ACM Research, Inc. Q4 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the ACM Research Fourth Quarter and Full Year 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Steven Pelayo, Managing Director of The Blueshirt Group. Please go ahead.

Great. Thank you. Good day, everyone. Thank you for joining us to discuss fourth quarter and fiscal year 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 is 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, our CFO of our operating subsidiary ACM Shanghai. Before we continue please turn to Slide 2. Let me remind you that the 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 Risks 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 the call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain and 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 also on Slide 13 and 14. With that, let me now turn the call over to David Wang who will begin with Slide 3. David?

Thanks, Steven. Hello, everyone and welcome to ACM Research fourth quarter and fiscal year 2023 earnings conference call. Please turn to Slide 3. I'm pleased with our fourth quarter results, which conclude a strong year. For the fourth quarter 2023 we delivered $170 million in revenue, up 57%. For the year we delivered $558 million in revenue, up 43%. Profitability was good for both the fourth quarter and full year with operating margin of 21% and 22% respectively. We ended the year with just over $300 million of cash and time deposit. For shipments, the shipment for fourth quarter were $140 million, down 29% year-to-year. Shipments for the full year were $59.7 million, up 11%. On our third quarter call we noted the delay of shipment to several customers due in part to adjustments in their fab buildouts. While we don't normally share our expectations for shipment, I will provide more color in this case. We view the low shipments for the fourth quarter to be a one-quarter event. We expect to deliver nearly all of the delayed tools during the year 2024. We expect the first quarter shipment to be much higher than the fourth quarter levels, even with a normal Chinese New Year shutdown, and we expect total shipments to grow faster than revenue for the full year 2024. Now I will discuss the key growth drivers both for the market and specifically for ACM. According to a third-party estimate, the overall Mainland China WFE market grew around 15%. If we exclude lithography tools, which is more than double in China in 2023, we believe the rest of the market growth for China WFE was close to 5%. In any case, we attribute ACM's higher growth rate of 43% to one, a leading product portfolio for the China market including auto-batch clean and our ECP tool for the front end and packaging; two, continual spending and market share gain at our current customers; three, broader participation with new customers in China; and four, good execution by our production and service team. I will now provide details on the product. Please turn to Slide 4. Revenue from single wafer cleaning, Tahoe and semi-critical cleaning products grew 48% in 2023 and represented 72% of total revenue. ACM offers what we believe is the industry's most comprehensive cleaning portfolio. We support nearly 90% of all cleaning process steps for memory and logic devices. This coverage positions us as a key partner for both China mature nodes development and international markets. At the high end, we believe our flagship SAPS Tahoe and TEBO single wafer cleaning products deliver technical features not available from any of our competition. We entered into the 30 millimeter auto batch cleaning market several years ago that is proving to be a significant winner for their mature node spending. We have delivered more than 70 auto batch tools today and note a very strong contribution in 2023 with good profitability. By our estimate, ACM has become the largest China-based supplier for auto batch in 2023. For Tahoe, we made good progress during the year. Our engineering team modified technical features to meet production requirements for key customers. I'm pleased to report ACM has been qualified for mass production at several customers and we expect a strong ramp with good orders for delivery in the first half of 2024. This is good for our customer and good for their environment as our proprietary Tahoe design significantly reduces the consumption of sulfuric acid. We continue to innovate in our cleaning and look forward to additional market share gain in 2024 when we ramp up several key new products, including our bevel etch cleaning tool, high temperature SPM single wafer cleaning tool and the semi-critical CO2 dry cleaning tool. Revenue from ECP furnace and other technologies grew 33% in 2023 and represented 19% of total revenue. We hit an important milestone for this category in 2023 with more than $100 million in revenue. ECP demonstrated strong performance. I want to note that our first tool achievement grew even higher than 33%. We are taking a good share of overall plating with particularly strong growth in front end processes in 2023. For furnace, 2023 was a customer development year with many evaluations underway. We expect an even broader customer footprint and good revenue contribution in 2024. We also made great progress with our furnace ARD product development. In summary, we expect another year of strong growth in this product category in 2024. Revenue for advanced packaging, which excludes ECP, but includes service and spares grew 31.5% in 2023 and represented 9% of total revenue. This