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Edited Transcript of ACMR.OQ earnings conference call or presentation 8-Aug-19 12:00pm GMT

Q2 2019 ACM Research Inc Earnings Call

Aug 18, 2019 (Thomson StreetEvents) -- Edited Transcript of ACM Research Inc earnings conference call or presentation Thursday, August 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David H. Wang

ACM Research, Inc. - Founder, Chairman, CEO & President

* Lisa Feng

ACM Research, Inc. - Interim CFO, CAO & Treasurer

* Mark McKechnie;Vice President of Finance

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Conference Call Participants

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* Christian David Schwab

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Mark S. Miller

The Benchmark Company, LLC, Research Division - Research Analyst

* Sujeeva Desilva

Roth Capital Partners, LLC, Research Division - Senior Research Analyst

* Gary Thomas Dvorchak

The Blueshirt Group, LLC - MD of Asia

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Thank you for standing by and welcome to the ACM Research Second Quarter 2019 Earnings Conference Call. (Operator Instructions)

As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time.

Now I will turn the call over to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group Asia. Mr. Dvorchak, please go ahead, sir.

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Gary Thomas Dvorchak, The Blueshirt Group, LLC - MD of Asia [2]

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Good morning, everyone. Thank you for joining us on today's call to discuss the second quarter 2019 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as from newswire services. There's also a supplemental slide deck posted in the Investor portion of our website that we will reference during our prepared remarks.

On the call with me today are Dr. David Wang, President and Chief Executive Officer; Ms. Lisa Feng, Chief Accounting Officer and Interim Chief Financial Officer; and Mark McKechnie, Vice President of Finance.

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 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. You should refer to our press release for our GAAP results and reconciliations between GAAP and non-GAAP amounts.

With that, let me now turn the call over to our CEO, David Wang, who will begin on Slide 3. David?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [3]

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Thanks, Gary, and welcome everyone to today's call.

I'm very pleased with our second quarter results. Business momentum was strong with record revenue, solid bottom line growth and a healthy cash balance. Our results demonstrate the growing strength of our technology, product offering and production scale as we continue on our mission to become a major supplier of capital equipment to the semiconductor industry.

Revenue grew to $29 million, up 39% from last year. Our strong top line, good growth margin and disciplined spending resulted in high-teens operating margin for the quarter. Total shipments rebounded to $33 million, up more than 50%. We ended the quarter with $27.6 million of cash.

So far, 2019 played out better than expected. While the industry is moving through a fairly normal inventory cycle, our customers continued to invest in new capacity with many still in early stage of their production ramps.

We are filling our production. We have a solid delivery in Q2 from our second factory. We plan to continue with a very busy second half.

We have received promising initial results for Tahoe from the evaluating tool at our lead development customer. We also began shipments of 2 new advanced ECP tools. We are proud to have announced our fifth significant customer, a large, China-based entrant to the DRAM industry. And we're continuing to see encouraging order activity, recent order of our tools to be delivered in Q4 and early next -- early 2020. We also have a solid indication for growth in 2020 and beyond.

Moving on Slide 4. Our success starts with our customers. They choose ACM technology to help drive their own production capability. We help them achieve their operational excellency needed to compete in global semiconductor markets. We consider the location of ACM Shanghai's world-class R&D team and production facility to be a key differentiator that put us in proximity to some of the largest fab projects in the world.

Last month, we announced our newest customer, an emerging, China-based DRAM maker. This new customer placed their purchase order for their first SAPS-V system. We plan to deliver it in the fourth quarter. ACM was selected for its high performance, its technology road map and, most importantly, expected improvements to the production yields. We provide our customer with a proven fast-cleaning solution that will remove killer defects in more than 20 different type of cleaning steps. As with our other customers, we intend to help our newest customers achieve a successful production ramp. As they ramp, we expect a flowing order for production-level tools.

Let me now discuss our significant customers. I will start with SK Hynix, the #2 global DRAM supplier. SK Hynix was ACM's first major customer, a strong testament to ACM's proven technology and ability to improve production yields.

