. I think the first question is still regarding the second quarter results. I think previously, our impression is like the second quarter sales may be less than $100 million or not as high as today. Could you elaborate more on it? Was it mainly due to shipment being postponed from the first quarter to the second quarter, and we probably miscalculated a couple of tours in the second quarter? Or is it because some customers wanted to prioritize it in the second quarter? I just want to have an idea of the mismatch in the second-quarter sales results in the previous impression. Thank you.

Mark, do you want to cover or…

Yes, I can cover that, David. Yeah. Thanks, Donnie, for the question. So really, the upside in Q2, I'd characterize that as just good execution by our factory. It really - as we discussed earlier, the customers' demand for our tools was pretty high. So we quantified how much that we couldn't ship in Q1 into Q2. But we had that, we had pretty good output, and also on the customer acceptance side; the combination of that drove the upside for Q2.

Understood. So it sounds like it's mainly due to demand-driven rather than just – rather than like pull-in or…

No. Yeah, Donnie, it really was - the demand was there and it's there for the back half of the year. So to be clear, it was really the execution of our factory and we watching…

Let me expand on Donnie's comment. It increased, but we still haven't reached our target, and we expect to meet customer demand in the second quarter. Some of the products will be delivered in the third quarter. That's the current situation. We experienced almost a complete halt in April and even faced challenges with the production level of 2.19 in May due to numerous restrictions affecting logistics and the clearance of imported parts by customers. This is the actual effect on our revenue and shipments for the second quarter.

Understood. And can I have a follow-up on the full year guidance again? So it looks like we are facing some supply chain constraints or supply chain uncertainties. Does it mainly refer to our component supply or the customer’s capacity expansion uncertainties? I just want to have a clearer view on what exactly means the supply chain uncertainties to have some constraints on our full-year guidance?

Yeah. Well, actually, our customer demand is still very strong, right? And we can see that RPO has picked up this year, and some customer orders are going to Q1 and Q2 of next year. At this moment, I think the factor is securing some short or long lead parts. Of course, we're ramping our production, and we still need to train our staffing and manufacturing people to increase our efficiency and deliver on time, right? So that's the major constraint for our revenue realization.

On the topic of components, could you share the types we are dealing with? It's possible that we may encounter significantly longer lead times. Can you provide some examples?

Well, I don't want to go into detail, right? I will say, you know, I have a vendor, right, supply. If I mention on the product, they may not be happy. Anyway, not a lot, but a few of them. We're still lacking a quarter secured or they are full production capacities either, right? I think there are also supply issues unique to other customers, too. So it's really a shortage. We’re still working very closely with them. And also, we are also working on second sources. Even sometimes, we have changed our design and components, and that's the strategy we're taking right now.

Yeah. Understood. And my second question is regarding to our progress with the customer. So it looks like we have quite good progress in different types of equipment. But if we want to focus on the priority of these projects or these customers, could you maybe give us a clearer view on which new equipment or which customers that we are more confident in winning orders or to see a more meaningful sales contribution in the near term? Based on the prepared remarks, you mentioned about all these projects. Thank you.

We have our first new customer, and at this time, we also have another second-tier IGTV customer in China. Additionally, we have several second-tier customers that are growing, and they are developing their final line and the pilot in production as well. There is significant demand in that area. However, it’s important to note that our top five customers represent approximately 65% of our total revenue.

Okay. Great. But I just want to see if you could prioritize all the new projects you've just mentioned in your prepared remarks. Lots of names there, like IDM companies, Asia-based customers, etc. So just a little bit of distraction. I want to see if you could kindly prioritize the importance of those projects or when exactly they may make sales contributions in the timeframe. If you could?

It's still early for us to determine the top customer's ranking as this is only the second quarter. By the end of the year, we plan to announce the rankings for the top two customers. The rankings among the top five may change, and SMIC and 1TC are currently among them. We will provide the final numbers by the end of this year or early in the fourth quarter of next year.

Okay. Great. Thank you, David. Thank you, Mark.

Thank you.

Thanks, Donnie.

One moment for our next question, please. Our next question is from Edison Lee with Jefferies.