category includes a range of packaging tools including coder, developer, squabbier, PR stripper and wet etch and service and spare parts. Last year we also introduced ULTRA C v Vacuum Cleaning Tools and we continue to explore new products and technology to participate in the next-generation advanced packaging. We believe ACM is the only company in the world that offers a full set of wet tools, polishing and plating for advanced packaging. We expect advanced packaging to become more important as the industry looks for packaging innovation such as 2.5D and 3D in the process and fan out. These are critical for high-performance computing applications such as AI, which is seeing increasing demand globally. Finishing up on product, we made good progress with our new Track and PECVD platform. We are engaged in active dialogue with our key customers and intend to release additional evaluation tools this year. As with our cleaning, plating and furnace product lines, our Track and PECVD platform boasts proprietary technology that positions them as a successful choice for major customers globally, including both in and outside China. We are making good progress in the evaluation of our Track tool. We are confident that the proprietary architecture of our Track tool is well suited for the high throughput required in the next-generation lithography tools. We are engaged with multiple customers for the PECVD tool. We are expecting significant progress for PECVD product development and evaluation in 2024. Turning to Slide 5 for our product SAM. We estimate our product portfolio addresses a $16 billion market opportunity. Our business is now primarily driven by three major product groups: cleaning, plating and advanced packaging. We anticipate continued growth in this category and look to incremental revenue contribution from our newer products starting with the furnace in 2024 followed by Track and PECVD in 2025. Please turn to Slide 6. We remain committed to our medium-term $1 billion revenue target. We believe we can achieve this with a range of market share by product in Mainland China alone. We have achieved scale with differentiated products that have been proven in the China market and we have put resources in place to address international markets. To be clear, long-term we see an additional $1 billion plus opportunity from international markets. Moving on to the customer, please turn to Slide 7. In China, we are the market leader in cleaning and cleaning tools with sales to nearly every semiconductor manufacturer. Our sales and service teams are now achieving deeper adoption of our products across this customer base. Beyond the established player market, growth is being driven by an influx of well-founded new entrants. For 2023, we had three 10% customers. SMIC was our top customer at 18% of the sales, SiEn was our second largest at 15% and CXMT was our third at 13%. We had a stronger contribution from second and third-tier semiconductor manufacturers including power, analog, CMOS, image sensor and current semiconductors and other devices and some new customers. Total second and third-tier players represent about 30% of our 2023 sales. On the international front, I'm pleased to report that a large U.S. manufacturer qualified its first SAPS cleaning tool for revenue in the first quarter. We also plan to deliver the ULTRA C v backside cleaning and a bevel etch tool to this customer in the second quarter of 2024. This demonstrates a deepening relationship which we believe can lead to production orders. Furthermore, this enhances the ACM brand and positions us to attract new opportunities with other major global customers. Beyond the U.S., we installed our first evaluation tool, ULTRA C SAPS V cleaning tool, at a major Europe-based global semiconductor manufacturer in the fourth quarter. To support growth, we made progress on our facility expansion in China and other regions. Please turn to Slide 8. In China, construction of our Lingang production and R&D Center is nearly complete. We expect initial production in mid-2024. In Korea, we are making progress with the key customer as noted in the prior call, we have increased and are committed to support our objectives to address the global market. We now have more than 150 employees in Korea with our facility including sales administration, small-scale production and a development lab with a clean room to support internal R&D and wafer demonstrations for the customer evaluation. We are also making initial plans to build a new factory on the land we purchased early last year. We believe a strong commitment to Korea will improve our relationship with our key Korean customer. Our resources in Korea are providing another basis to support international customers in the U.S., Europe and other parts of Asia. In the U.S., we leased a facility in Oregon last year to add to our service support and demonstration capability for R&D and customer activity in the U.S. and Europe. I will now provide an outlook for the full year 2024. Please turn to Slide 9. In early January, we introduced our 2024 revenue outlook in a range of $650 million to $725 million. This implies 23% year-over-year growth at the midpoint. We are reevaluating this outlook today. We believe the China equipment market will grow in 2024. We expect our full year revenue growth for 2024 to outpace both China growth and global growth rates. Now let me turn the call over to our CFO, Mark, who will review details about fourth quarter and full-year results. Mark, please.

