Good day and thank you for standing by. Welcome to the ACM Research Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gary Dvorchak. Please go ahead. Thank you, operator, and good day everyone. Thank you for joining us to discuss third quarter 2023 results which we released before the U.S. market opened today. The release is available on our website as well as from Newswire services. There's also a supplemental slide deck posted to the investor section 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. Certainly, the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized loss on short-term investments. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website, and the Slide 12. With that, let me now turn the call over to David Wang, who will begin with Slide 3. David, go ahead.

Thanks, Gary. Hello, everyone. And welcome to ACM Research third quarter 2023 earnings conference call. Please turn to Slide 3. For the third quarter, revenue was $168.6 million, up 26% from the same quarter last year. Shipments were a record $213 million, up 31%. Gross margin was 52.9% and operating margin was 26%. For the first nine months, we grew revenue by 38%. This is in light of our decline in global WFE spending. We attribute our outperformance to market share gain, and the penetration of new products and new customers and a generally healthy market for mature nodes in China. Let me touch on each of these, beginning with the mature nodes investment in China. China's domestic and mature nodes, WFE investment remains solid. We believe this is due to China's goal to reduce the gap between its domestic and mature nodes capacity and end market consumption of semiconductor chips. We see continued investment in 28 nm, 45 nm, and power devices for the EV market. The ramp of EV production in China is a driver for capacity investment in power devices and other cutting-edge devices. This creates a tailwind for us and we believe we are still in the early stage of China's semiconductor capacity expansion plan, which we believe will continue to be a growth driver for us. As China identifies efforts to boost its domestic semiconductor capability, we believe we are well-positioned to benefit and further increase our market share due to our strong market position, differentiated technology, and multi-product portfolio. Moving to products, please turn to Slide 4. Single wafer cleaning, Tahoe and semi-critical cleaning grew 33% in Q3 and 42% year-to-date. In the last few years, we introduced and began ramping our semi-critical product line including auto bench and last year we introduced advanced and the high temperature SPM tools. In Q2, we introduced our super critical CO2 dry and cleaning tool. This quarter, we introduced our ULTRA C Vacuum Cleaning Tool to meet the flux removal requirements for chiplets and other advanced 3D packaging structures. We have already received a purchase order for the new tool from our major Chinese manufacturer, which we expect to be delivered in the first quarter of 2024. ACM has one of the broadest cleaning product portfolios in the industry, covering nearly 90% of all cleaning process steps in both memory and logic device applications. We believe this product portfolio will play a key role among material nodes development in China and advanced nodes in our international efforts going forward. ECP, Furnace & Other technology grew 4% in Q3 and 24% year-to-date. Growth in this category was driven primarily by ECP products, cycle with some contribution from the furnace. Our high temperature anneal and LPCVD furnaces, including silicon nitride and body, are in production at key customers. Advanced packaging excluding ECP, but including service and spare parts, grew 12% in Q3 and 40% year-to-date. This category includes a range of packaging tools, including coder, developer, squabber, PR stripper, and web and service spare parts. ACM is the only company that offers both a full set of wet tools and advanced plating tools. We believe that advanced packaging will become more important as the industry looks for packaging innovations, such as 2.5D and 3D in the process and fan out to drive higher performance for new applications such as AI and GPT. Finishing up on product, we continue to make good progress on self-efforts with our new track and PECVD platforms. We are in active discussions with our key customers, and we plan to deliver more evaluation tools this year. Similar to our cleaning, plating, and furnace product lines, our Track and PECVD platforms have proprietary technology that we believe will make them competitive with major customers, both in China and outside China. I'm pleased to report good progress with our Track tool evaluation at the customer site. We believe our Track tool with a new proprietary architecture design will meet the requirements for higher throughput for the next generation lithography tool. Moving on to customer, please turn to Slide 5. We continue to make progress on customers both inside China and internationally. In China, we believe ACM tools are now used by nearly all the semiconductor manufacturers. Our sales and service teams are working to expand the deployment of each of our major product lines across our growing customer base. In addition to our current customers, we are also seeing a good number of fully funded new entrants. Our team has done a good job of getting traction for our products with these customers. We are expecting continued shipment growth this year as the customer acceptance progresses. In the U.S., we announced this morning a purchase order for another product from a large U.S. manufacturer, the Ultra C backside cleaning and bevel etch tool. This tool combines backside cleaning with a bevel etch function. The tool is expected to be shipped to their U.S. facility in the second quarter of 2024. As this customer's ongoing evaluation of two-step cleaning tools continues, we believe this demonstrates a deepening relationship, which we hope will result in demand for additional ACM tools. Furthermore, we believe this will enhance ACM's brand and position us to attract new opportunities with other major global customers. In Europe, earlier this year, we announced our order for our first evaluation tool, Ultra C cleaning tool from a major European-based global semiconductor manufacturer. We delivered the tool about four weeks ago, and our team has already started the installation process. To support our growth initiatives, we continue to make progress on our facility expansion in China and other regions. Please turn to Slide 6. In China, construction of the Lingang production and R&D center is nearly complete and is expected to begin initial production early 2024. In Korea, as noted in prior calls, we have increased our commitment to support our objective to address global market. We now have more than 150 employees in Korea with three facilities, including sales and administration, development labs, small-scale production, and clean rooms to support the wafer test for customer evaluation. We are also making plans to build a new factory on the land we purchased earlier this year. We believe strong commitment to Korea will improve our relationships with our key Korean customers. Our resources in Korea will also offer another base for supporting international customers in the U.S., Europe, and other parts of Asia. In the U.S., we leased a facility in Oregon earlier this year to add to our service support and demonstration capability for R&D and customer activity in the region.