Hi, thank you. Hey, David and Mark, congrats on the great results. I have two questions. Number one, just more about demand, particularly in light of the recent talks by the U.S. government to step up their export restrictions on semiconductor equipment to China. What do you think the impact is that step-up is going to materialize, particularly on, for example, DUV, which could impact not just 14-nanometers or below but potentially 28, 40, and 55. So that's my first question.

Okay. Well, it's - I should say, we're not adjusted by public information. We heard that is 40-nano and below, right? And anybody talks about 28-nano at the moment, right? So if you're looking at nano, and for those, I call the, they did not use any EUV; they're not using advance through there. So I think plenty of nanos are still viable technology and for a lot of applications, right? And also, if you pair together with advanced packaging together as a lot of product makes. So that's why I see a lot of fabs still being built in China, and most of them is 28-nano and also 45 and above. Also, that's where our major revenue comes from at the moment. Of course, we have also penetrated the market outside China. With that in mind, we want our product, either cleaning or topping it, and also their furnace product, we're getting more advanced applications in the market outside China.

But as far as you know, what do you think the Chinese customers, your Chinese customers have started doing in response to this risk of more difficulty in buying semiconductor products from the U.S.? Have you seen any change in your customer strategy? Are they accelerating procurement or expanding faster? What have you seen from your customers?

Well, I mean, this is daily changing information. I really cannot comment on customer right now; maybe it’s too early to say anything, right? So yeah, it’s probably I have real limited information to comment on my customers right now.

Okay. No problem. My second question is about rising cost of materials and components because obviously, given logistics issues, inflation, we think that a lot of components and material prices have been going up. Your gross margin in the second quarter actually is higher than the first quarter. So we wonder if you haven't been able to pass on some of these material cost increases to your customers or how does that work if the material and component costs totally shutoff.

Great. Okay. So we do see some parts’ price increases, right? Because of the – our supply side components, also their raw materials start changing. However, we have not, I should say, increased our pricing for sales yet, okay? For a certain portion of their product, if it has really increased a lot, we're talking to the customer right now, right? Because of the component increase pricing. So at this moment, I should say, our major component prices still have not changed. You know, where import is, some parts from Japan, depreciation of the Japanese yen won’t include too much pricing of their parts. But we do see some parts from Europe and from the U.S. getting increased, right, because of a strong dollar. Anyway, so we see a minor – I mean, it's still a minor impact for us. It's not a significant impact on our cost.

Yeah. Hey, David, if you don't mind, I'd add something here. Edison, David made a good point. The renminbi weakened about 5% during Q2. So a lot of our tools are priced in dollars. So you don't see a big impact on revenue. And on COGS, the supply is something like as David noted, some of it is in yen, some of it comes from renminbi and then we get the Western currency, Europe and the U.S. So there is that impact. But overall, you’d also - the weaker renminbi does help out in our operating expense. It certainly contributed a bit and big-picture question at Shanghai operations looks cheaper in U.S. dollars than it would have - if the expense was in dollars.

In that case and a follow-up by asking what percentage of your revenue for example, in 2Q – is 2Q a fair example, is store-based?

Yeah, it's a substantial majority. I don't think we break out the exact amount. But David, I'd say the substantial majority, but we're not going to give a percentage, yeah.

All right. Okay. So basically, all your Chinese customers, or the majority of the Chinese customers are basically buying things denominated in U.S. dollars from you guys?

Yes, that's correct.

Okay. Okay. That's great. Thanks a lot. That’s it from me.

Thank you. One moment for our next question, please. Comes from Chaolien Tseng with Credit Suisse. Please go ahead.

Thank you. This is Jovian from Credit Suisse. I have a quick follow-up question to the question that Donnie asked. I'm curious what happens, if you change some equipment design, does it take more time for the customers to qualify than the usual case?

Hey, David, are you there? I think we might have - we might have lost David.

Okay.

I see David there. David…

Please unmute it. Please unmute.

Jovian, give me one second. I'll try to call David on WeChat just to see if he is…

Is it better now?

Jovian, give me one second. I'll try to call David on the WeChat just to see if he is…

Okay. Can you repeat the question?