Thank you, David. Good day, everyone. Please turn to Slide 11. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized gains or losses on short-term investments. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Also, unless otherwise noted, the following figures refer to the fourth quarter of 2023. Comparisons are with the fourth quarter of 2022. I'll now provide financial highlights for the fourth quarter and full year of 2023. Revenue was $170.3 million for the fourth quarter, up 56.9%. Revenue for single wafer cleaning Tahoe and semi-critical cleaning was $122.3 million, up 63.9%. For the full year 2023, this category grew by 48.0%. Revenue for ECP furnace and other technologies was $32.1 million, up 59.0%. For the full year 2023, this category grew by 33.4%. Revenue for advanced packaging, excluding ECP services and spares was $15.9 million, up 15.8%. For the full year 2023, this category grew by 31.5%. For the full year 2023, revenue was $557.7 million, up 43.4%. Total shipments were $140 million for the fourth quarter, down 29%. For the full year 2023, shipments were $597 million, up 11%. Gross margin was 46.8% for the fourth quarter versus 49.7%. For the full year 2023 gross margin was 49.8% versus 47.4% in 2022. This exceeded our normal expected range of 40% to 45%. We do expect gross margin to vary from period to period due to a variety of factors such as sales volume and product mix. Operating expenses were $43.6 million for the fourth quarter, up from $34.8 million. R&D was $28.8 million versus $17.0 million as we invest in our new product initiatives. Sales and marketing was $7.2 million versus $11.8 million. The decline in sales and marketing was primarily due to a significant reduction of costs related to promotional tools. G&A was $7.6 million versus $6 million. For the full year 2023, operating expenses were $154.4 million, up from $117.4 million. R&D was 15.1% of sales. Sales and marketing was 7.4% of sales, and G&A was 5.2% of sales, all for 2023. For 2024, we are planning for R&D in the 16% range, sales and marketing in the 7% to 8% range, and G&A in the 5.5% range. Operating income was $36.0 million for the fourth quarter, up from $19.2 million. Operating margin was 21.2%, up from 17.7%. For the full year 2023, operating margin was 22.1% versus 17.2% in 2022. For the fourth quarter, we recorded a realized gain of $0.5 million from the sale of short-term investments. Recall that realized gains are included in the non-GAAP earnings. Income tax expense for the fourth quarter was $8.1 million versus $2.7 million. For the full year 2023 income tax was $19.4 million versus $16.8 million in 2022. Net income attributable to ACM Research was $28.7 million for the fourth quarter, up from $12.6 million for the full year 2023. Net income attributable to ACM Research was $107.4 million versus $54.8 million in 2022. Net income per diluted share was $0.43 in the fourth quarter, up from $0.19. For the full year 2023 net income per diluted share was $1.63 versus $0.83. I will now review selected balance sheet items. Cash, cash equivalents, restricted cash and time deposits were $304.5 million at year end versus $326.5 million at the end of the third quarter. Total inventory at year end was $545.4 million versus $507.4 million at the end of the third quarter. The mix was split between raw materials $235.1 million, work in process $81.4 million, and finished goods inventory $228.9 million. Inventory also included finished goods at our own facilities. As David said, nearly all of that finished goods at our own facilities is expected to ship during the year 2024. Capital expenditures were $15 million in Q4 and $61.9 million for the full year. For 2024, we expect to spend about $80 million in capital expenditures. This will be primarily to complete our investment in Lingang, and will also include remodeling the new headquarters for ACM Shanghai, and investments in Korea and the U.S. That concludes our prepared remarks. Now, let's open the call for any questions that you may have. Operator, please go ahead.

Our first question comes from Suji Desilva with Roth MKM. Your line is now open.