We started with just a few production steps. Now our tools are used in more than 20 steps as they progress to more advanced nodes. Demand was solid from SK Hynix in the first half. We do not expect additional demand in the second half.

Next, let me discuss YMTC. They are a major new producer of 3D NAND. We are working closely to support YMTC as they scale their 3D NAND production in Wuhan. We believe we are YMTC's largest single-wafer wet cleaning supplier. ACM tools are being deployed in a significant number of cleaning steps. We see strong demand from YMTC in the second half of 2019 and beyond.

Our third major customer is Huali, part of the Huahong Group, a leading advanced foundry in China. Huali is a middle of a multiyear capacity expansion. They are a great customer with a production near our current orders. The Huahong Group is adding capacity at its leading-edge node and is also building a new fab in Wuxi. We are participating in both projects.

We also have a number of the first tool demo system at Huali for some of our newer product offerings. Huali has been a good contributor so far this year, and we expect to increase delivery in the second half.

Finally, let me discuss the SMIC, the largest foundry in China. They have several strategically located fabs in China and Western Europe. SMIC has been a relatively small customers so far this year. However, we expect an incremental revenue opportunity next year as they're moving towards more advanced nodes, including 14-, 10-nano and beyond.

We are honored to support the 5 major IT manufacturers. We believe these customers can support solid growth for years to come as they scale capacity, deploy our tools in additional production steps and deploy more ACM products such as Tahoe, TEBO and our newly announced front- and back-end packaging trading products.

We remain focused on winning additional major customer by: first, demonstrating our advantage at the current customers; two, scaling our production capacity; three, increase our skills, effort -- our sales effort to show the yield benefits delivered by ACM's innovative and differentiated technologies.

I will now provide an update on some of the new product activity on Slide 5 and 6.

We delivered our first Tahoe demo tour to a strategic customer in January of this year and are pleased with the initial evaluation results. Tahoe incorporates a unique and patented technology for ACM to deliver a high cleaning performance while using 1/10 of the sulfuric acid typically used by conventional high-temperature, single-wafer cleaning tools. Because of the environment and the cost/benefit, we continue to see tremendous interest in Tahoe from our current customer base as well as several new prospects. Tahoe is an excellent example of our focus on differentiated, patent-protected product offerings. We are encouraged by initial test results, and we remain in track for the customer acceptance in coming quarters.

We expect that Tahoe will eventually become a mainstream product that solves cost and the environmental challenges faced by customers for post-CMP cleaning and [post-edge] cleaning when moving to advanced nodes.

TEBO update. Through close teamwork between ACM and the customer, we have optimized multiple hardware and process parameter and obtained very promising results on TEBO during the second quarter. Our lead customer has reached Particle Removal Efficiency, or PRE, of 100% on the production pattern wafers. The customer is very happy with the results, consider it for future capacity adds. We expect that this will result in orders next year.

Next, on Slide 6, we are encouraged by initial customer response to the 2 electroplating products that we introduced in March. The Ultra ECP AP is a back-end assembly tool used for applying copper, tin and nickel to wafer at die level before packaging. The AP delivers a more uniform metal layer at a [large] area by incorporating our proprietary technology. This uniformity is critical and it deliver better yields and a greater plating efficiency. It will be deployed not only in bump, but also in fan-out, 2.5D, 3D, in [a pillar] and other new 3D advanced packaging applications.

The Ultra ECP MAP is used in front-end wafer fabrication process. It uses our proprietary technology to deliver world-class electrochemical copper plating for copper interconnection application. The MAP offers the improved gap-filling performance for plating on an ultra-thin seed layer. This enables continuously reducing metal pitch and therefore enhance the density of FinFET and nano [wear] devices. We believe this is mission critical for advanced nodes at 5-nano, 3-nano and beyond.

As I mentioned on our last call in Q1, we received a repeat purchase order for 2 ECP AP tools from one of our major packaging customers. We also received our first 2 purchase order for ECP and MAP from a key foundry customer. Their products are off to a good start as we successfully delivered 1 AP tool in Q1 and 1 MAP tool in Q2. We expect to deliver 1 more in the coming months. We believe that advanced 3D market represent a great growth opportunity. The TAM for both ECP AP and ECP Map is around USD 0.5 billion. This is a new market, young cleaning tools, which is a $3 billion TAM. We are in an excellent position to capitalize on the 3D opportunity.