Go ahead, Jovian. Can you repeat your question?

Yes. Earlier, I think when you were answering Donnie or someone’s question, you mentioned that in some cases that the company may change a little bit of equipment design or some components inside due to the cost of the component shortage. My question is, in this case, would that take - will the customer need to get more time to re-qualify your tools with the new design component inside?

Yes, good question. Actually, it depends on the components of what you're changing, right? If it is a very sensitive component, you have to requalify it, but for say example some flow meter, you might get different vendor, different manufacturer if the boast is a real well-known manufacturer, you can change the flow meter to another kind of flow meter, right? So it's not necessarily you're changing everyone. However, before you change, you have to really talk to the customer. And also the customer has also their experience about the components or parts within change. So when we reach the agreement, then we're going to change it, right? That's the normal process we're doing.

So actually, before we change, we need to get their kind of upgrade?

Yes, we have to get their agreement; we tell them, hey, if this component you want it, it takes longer. And then if you give these components, we will give you specific details of the specifications or the function, and we’ll get the customer's clearance, and then we can change it. Of course, we'll do some internal tests first, too.

Thank you, David. And my next question is, I'm quite curious as for the second quarter finished goods. About how much for that is cleaning, furnace versus ECP?

You mean the components in the ease of cleaning or ECP…

For the inventory finished goods…

I see…

Took half already, but we have a program. I am just curious about how much for clean, furnace, ECP, or others?

I think most of our inventory of finished goods is still mostly cleaning tools, right? Almost closer percentage of revenue-wise, probably close to 70% is cleaning products and also see 20% our ECP. Of course, they have 10% of our packaging, roughly existing. Of course, we have some other new products, which is furnace, right? We're not taking the revenue yet. So some portion were also in the finished goods inventory.

And David, my next question is about the furnace side because we've been looking forward to that since last year and early this year. Could you share with us how many furnace tools were shipped in the second quarter? Additionally, how many furnace tools do you expect to book in our revenue for the second half of this year?

I probably cannot give that detailed number right now. But I think it was last year, around 20 were driven to ship. This year, I think we project total anywhere between 30, around that number range, total this year.

Okay. And by now, I know there's the COVID-19 lockdown impacting China. But I'm just curious that by now, because it's kind of early August already. Do you feel the furnace co-brands with multiple customers are kind of on schedule with your expectations? Or do you feel there's a bit of delay?

Hey, Mark. I am sorry, the sound is very low.

Yeah, Jovian, if I understood your question. We've answered that on a couple of the other previous questions. The demand is still there, so there is some catch-up for us. Right? There is more demand that customers have, so we need to catch up on that too relative to the customer demand. We certainly didn't fully catch up in Q2, and so we've got more work to do.

Yes, Mark, I understand that. But I'm just curious about the funding side?

On the furnace side, please go ahead and ask your question again, Jovian, and make sure we understand?

I am just asking about furnace or for the furnace qualification, asking separately with our memory or logic foundry customers. So I'm just curious for the furnace, do you think so far everything is on schedule or do you feel there is a little bit of a delay with one or more customers?

I see. David, did you get the question? Just she is just asking me…

Yes. I think your voice here is very weak. And I don't know, can you repeat the question?

I'll repeat if you can hear. Can you hear me, David?

I can hear you very well.

Okay. So what she asked, she asked if the restriction caused any delays on our - the qualifications of our furnace tool?

You mean the restriction for the components?

No, no. The COVID related to Shanghai…

Okay. Actually, not really much because at this moment, our furnace, and most portion was made in Korea, and some portion made in China. And also, volume not as big as coming into, right. So it's some impact, but not really much.

Maybe, David, I think really, she was asking about like just the evaluation, our ability to have our services team and our customers at our customers to help them with the evaluation of the furnace.

So you're saying, how we evaluate the tool?

Yes, as I understand, she wanted to know if the restrictions during Shanghai interrupted our ability or our customers' ability to evaluate...

During the COVID-19 restriction period, our process and some engineer travel rate from Shanghai and also some components we're going to ship from Shanghai. That's why it impacted some of the tool of furnace evaluation on the customer side.