Yes. Hi, David. Hi, Mark. Congratulations on the progress. Great job there. Can you talk about the international customer? Sounds like you're making progress there. Just trying to gauge the pace of that. As you guided 2024 full year, do you have some contribution from international customer in that assumption? Or would that be upside? And is it potential first half timing or is it most likely back end loaded second half?

Thank you, Suji. We introduced this tool about a year ago, and thanks to the hard work of our service process engineer, we have now received our first acceptance for it. This tool will soon enter mass production. I want to highlight that this specific SAPS megasonic tool effectively meets customer needs, offering excellent performance and significantly reducing particle consumption, which customers appreciate. We believe that this initial full qualification will lead to additional orders from the same customer. Additionally, we have a second tool for backside and wafer cleaning, which was also ordered by the same customer and was shipped in the second quarter of this year. This key customer in the U.S. serves as an example, and we aim to encourage other major players to adopt our differentiated technology. We anticipate positive outcomes from this and expect it to contribute to our international revenue forecast for 2024.

Yes, Suji, I want to add that 2024 will be a significant year for us internationally, and we expect additional contributions. Whether we receive an order that ships for one or several tools this year or next year will depend on how substantial it can be for us.

Okay. And then my second question is, can you just explain again the shipments and what the delays, what the dynamic was there? I maybe didn't catch that on the prepared remarks.

Yes, I think in the Q3 we also called or mentioned about the delay and it's because of our customer building a plan. There are certain, I call the plan delays or the installation not enough, either resource or floor plan was not fast enough. But anyway, there's continuing investment going on. So those portions of the delay, as I said, will definitely be delivered in 2024. And that's also added to our shipment. Those two have been built already. It's going to also save the cash we spent last year already. So we'll see that happen. And I would say that also the total shipment we expect in 2024 will be quite an increase, we believe even will increase at a rate higher than their quarter revenue increases, right, in comparison to 2023. So that's another, I consider a great year for us in 2024.

Okay, that sounds like good momentum. And my last question is around the overall demand environment. I'm trying to understand in China whether the memory market is stabilized and capacity is increasing again across NAND and DRAM. And maybe is someone like CXMT actually progressing to DRAM production versus development effort?

Yes, CXMT is our third customer in 2023, and we anticipate that this memory business will continue to expand. Additionally, the memory market in China is still experiencing multi-year growth, which we view as a positive opportunity for us and expect to continue advancing.

All right. Thanks, guys. Congrats again.

Yes. Thanks, Suji.

Thank you.

One moment for our next question, please. Our next question comes from the line of Charlie Chan with Morgan Stanley. Your line is now open.

Thanks for taking my questions. David, Mark, happy Chinese New Year. And Gong Xi Fa Cai and congrats on a very solid 2023 results. So my first question is actually on the full year guidance, because I had the impression that your ACM Shanghai entity, they have a pre-numerary 2024 outlook. Revenue growth more than 30%. I remember you was like 37% year-on-year growth. So I calculated your midpoint suggesting the ACMR is growing like 23% year-on-year. So what was the discrepancy between your ACM Shanghai entity versus the parent company?

Yes. Well, there's a slight difference. I got revenue recognition rule and we're using either Chinese GAAP versus U.S. GAAP. So that's the primary reason showing the difference of both, I call the forecast. In general, see that is U.S. GAAP will be the first tool take a long time evaluation and after that you can recognize repeat orders just on the shipment, right? But in China, GAAP is no matter is new or a repeat order. You have to really install and basically, you know, kind of initial acceptance by their customer then you can recognize revenue. So that slight difference shows, I call the revenue difference. In other words, probably you can say China is a forecast mean that is we have a lot of probably new tool and the new customer, right? That will be their quickly can be recognized revenue versus the U.S. recognition rule. So that's the difference we see there.

I see. Thanks, David. So my next question is about the China CapEx sustainability. I mean right now, as you said, right, it's for local sufficiency. But you also see that some of your major customers, their gross margin already dropped to like 10% gross margin, right? So I'm a little bit worried about sustainability. So any kind of signs or lead indicators we should pay attention to, right to check the China CapEx sustainability?