Beyond these new products, our engineering team continue to work closely with our customer to advance our technology and broaden our product road map, which will further support their production goals. Our internal road map now extending to several major new products over the next several years. We remain committed to balancing our near-term profitability with investment to drive longer-term growth.

We're looking forward to sharing some of these new products with you in the future once we have advanced some of these more promising product count set to first tool demo system for customer's evaluation.

I will now discuss 2 recent strategic developments. Please turn to Slide 7. First, let me update you on the Shanghai STAR Market listing.

On July 22, the first 25 stocks began trading on the STAR Market. Recall that just prior, on June '17, we announced a plan to list the share of ACM Shanghai on new STAR Market. We are now even more confident that this will prove a positive development for ACM and its shareholders.

As a first step qualifying for the listing, we also announced a private investment of $27.3 million into ACM Shanghai subsidiary at a pre-money valuation of USD 675 million.

Our motivation for this plan is fairly simple. We believe that this what enable ACM to, first, access local capital in our primary market, which is China; second, take advantage of a favorable valuation in the STAR Market; and third, raising our profile with the regional customer and supply chain. Please recall in June, we have submitted our business application to the Ministry of Commerce in Shanghai, and we expect the funding to be complete later in the third quarter.

Big picture. ACM Research is committed to the global market opportunity. While industry growth is now centered in China, we expect 60% of the industrial capital spending to take place outside China market at least through 2025. For that reason, we have begun plans to further expand our [lone] China business. Of course, we have the Hynix now, and then we want to add one to 3 major customers in the coming years from either Taiwan, U.S., Europe, Japan and Korea. We fully believe the best structure to achieve our goal is for ACM Research to remain not listed. We will maintain 80% or more ownership in ACM Shanghai after STAR Market IPO.

Finally, I want to share an important, new development in our long-term production plan. As we look out several years, we begin -- we believe we may need to add even more manufacturing capacity beyond our 2 current facilities, which are shown on Slide 8. Planning is at an early stage. We have located a potential site in Shanghai at which we could add a third factory and R&D center. We're in negotiations with the developer and government authorities and could reach agreement before year-end. Should we move forward, the plan could require capital spending for the land this year or next.

To conclude, I'm positive on opportunity ahead of us and confident that we are in an excellent position to participate in the build-out of next-generation fabs for years to come. We have built a strong foundation with the strategic semiconductor customers who are deploying our tools and scale in some of their most advanced production lines. And we expect to win new customers around the world as industries progress to more advanced nodes, 3-dimensional architecture and 3D advanced packages.

Let me now turn the call over to Lisa, who will discuss financial results in more detail. Please.

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Lisa Feng, ACM Research, Inc. - Interim CFO, CAO & Treasurer [4]

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Thank you, David, and good day, everyone. I will review financial highlights and then turn it back to David to discuss our outlook. All figures are for the second quarter and all comparisons against the same period last year, unless I state otherwise. As a reminder, our non-GAAP financial results I'm discussing excluding stock-based compensation.

For a reconciliation of non-GAAP financial results to the most directly comparable GAAP financial results, please see last night's earning release. You can find it posted in the Investor Relations section of our website. The reconciliations are also including as an exhibit to the current report on Form 8-K that we filed with the SEC yesterday.

Please go to Slide 9, where we will start with the revenue. Revenue was $29 million, up 39%. Growth was driven by solid demand for our single-wafer cleaning equipment and our back-end tools. We had customer acceptances of our first tools that have shipped in the period -- prior periods.

Total shipments were $33 million compared to $21 million in the year ago quarter and the $14 million last quarter. The significant sequential increase in shipments was driven by solid demand for repeat and the first 2 deliveries.