Got it. Great. Okay. That's fair. Operator, it looks like there's no more questions. If you want to pull one more time and…

Certainly. We have a question from Charlie Chan with Morgan Stanley. Your line is open.

Hi, David. Hi, Mark. Congrats on the strong recovery, not just in revenue, but also the stock price. My question is about your view about future China CapEx sustainability. I know you have a very high backlog to digest, but some memory fab or foundry fabs have cut their CapEx recently, right? So do you expect your new bookings to slow down in the coming quarters? And what would that mean for your year-over-year growth? That's the first question.

Weekends had a pressure impact this year. As I previously mentioned, some deals are expected to weaken in the first and second quarter of next year. However, I'm still engaging with key customers in China and looking ahead to the following year. The outcomes from key customers in China appear to be on an upward trend. It seems they are currently in the middle of a transition. Naturally, they have their timing and technology to ensure their yield and advancements are aligned with this growth. Nonetheless, the expanding trend remains consistent. We anticipate that an obvious cycle is approaching, and we will likely discuss this cycle in our next update as it may start to decline. Additionally, the policy cycle in China may delay the global cycle by a year or two, but I still feel comfortable about the situation moving forward.

Okay. Thanks, David. I kind of agree because it's a local efficiency-driven, right? But once that capacity or expansion plan gets completed. I think the cycle impact will still be there. But I agree with you, it would be 1 or 2 years later. And my next question is maybe to Mark, it should be similar. How soon can you be removed from the provision from the U.S.? I know you have changed the accountant, but I just want to make sure it has to be the next 10-K, 20-K or from the quarterly reporting you can be removed from the provision?

Yes. Thanks for asking. So as you know, we were put on the list, the conclusive list, actually, following the filing of our 2021 10-K. So we showed up on a list for the first time as a result of that. Now that we've appointed a U.S.-based auditor, PCAOB compliant. And after we’ve completed our 10-K filing for 2022, and they signed as the principal auditor. I guess the way it would work is we would not show up on the list again, in 2022. So we can't get removed from the list that we were put on in 2021, but we wouldn't show up on the list for a second time. And that's the way it would play out. So we don't expect to be added to the list for a second time. Therefore, we don't expect our U.S. stock to be subject to the delisting that could occur if you're on the list for three consecutive times.

Okay. So that event will happen maybe next April or May when you report the 10-K?

That's right. It would be more likely, I guess, for us accelerated filer, we would review the 10-K and would expect to come out in March. So the list would come out, folks will show up as a - second time on the list following that. So we simply wouldn't show up the second time on the list.

Okay. Yes, maybe just a small follow-up about your new power line. Is that a post-CMP cleaning is the so-called new power line, or is it just kind of an appendix over your current cleaning tool?

Yes. Actually, that's the tool, and a substrate manufacturing company. Right? I what to do that, normally we have a CMP of wafer. Cleaning performance from the typical CNG machine is other studies by customer requirement. So what they do is they probably do their own testing and further, we clean the wafer mandate in a dry box. That's a possibility. Obviously, we are also designed for the CMP, that's our product, in the market.

So it doesn't belong to the two new power lines.

No, no, no. Not just an expansion of our mini cohort…

Okay, great.

But particularly by customers, they are not CNG, only cleaning for their CNG mini applications, so it belongs to the cleaning part.

Yes, just a wish, right? I mean management has been saying that in the second half, you announced a few new power lines, literally in the second half. So do you think the next quarter results, meaning three months later, you will announce then or between you probably will announce at least one of the new power lines?

Yes, we have a wide range of products evolving. We have announced progress in our DRAM capacity and a new vertical ARD furnace. Additionally, we are introducing two new product categories, which we haven't named yet, but they belong to an $8 million adjustable market as completely new category products, all of which we expect to sustain in the second half of this year. It's an exciting time for us.

Okay. Okay. We will be patient with that and also looking forward to the announcements. And I will leave that one detailed housekeeping staff in our follow-up call. So thanks for the time today. Thank you.

Thank you.

And with that, we conclude our conference. Thank you for participating, and you may now disconnect.