Thank you, David. Good day, everyone. Please turn to Slide 10. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized loss on short-term investments. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Revenue was $168.6 million, up 26.1%. Total shipments were $213 million, up 31%. Revenue for single-wafer cleaning, Tahoe and semi-critical cleaning was $132.4 million, up 32.8%. For the first nine months of 2023, this category grew by 42.0% versus the prior year period. Revenue for ECP, furnace and other technologies was $25.5 million, up 4.0%. For the first nine months of 2023, this category grew by 24.4% versus the prior year period. Revenue for advanced packaging excluding ECP, services and spares was $10.6 million, up 12.4%. For the first nine months of 2023, this category grew by 40.2% versus the prior year period. Gross margin was 52.9%, up from 49.4%. 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 renminbi to U.S. dollar exchange rate. We expect gross margins 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 $45.3 million, up from $32.6 million. The increase was due to higher R&D, sales and marketing, and G&A costs in support of new customer and new product activities, as well as a boost in post-COVID travel activities. Operating income was $43.8 million, up from $33.5 million. Operating margin was 26.0%, up from 25.1%. We recorded a realized gain of $0.7 million from the sale of short-term investments for the quarter. Recall that realized gains are included in non-GAAP earnings. Income tax expense was $0.7 million, down from $10.5 million. This was driven by one-time items for the third quarter, but we still expect the full-year tax rate to be in the 20% range. Net income attributable to ACM Research was $37.6 million, up from $28.2 million. Net income per diluted share was $0.57, up from $0.42. I'll now review selected balance sheet items. Cash, cash equivalents, restricted cash, and time deposits were $326.5 million versus $376.1 million at the end of the second quarter. Total inventory was $507.4 million versus $471.1 million at the end of the second quarter. Capital expenditures were $26.2 million for the quarter. Year-to-date capital expenditures were $49.5 million. That concludes our prepared remarks. Now let's open the call for any questions that you may have. Operator, please go ahead.

Hi, good evening, Dave and Mark. Congrats on the strong Q3 results. I have a first question on shipment. The shipment figure you posted for Q3 looks like you're making a new record here. But I just really want to understand what you see in terms of shipment going into Q4. Do you largely see the number going to be flat Q-on-Q for Q4, or what's the dynamics behind the very strong shipment figures? Thanks. That's my first question.

Yes, okay. I think the shipment is really number indicated wherever you get a new customer and also our product is going to spread out with the cleaning, cover plating, and also our latest new product furnace. And so I think that's the reason driving the shipment. We think Q4 shipment will continue in our timeline. There are certain components and also there are some maybe customer production lines that may have some impact on our shipment. But anyway, we think the whole year our shipment will still be a very good number for supporting our growth. Mark, do you want to add anything on the shipment?

Yes, no, thanks David. Yes, I mean shipments, I think as David noted, it's repeat ship revenue and it's also the first tool. So yes, we're certainly pleased with the shipments in the quarter. We don't guide specifically by quarter on shipments, but we're not anticipating a big increase sequentially in Q4.

Thanks. So David, I just want to have a follow-up, because I think I heard you mention certain customers may be passing, which may have an impact on shipment. Did I hear correctly? Is that the Q3 comment or Q4 comment? Thanks.