Gross margin was 45.3%, which was slight above our normal expectation of 40% to 45%. This compares to 41.8% a year ago and the 43.1% in the March quarter. We expect gross margin to continue to vary on a quarterly basis due to the product mix and the manufacturing utilization.

GAAP operating expenses were $8.5 million, up 32.5% on the same period last year. Non-GAAP operating expenses were $7.9 million, up from $6.2 million in the same period last year and up from $5.9 million last quarter. Growth in operating expenses was driven primarily by R&D and the general and administration expenses.

R&D expenses were higher as we increased investment in new product development.

GAAP operating income was $4.7 million compared to $2.3 million in the second quarter of 2018. Our GAAP operating margin was 16.1% compared to 11.2% in the same quarter last year and 11% last quarter. Non-GAAP operating income was $5.3 million versus $2.5 million a year ago. Our non-GAAP operating margin was 18.2% compared to 12% in the same quarter last year and 14.6% last quarter.

Other income was $0.5 million due to the foreign exchange gains on our working capital due to a strong dollar versus renminbi in the quarter.

GAAP net income was $4.3 million compared to $3.2 million last year and $1.9 million last quarter.

Non-GAAP net income was $4.9 million compared to $3.4 million last year and $2.6 million last quarter.

Stock-based compensation was approximately $0.6 million.

GAAP net income per diluted share was $0.23 compared to $0.18 in the year ago period. Non-GAAP net income per diluted share was $0.26 compared to $0.19 in the year ago period.

Now I will review the balance sheet. We ended quarter 2 with $27.6 million in cash which is essentially flat quarter-over-quarter. We ended the quarter with $15.1 million in short-term borrowings, up from $5.8 million last quarter.

We ended the quarter with $45.5 million of inventory. Finished goods was $13 million, essentially flat when compared to the first quarter. Raw materials inventory grew in the quarter to support strong shipments planned for the second half of the year.

Cash flow from operations was negative $1.4 million. The cash outflow was due primarily to increased inventory and the receivables versus the first quarter.

Capital expenditures were $0.2 million.

I will now turn the call back to David to discussing our outlook.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [5]

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Thank you, Lisa. Please go to Slide 10.

We are very pleased with our results. We are monitoring trends in the broader semiconductor market. I remain optimistic at the way we're receiving strong orders and demand forecasts from our customers.

We are excited by our business prospects and remain committed to gaining share with new products, new customers and more production [staff].

For 2019, we're raising our revenue outlook to USD 105 million, representing more than 40% annual growth. This is an increase of $5 million from the guidance we provided on last quarter's call. Our outlook reflects strong demand from our existing customers. We have a good visibility for the remain of the year due to solid order and forecasts provided by our key customers.

To conclude, our strong results show that we are exciting our strategy -- executing our strategy; we are participating in the growth of the major new IC fabs; we are ramping production at our new factory; and we continue to deliver innovative, new products. We remain committed to achieving our vision of become a major player in the semiconductor equipment market.

Let's now open the call for any questions that you may have. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question coming from the line of Suji Desilva from Roth Capital.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [2]

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David, Lisa, Mark, congratulations on the progress here. Very, very strong.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [3]

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Thank you.

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Lisa Feng, ACM Research, Inc. - Interim CFO, CAO & Treasurer [4]

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Thank you.

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Mark McKechnie;Vice President of Finance, [5]

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Thanks, Suji.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [6]

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$33 million of shipments to be recognized in the second half of '19. It does provide you very good visibility into the remaining '19 guidance or whether there would be a meaningful portion that would be out into the 2020 time frame?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [7]

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Yes. Okay. Suji, actually, look at our -- as I said, in the second half, we have a very good order receiving. Also, we have a very high kind of a delivery schedule, too. So obviously, we look at the second and third quarter and the fourth quarter. We think the third quarter will be heavier than the fourth quarter, right? And also, we see some order or forecasts where we either deliver end of Q4 or probably come to the early Q1 next year. So we're very kind of excited about this customer forecast and also our production capability.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [8]

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And then on...

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Mark McKechnie;Vice President of Finance, [9]

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There's just one thing I would add.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [10]

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Go ahead, Mark.