Yes. Well, I should say there as we said a couple of times before, is China's fab is still in the multi-expansion, no matter the logic or memory, right? Also a lot of, I call the mature nodes are very related to the EV, IGBT, it's still in the, I call the products in the building process. Also I want to say another thing is the consumption of chips, especially mature modes in China is way higher than the capability that can be produced in China. So you look at that gap, I'm still saying next few years in China and WFE, this market will continue to grow.

Okay, got you. So, yes. One last question I will be back to the queue. So, question to Mark. Since you are ramping up the Lingang new campus, can you give us some updated gross margin and also OpEx assumptions for 2024?

Yes. Hi, Charlie, thanks for asking. So yes, I said in my prepared remarks, I gave some detail there, but I'll go ahead and repeat it. We're anticipating our target model for gross margin is unchanged at 40% to 45%. Obviously, we've done better than that for the last several years, but that's kind of the margin level that's our target level. And then for the OpEx levels, and these are non-GAAP numbers, we expect R&D to continue to invest pretty strong in R&D. And you should always expect, as we're a growing company, to spend at about 16% level is our outlook for non-GAAP in 2024. Sales and marketing we expect in the 7% to 8% range, and then G&A about 5.5%.

Thank you for the recap of the guidance.

You bet. You bet.

One moment for our next question. Our next question comes from Mark Miller with The Benchmark Company. Your line is now open.

I want to start by congratulating you on another great quarter. However, I would like to dive a bit deeper into the operating expenses for the December quarter. You mentioned that sales and marketing expenses were down due to demo systems. I'm curious about why that dropped so significantly.

Yes, it was a significant decline in the sales and marketing promotion tools. So we took that out of the sales and marketing expense. And going forward, you won't see that expense level in the sales and marketing. And so we look at it kind of for the full year, sales and marketing was about 7.4% on a non-GAAP basis. And so we expect that sales and marketing level to be kind of in the 7% to 8% in non-GAAP next year.

Can you provide some additional details about the qualifications you have underway and when you anticipate they will start generating revenue?

In response to David's question about our evaluations at our customers, I'll let you address that first and then I'll add my thoughts.

In general, right?

Yes.

Yes, let me see that. Obviously, there's this finished goods in the customer side for evaluation. Mostly the first tool. And those first tools can be their first-time customers, right, especially for their first-time buyers. They want to make sure those tools not just qualify for the tool itself. Sometimes they've qualified the whole production line to look at the yield to come out. That takes some time, right? Also, there's also the first tool is a pretty new, brand-new tool. And we need a customer to really, we call it a beta tool, right? You need to evaluate that, and that sometimes take a process one year, even a year and a half. It depends on how that tool first building be mature, how mature it is. So those kinds of tools will be considered as our first tool.

Okay. And just final question. You previously said you were doing more investment in Korea, I guess to get more business from SK Hynix. Can you give us an update on what's going on there?

Hynix is a longstanding customer, and we are currently very active in our engagement with them. We are reinforcing our investment and expanding our R&D capabilities as well as manufacturing in Korea. Currently, we have around 150 employees in Korea. As previously mentioned, we have acquired land and are in the process of constructing a factory. The main point I want to highlight is that we have various tools such as cleaning, copper plating, and furnaces, along with PECVD and Track development tools. We aim to collaborate closely with Hynix, leveraging our relationship, our local R&D resources, and providing them with differentiated products and technologies that attract their interest in Korea.

Thank you.

Thanks, Mark.

Thanks.

One moment for our next question, please. Our next question comes from Christian Schwab with Craig-Hallum Capital. Your line is now open.

Hi guys, fantastic year and great quarter. So I'm trying to better understand, you know, the two or three reasons better either from a product category standpoint or a customer standpoint. Your conviction and your ability to outgrow WFE not only in China but also globally year-over-year.