Yes, well I just said, I call it a quarter, right? And looking at the whole year, right? We do see some customers, their production line is not ready. They do have a phase to deliver. So that's something we can feel there for sale not ready, and that leads to our shipment delays, right?

Okay, so I just want to make sure, so it's not anything related to export controls, et cetera?

No, actually at this moment our product, we follow all other expert control rules. Whatever we receive the order, all comply with their restrictions. And they also follow the rules, right? So far we do not have any issues due to export control preventing us from shipping.

Got it, thanks. Maybe a second question from me. Congrats on receiving a PO from the U.S. semiconductor manufacturer for another set of evaluation, I believe. Wondering, can you remind us, what was the first evaluation that you shipped to this customer? What application was that for? What was the status of that first evaluation? Thanks.

Great, actually we do have a two. We sent deliveries last year, and we made quite a progress. This is our first shipment with this new customer, and we made a lot of progress. The customer is happy with our performance and we’re looking for future orders. This new tool offers significantly better cleaning efficiency and also reduced chemical consumption.

Yes, any expected timeline for the conclusion of the first evaluation since you already shipped the second? Thanks.

Yes, well I think we're very close, there's a two right, one is really R&D or evaluation tool, another one is just like a repeat order tool. So for the R&D, I think we're very close to final qualification, and we are close to the sign-off for our revenue.

Thanks, David. I will hop back to the line.

Great, thanks.

Hi, David, hi Mark. Congrats on the progress here. Mark, on the gross margin you said about improving gross margin for specific product lines. Any color there, it seems like you're trending above the target. Just want to get any update there.

Yes, Suji, we won't really break it out by product line, but we had a good mix of differentiated products and some cost downs. We also got a little bit of tailwind from foreign exchange. Obviously, we're pleased with that level, but we're not changing our 40% to 45% target at this point.

Okay, thanks. And then I noticed you mentioned AI, GPT chips in the prepared remarks, David. Clearly, there's import export controls on some of those products for U.S. semi vendors. Is there a burgeoning China AI chip market that the foundries are servicing there? Can you give us a sense of how big that might be versus the global AI chip market because that could be a very exciting opportunity for you guys?

Yes, well I didn't really mean that advanced packaging, most of that operations, right. I mean, this is the real product we're talking about not only in the China market, we also talk about the global market too. So in general, it's that right and in China, I still say most of our tools are for mature products, and for packaging. So we’re looking for our tools to be spread out not only in the China market; we also see opportunities in the global market for AI and GPT applications.

Okay, I appreciate that color, David. And last question I have is on the vacuum cleaning tool. You mentioned chiplets. That's the first time I've heard you guys talk about chiplets. Is that a new growth driver area or is that really just an element of the advanced packaging functionality that you have? I was curious there if that's an incremental opportunity.

Yes, we see this as a new product, new requirement emerging. All advanced packaging, all chiplets, when they have a package finishing, there are also gaps that need to be cleaned. With our vacuum type of cleaning, you can effectively remove contaminants from those small gaps. We see that market growth opportunity as substantial.

Okay, great. Appreciate the color. Thanks, guys.

Thanks, Suji.

Great. Hey, Mark, can you just walk us through the issues impacting your original top-line revenue guidance and why your guidance for the year is near the low end versus the high end?

Yes, actually David, do you want to take that? I could probably go next.

You have to take it first. I will hold for that.

Okay, I'll go ahead and take that then. So Christian, thanks for the question. I think there's a couple of things here from the beginning of the year. First is, if you just think about the overall China market, we're not necessarily market readers, but based on some third-party data, it does sound like the China market overall is down year-on-year versus our expectation of it being flat. Still, there's great spending on mature nodes, but the market may be a little less strong than we had anticipated. Despite that, our year-to-date revenue was up 37%. Our midpoint of our outlook is up 36%. So, our product cycles and our new customer activity is contributing. We did see a slight delay, one to two-quarter delay, either due to customer facilities, just kind of a timing issue for them to get their tools installed, or just a digestion by some larger customers who have seen a large number of tools shipped. The last point to mention is that many of our shipments this year have been first tools to new customers or newer products. Therefore, we anticipate more revenue next year.

Yes, that's fine. I mean, perfect. I don't have anything to add on that.

Yes, and you guys look to calendar 2024, would you expect the aggregate TAM in China to be flat, to be up, to be down, and what specifically would cause you to outperform the TAM growth inside of China once again?