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Mark McKechnie;Vice President of Finance, [11]

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Oh, Suji, just to add -- yes, sorry about that. But just to add is I think you were asking, too, if we thought some of the first tools we delivered here in the first half would be driving revenue for the second half. And usually, it takes 2 to 4 quarters for a first tool for recognition.

So our second half, as David said, is -- a lot of it is shipment based. And yes, the first tools we shipped in the first half of the year, we would think, would be more of next year-type recognition events.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [12]

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Yes.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [13]

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Okay, great. And then also on the shipments, are they spread evenly across foundry and memory customers? Or is there a concentration on one side versus the other?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [14]

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Actually, looking at our customer, I mean, we do have our -- I call the memory house and also have our foundry. And actually, our second half, you got mixing, right? Mixing of the -- there's a nano company and also the foundry. Pretty good mixing actually in the second half.

As I said, our first customer, SK Hynix, also a delivery in Q1 and Q2 time line, and we're not expect additional deliver for SK Hynix in Q3, Q4.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [15]

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Right. You said that. Okay, great. Okay. And then a question on the Tahoe products. Are additional -- I know you have one customer trialing it now. Are additional customers purposely -- or are you purposely waiting for that first customer's acceptance in early 2020? And are multiple customers kind of waiting on that event order? Is that how this is going to work out where the first customer acceptance is really the trigger for additional customers?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [16]

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Yes. That's the typical pattern, right? And looking at our history, it also showed that pattern. Normally, first customer taking a tool, and other customers they'll be waiting for the result, right? So also -- they're first waiting for results; secondly, they're waiting for repeat order. So I think there's more. As I mentioned, we've got a very promising data from first customer, and we're continually improving further excellency and also improving more of our yield data in the coming quarters. So with that data, we are confident and -- we'll have a repeat order from first customer. But then there may be -- it depends on other customer. If they're -- like our data, maybe they're now waiting for second order -- second repeat order to come out. They can make a decision, too. So we do have, as you say, a few customer lined up, and we're going to present our -- improve the results and -- to see what's their reaction.

Mark, anything you want to add to this?

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [17]

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Okay. Now -- but...

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Mark McKechnie;Vice President of Finance, [18]

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That's good. That's -- I think you covered it, David, yes.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [19]

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Okay. Great. And then just one thing I didn't clarify before. I just want to make sure. Is Ultra-C Tahoe complementary to SAPS and TEBO? Or is it a replacement for it? Is it...

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [20]

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Okay. So the -- so Suji, basically, Tahoe, partly -- I mean, Tahoe is a part that's basically used as -- for sulfuric acid, process, right? Most of their process is post- their action and also their -- post their, I should say, their CMP. And there's some -- also some -- a little bit metal removing process.

But anyway, most metals process, at this moment, our Tahoe -- I'm -- our SAPS -- TEBO didn't apply for those steps. And I should say, previously, they divide the market. However, there might be listed in structures and process that need or require adding TEBO and SAPS the further you consider, I call, the performance.

So anyway, that's adding additional performances for that. But at this moment, our -- I should say most are -- we're sulfuric acid. And with this Tahoe product, we'll meet the customer requirements.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [21]

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Okay. Okay. And then last question. It's exciting to see your fifth customer here, DRAM customer. Can you talk about the number of steps relatively -- not to go numbers but just whether 3D NAND or DRAM has more steps that are required at cleaning, which one's more intensive in terms of use of your tools or whether they're both pretty similar.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [22]

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Well, in general, I see that is -- obviously, DRAM process are more complex than the 3D NAND process. So therefore, they need a cleaning step is more in a DRAM process, right? So -- however, there are different challenging, right? For instance, if we look in the 3D NAND, the -- they're multilayer, right, 128-layer, whatever in the future, 250-layer that deep hole or that sales structure, that deep-hole cleaning becomes challenging, too, right? And so I should say that generally speaking, obviously DRAM has more of a cleaner step than 3D. However, for the specific or deep hole, that's a cleaning challenge, which is, I -- we believe, our SAPS technology exactly designed for those deep-hole layer and their particle removal, right? That's our strong point.