Okay, great. I think ACM is starting from the Bay Area. Our R&D philosophy focuses on differentiation. Each product we are building, like SAPS, TEBO, and Tahoe, showcases this differentiation, as does our copper plating solution. Our goal is to create differentiated products, which have been widely accepted by local customers in China. With these unique products and technology, we aim to expand internationally. For example, we have already partnered with Hynix and secured a larger U.S. manufacturer that has adopted our SAPS technology. Additionally, a European company is also utilizing our SAPS megasonic cleaning. Looking ahead, our Tahoe and TEBO, along with our super-critical CO2 dry technology, will offer exciting advancements in cleaning tools. We also have furnace ARD and copper plating as significant products that can help us penetrate international markets. Furthermore, we are developing our PECVD and Track technologies, which feature proprietary designs that set us apart. ACM is committed to developing these differentiated products that provide unique benefits compared to our competitors. We have confidence in our proven track record and are prepared to sell our tools in international markets.

Congratulations on having a product that stands out and is superior to your competitors. As a final follow-up, could you share how much year-over-year growth you anticipate from international markets? I know this has been addressed previously, but you've highlighted several times why you believe you will exceed market growth. I'm curious if you can provide more clarity on this.

Yes. Hi, Christian, I'll hit that. So in terms of our outlook, I mean, the range, we have a pretty small contribution from international this year. It's still going to be kind of development. So really, substantially most of that growth that we're planning for in 2024 is from the China market, the Mainland China market. Yes, new product cycles customer, additional customer traction.

Okay. And then I guess my very last question then is, the TAM for your products outside of China, globally is substantially larger. You know, how many years do you think is reasonable for us to assume it takes for broad-based success internationally? It sounds like this year was a great building year. Initial shipments starting in 2024. Is that a 2026, 2027 or 2025 event or is it too early to know?

Yes, Christian, that’s a great question. Currently, we are experiencing rapid growth in the Mainland China market, and we have many products that we've qualified here. Our goal is to achieve $1 billion in revenue from the China market alone. We believe that over the next few years, we should reach this goal. Additionally, two years ago, we began expanding our expectations in the global market. The key now is effectively executing our international sales plan. We are hiring skilled personnel and sales representatives in Korea, the U.S., and Europe, and we are making significant progress. As we engage with customers, it’s clear they are looking for differentiation. We are confident about the products we currently have, and we believe that as our first U.S. customers adopt these tools, more will follow suit. While I can’t specify an exact year for success, we are optimistic about our strong revenue and the unique products we offer, which will help us penetrate the international market. Our plan is to quickly execute this strategy and reach our goals. Ultimately, as I’ve mentioned before, we expect to see our revenue split evenly between Mainland China and the rest of the world, with the revenue contribution from outside Mainland China becoming increasingly significant.

Thank you. That's great. No other questions. Thanks, guys.

Thank you.

Thanks, Christian. Yes.

Our next question comes from Charlie Chan with Morgan Stanley. Your line is now open.

Thanks for taking my question again. So I think the new customer contribution caught our eye SiEn. So it wasn't in our radar screen. So I'm not sure why SiEn becomes such a big customer. And if you can provide some more details, is that purely 12-inch equipment or also including some engine equipment? Thank you.

Yes, I think the main product we provide to SiEn is the 12-inch tool. Their current expansion is focused on a mature node, which means we are selling a significant amount of our auto batch systems to them. They are currently our largest auto batch customer in China. They also purchase wafers from us, which is why they have become our second largest customer in 2023. Moving forward, we have a strong relationship and engagement with them in areas like copper plating, our furnace, and online systems, which further contributes to our partnership with SiEn. They are a valuable customer, and we are pleased with the deployment and evaluation of our auto batch tool in their production line.

Okay. Yes. So it's a great business, right. So I'm assuming the company consults your lawyer about the U.S. export control before you ship to all customers, including SiEn, is that the right assumption?

Well, I mean, we'll strictly follow all the aspect control rules, right. And said here and for those whatever restrict their customers, we have to be very careful with U.S. parts, right. And personally involved also now you say technology. Yes. So we're pretty very carefully managing and control and follow strictly with their export controller of the U.S.