Okay, good question. So actually, looking at third-party data and next year, China is expected to improve. We also feel it's a good year for China because the market is still in the early to middle stage of its capacity expansion, especially in the mature segment. We also have new products like our furnace. By the end of the year, we'll have expanded our customer base significantly. We’re hopeful regarding the future revenue contribution from new cleaning products and other innovative technologies we are introducing this year.

Yes, I think you hit it pretty good, David. One thing that is interesting, we actually had our International Sales Conference last week here, and it was our first face-to-face conference post-COVID in a while. We had teams from Korea, U.S., Europe, even Taiwan here for several days. It's clear to us that there are good opportunities in international markets, and we do think international can be more meaningful next year. However, we would see next year as a building year.

Thanks for that. It sounds like we have a lot of things going on about the product and customer front. But if I could just ask one more question about your new customers in Oregon, can you give us an idea of how substantial that could be over time? And in addition, with your facility in Korea, are you just expanding opportunities with your historical Korean customers, or do you think you can expand the customer base inside Korea as well?

Okay, thank you. Actually, our customer in the U.S. and our relationship with customers in Europe have really added to our customer base and for international customers. As we said, we received a repeat order for the same customer, which shows our relationship is strengthening and we’re offering different products for them. Regarding Korean customers, again, we have historical customers, and we are having close cooperation with them. We are also looking to expand our customer base within Korea for our cleaning and compensating tools and other products we are developing.

Moreover, I want to mention that we are also working with customers in Singapore. Our goal remains long-term: to have 50% of our revenue come from Mainland China and 50% from international markets.

Thank you. Hi, David, and Mark. Good evening and good morning. My first question is about your potential exposure to high-end memory, meaning high performance memory. We do know you have some memory customers. Can you explain what kind of tools you can potentially supply to these memory customers for high performance memory? And secondly, what is the progress for this adoption of your tools for high performance memory modules? Thanks.

Yes, okay, Charlie, I really cannot provide too much detail. However, we have multiple products working for customers in high performance memory. This is a real new growing market, and we are trying to spread additional products in our portfolio. We are building our local R&D capacity in Korea with 150 engineers to support our customers closely.

Okay, I understand. Thanks, David. The next question is for Mark. I know you explained the operating expense trend, but it's still a very significant jump even with the new R&D expense and customer activity, so the jump seems pretty big compared to the previous quarter. How much of those increases are due to post-COVID travel? Should we consider $45 million a quarter as the new norm for future operating expenses?

Yes, thanks for that on the OpEx question. We're obviously investing on the R&D side and our sales and marketing. I would expect OpEx to remain around that level moving forward. However, many of our expenses are in renminbi, which can fluctuate. In the third quarter, renminbi strengthened, so it had an impact.

Okay. So can we justify that increased OpEx with very strong shipments, since we calculate the OpEx ratio as OpEx by revenue? It seems like the OpEx ratio is quite high. Is that correlating more with the shipments since they have been strong in the third and fourth quarters?

There's a correlation, Charlie. We don't break it out specifically, but of course, there's a correlation with our shipment level and our OpEx.

Okay. Yes, and also lastly to R&D, do you think the peak spending on your R&D has already occurred? I know you're already introducing your new products. So how much more R&D do you need to invest in for your future product lines or current product lines?

Let me cover that. Maybe Mark can add more. R&D spending, if you look two or three years ago, was about 12% of revenue. Since our IPO, we began to invest significantly in new products. We expect to maintain R&D spending around 15% of sales for the coming few years as we innovate and capture the market, especially for proprietary technologies.

Yes, one last thing. Charlie, if you look back at our R&D historically around 15% of sales, although we expect some operating leverage on D&A and the sales and marketing side, we do anticipate R&D intensity to remain around that level.

So the R&D intensity will stay at 15% at least for the coming couple of years.

Okay, fair enough. Thanks for the comments. Thank you.

Thank you.

Thank you. There seem to be no further questions. I would like to hand back to David Wang for closing remarks.

Thank you, operator. And thank you all for participating in today's call and for your support. Before we close, Gary is going to mention our upcoming investor relations events.

Thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On November 15th, we will present at the 12th Annual Roth Technology Conference in New York City. On November 16th, we will present at the 14th Annual Craig-Hallum Alpha Select Conference also in New York City. From November 29th to the 30th, we will present at the UBS Global Technology Conference in Scottsdale, Arizona. Finally, on December 12th, we will present at the Annual CEO Summit in New York City. Attendance at the conferences is by invitation only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with their management team. This concludes the call. You may now disconnect.

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