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Operator [23]

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We have our next question from the line of Mark Miller from The Benchmark Co.

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Mark S. Miller, The Benchmark Company, LLC, Research Division - Research Analyst [24]

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Congratulations on another good report. I just was wondering if you can give a little more color on the eval tools, how many you have out there and how do they break out in terms of Tahoe and SAPS, et cetera.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [25]

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Okay. Well, so -- okay, the -- probably I can give you -- I cannot give all the number right at this moment. I can tell we have a Tahoe system on an eval tool right now. And also, we have the copper plating MAP, right, for the foundry application. That's an eval tool, right? And the -- that's a major new product. And also, we do have some other eval tools, which is the existing product, and then -- which is a new customer. And they're -- because they take a first tool, they have to make the eval.

For instance, this new fifth customer DRAM company we're going to deliver their first tool, it's actually a mature tool. But it's also considered eval because of the first customer. So I can say there are at least 3 in hand right now. Actually, we have more than other number in here, probably cannot give you each one or who each customer it is, right, Mark?

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Mark S. Miller, The Benchmark Company, LLC, Research Division - Research Analyst [26]

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Okay. R&D costs, are they going to be trending up for the rest of the year?

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Mark McKechnie;Vice President of Finance, [27]

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Yes. I can hit that, Mark. So yes, we expect our overall OpEx to trend up a little bit from the first half of the year, and it'll be weighted to -- some of the growth will be weighted more towards R&D, Yes.

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Operator [28]

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Sir, we have the next question coming from the line of Christian Schwab, Craig-Hallum Capital Group.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [29]

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Congratulations on another fabulous quarter. Thank you for all those specific customer commentary that you gave. It's nicely refreshing.

As you look at SK Hynix, do you have an opinion yet on whether their purchasing or spending with you will be up on a year-over-year basis in 2020 versus '19?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [30]

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Okay. Well, it's really hard to say at the moment, right, looking at the DRAM pricing. And obviously, the DRAM market today has kind of people concerned. So especially, there's a trade conflict between Japan and Taiwan, right? I mean Japan and also Korea, too. That all impact spending and also their future fab spending for Hynix. I should say at this moment this year, well, pretty -- say that is our first half year, very busy with supplying tool to the Hynix and the second half pretty empty.

For next year at this moment, it's way too early to see that. By our -- I mean, I worked with Hynix for many, many years. It's hard for them to say next year, we'll have no spending. But we still think they are going to continue spending there. They'll spend over -- higher than this year or versus -- lower than this year. It really depends on their plan. By the SEMI Report -- if you look in the SEMI Report, we have some indication. They're going to spend probably higher than this year, probably equal to the last year, right? But anyway, these are all the reporting projection. I can see that probably we'll give you more update at the year-end. Or beginning next year, we'll give you more of our forecasts for our customer.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [31]

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Great. As it relates to the Tahoe and the initial evaluation results that you and the customer are very pleased with, the last quarter you guys made commentary that you would expect material revenue with that customer for Tahoe in 2020. I would assume, since the evaluation results everyone's happy with -- that, that would still be the case.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [32]

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Yes. I think you that said a very good point, right? And as I mentioned, we have a very promising result, and I can see that they are Tahoe's human data, very close to their single-wafer hard [SDM's] single-wafer data. So that's what the real -- in the process what demonstrate Tahoe have a similar capability, but we'll use only 1/10 of chemistry, right? So that's why the customer really like it.

As to our first tool, and we're packing typically, I should say, 8 to 12 months. So assuming probably either end of this year or beginning next year, we'll finish the qualification of first customer. And then obviously, we're expecting repeat order from the same customer and additional orders from other customer, right?