Okay. Thanks David. And next question is about the advanced memory HPM. So can come in talk about your opportunity in Korea for the HPM production line. I think we asked that question last quarter as well. And also there's some recent news about China may also have their own HPM production. So can comment about your potential opportunity at the Korea and also China customers.

Yes, well, obviously, you know Hynix is the number one provider, right? They're also technology leader HPM and I think our current product definitely involved their process. And also we see the HPM either, know this is a copper plating tool, right. PECVD order the packaging, whatever they need it. So that's the next tool. We are working closely with Hynix and I should say the rest of our other tool furnace and we're working with them too. So there's a lot of including cleaning, by the way, actual other cleaning other than we sold them SAPS megasonic also working with Hynix too. So it's a very good opportunity. HBM is a greater, I call it demand and greater driving. They need a lot of differential technology further supporting in HPM development in the future. In China, really not much we can hear right now really, right. Not much we have right now. So in other words, we're really focused on outside China for HPM expansion for the business opportunity.

Yes. So based on your comments and also other global equivalent vendors they talk about actually this year the global SP revenue comes from the memory. So why Hynix? Is that your kind of top customer or do you think this year Hynix can contribute more than 10% of revenue given HPM opportunity and also the memory spending recovery?

Hynix is not the only player we're looking at, which is important. The memory market for HPM is really thriving, and we are noticing significant demand there, particularly in areas like cleaning and copper plating. I cannot currently predict when we will reach that 10% customer mark, but we will observe the situation closely, especially in the second half of this year and next year as we hope to see a recovery in the DRAM market.

Okay, got you. Thanks, David.

Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Edison Lee with Jefferies. Your line is now open.

Thank you. Thank you for taking my question. So David and Mark, congratulations on a great quarter.

Thank you.

Thank you. Thank you for taking my question. So David and Mark, congratulations on a great quarter. I have just one question, which is the contribution of your three customers for 2023, which amounted to almost 50% of the revenue. So can you give us some color as to whether you think that those top three customers will continue to be top three customers in 2024? And what is your expectation on the contribution of the top three customers in 2024?

Yes. Actually I look at this year's order list, right. And the top three customers continue, I think will grow, right. And they probably still are major customers. Also we see their additional body of our home. They have also their expansion plan and they're property simultaneously building two fabs this year. And also they're building property next year, three fabs simultaneously, right. So that's another bigger, I see their top customer will come back in our 2024 revenue contribution.

Maybe a related question is that based on your revenue guidance at midpoint that implies 20% plus growth. And so that's significantly below the growth rate in 2023. So do you think the key driver there is just some digestion period or it's a matter of taking time for your evaluation tools to be recognized as revenue? So what are the key factors for the slowdown in terms of the growth rate?

Yes. I believe the main driving force is that the China WFE market is continuing, and while some might say it will slightly increase or at least remain flat, I consider that to be very important. Additionally, we are experiencing a higher growth rate due to new customers joining us and market share gains from existing customers. We also expect contributions from our back-end furnaces this year, which will increase our revenue. All these factors combined give us confidence in forecasting a growth rate that exceeds the growth rate of the WFE market in China.

Okay. And maybe the last one is that for 2024, what do you think is the percentage of overseas revenue in your guidance?

Yes, hi Edison. We didn't provide a specific breakdown, but regarding your other questions, we indicated that it won't be a significant contribution for 2024. We anticipate that it will grow in the coming years, but it won't be a major factor. We believe it will be larger than this year, and while you'll soon receive the international numbers, we don't expect it to exceed 10%.

But I should say growth is higher, right. Obviously, a small number. So then the real absolute number, like you said, you know, was still a friction number of the total revenue.

Yes.

Thank you. I'm showing no further questions at this time. I'd like to hand the conference back over to Steven Pelayo for closing remarks.

Okay. Great. Thanks, Mark and David, and thank you all for participating in today's call. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On March 18, we will present at the 36th Annual Roth Conference in Dana Point, California. Attendance at the conference is by invitation only, where interested investors please contact your respective sales representatives to register and schedule one-on-one meetings with the management team. This concludes the call, and you may now disconnect.

Thank you.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.