And for the other customer, we're going to record a revenue of probably -- it depends on the order, right? Normally, new customer take 6 months. So some of those are new order from Tahoe will help definitely to add on our revenue next year. And at this moment, probably too early to say. It depends on when orders start, when we deliver, right? So that's our projection.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [33]

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Okay. Great. And then on the TEBO, you guys talked about orders next year for your next-generation cleaning tool. Can you remind us, any ASP differences in the next-generation tool or gross margin differences versus the previous cleaning tools or are ASPs and gross margins, the same just increased performance?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [34]

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Yes. Okay. Actually, as I mentioned, in early report in TEBO, we're -- just like any technology -- I'll give as example, go back to SAPS. For the SAPs getting to the customer using for production, it will take more than 2 years, right?

So TEBO will follow that trend, right? So I think the -- as I said, Q2 last quarter, we're achieving together with a customer very good data, and -- which is through our hard working, closely collaboration with the customer and also modify hardware, modify parameter, modify processes, data -- I mean, process condition. So that will show our TEBO is very effectively in removing small particles and also removing the contamination without damaging the structure, right? With this good data, we'll continue working with the customer, and we'll continue to apply more and more steps. And then eventually, they're going to buy more of our tool because of the more steps and more of expansion in their capacity. They need a tool, right? That's for our current customer.

And with -- again, same thing I said with the Tahoe, same kind of path. As soon as one customer had a repeat order coming and overall data come out, and the other new customer like say, what's going on there, right? So we expect that that's moment, a checking point. We've got additional new customer coming.

So anyway, I think that bottom line, at this moment, I should say all the pattern wafer, there's no -- any technology kind of apply or physical agitation to that tiny structure, right? We're going to control their bubble temperature, control their -- our TEBO technology, we're very promising or we're very confident this technology will play a big role, especially cleaning small particles, tiny particle into the trench, between the trench, above the trench or into the deeper layer.

So it's really a critical technology when the people are moving to 5-nano or 3-nano, even down the road, right, no matter it's a FinFET or nano wear. And so we're very promise. We're very optimistic about technology. Eventually, it become mainstream technology to [remodel] this kind of a critical application.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [35]

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Fabulous. And then lastly, speaking about of optimism, I think you guys currently have, I think, roughly $350 million in annual revenue production capacity already. Is that number still correct?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [36]

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That's correct. As we announced before, we have 2 factory right now. First factory, about $100 million. Our second factory, around $250 million. So added together, it would be a $350 million revenue capability for a year. Yes, that's correct.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [37]

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Okay. And then to the optimism part. Given the fact that we're only $100 million a year company today with another $250 million in capacity yet available, we're looking at adding future production and future space potentially in the near future.

So with that in mind, what is your guys' multiyear outlook and objective for market share goals in the $3 billion cleaning market as well as the $500 million advanced packaging market?

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [38]

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Great point, right? And so if you look at our TAM here, our cleaning market totaled $3 billion with our current product, which is, I call it, a critical process. Our SAPS, TEBO and also the Tahoe, we think, about are -- total TAM is about 50% of that. And also with additional where cleaning -- 3D market is getting, especially front-end and back-end together, that's a roughly $0.5 billion TAM market. So we have a real huge market.

Obviously, continue with innovation, new technology, we'll take more market -- increase the TAM market, too. So it's a real good future for us. And where is that? That's why expecting -- we're trying to building manufacture capacity. And further, we're going to also increase our sales capability both inside China, outside China.

We put -- do believe our technology will be needed by everybody, every fab in the world. So that's why we're going to make our early preparation and for those time comes. And as to the, I should say, the sales revenue increase, it's hard to give you a future, but I can give you a past, right?

In the last 5, 6 years, our annual compound increased about 60% of annual base. Again, that trend, I should say, obviously, it depends on the future how we execute the business. And we want to maintain -- we want to get kind of a good increase to our revenue until we reach a certain, I call, saturation point. Next 3, 4, 5 years, that'd be the growth -- right, the growth period for us. So we're very excited. We're going to prepare for that of course.

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Operator [39]

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(Operator Instructions) And since there are no further questions at the moment, back to you for any ending remarks.

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David H. Wang, ACM Research, Inc. - Founder, Chairman, CEO & President [40]

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Thank you, operator, and thank you all for participating on today's call and for your support. This concludes the call, and you may now disconnect it.

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Operator [41]

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Thank you, sir. Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may disconnect now.