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ACM Research, Inc. beats earnings expectations. Reported EPS is $0.43, expectations were $0.1. ACMR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the ACM Research Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] 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.

Steven Pelayo: 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 can 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?

David Wang: Thanks, Steven. Hello, everyone and welcome to ACM Research fourth quarter and the fiscal year 2023 earning 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 know the delay of shipment to several customers due in part to adjustment in their fab buildouts.

While we don’t normally share our expectation 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 tool during 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 specific to the ACM. According to a third-party estimate, the overall Mainland China WFE market grow around 15%. If we exclude lithography tool, 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 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 customer, three, broader participation with new customer in China and four, good execution by our production and service team. I will now provide detail on product. Please turn to Slide 4. Revenue from single wafer cleaning, Tahoe and semi-critical cleaning product grew 48% in 2023 and represent a 72% of total revenue. ACM offers what we believe in the industry’s most comprehensive cleaning portfolio. We support nearly 90% of our all cleaning process step 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 feature not available from any of our competition. We entered into the 30 millimeter auto bench cleaning market several years ago is proving to be a significant winner for their mature node spending. We have delivered more than 70 auto bench tools today and note a very strong contribution in 2023 with good profitability. By our estimate, ACM become the largest China based supplier for auto bench in 2023. For Tahoe, we made a good progress during the year. Our engineering team modified technical feature to meet production requirements for the key customer. 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 reduce the consumption of the sulfuric acid. We continue to innovate in our cleaning and look forward to additional market share gain in 2024 when 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 technology grew 33% in 2023 and representing a 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 grow even higher than 33%. We are taking a good share for overall plating with a particular strong growth in front end process 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 a 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 exclude ECP, but includes service and spare grew 31.5% in 2023 and represent 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 of advanced packaging.

We believe ACM is only company in the world that offer a full set of wet tool, polishing and the plating for advanced packaging. We expect advanced packaging to become more important as industrial looks for packaging innovation such as 2.5D and 3D in the process and fan out. These are the critical for high performance computing application such as AI, which is seeing increasing demand globally. Finishing up on product, we made a good progress with our new Track and PECVD platform. We are engaged in active dialogue with our key customer and intend to release additional evaluation tools this year. As with our cleaning, plating and furnace product line, our Track and PECVD platform boasts the proprietary technology that position them as a successful choice for major customer globally, including both in and outside China.

We are making a 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 next-generation of lithography tools. We are engaged with multiple customers for PECVD tool. We’re expecting significant progress for PECVD product development and evaluation in 2024. Turning to Slide 5 for our product SAM. We estimate our product portfolio address 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 median-term $1 billion revenue target. We believe we can achieve this with a range of market share by product in the Mainland China alone. We have achieved scale with a differential product that have been proven in China market and we have put resource in place to address international markets. To be clear, long-term we see additional $1 billion plus opportunity from international markets. Moving on to the customer, please turn to Slide 7. In China, we are market leader in cleaning and cleaning tool with sales to nearly every semiconductor manufacturers. Our sales and service team are now achieving deeper adoption of our products across this customer base. Beyond established payer market growth is being driven by an influx of well-founded new entrants.

For 2023, we had three 10% customer. SMIC was our top customer at 18% of the sale, 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 player 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 ULTRA C v backside cleaning and a bevel etch tool to this customer in the second quarter of 2024. This demonstrates a deepen relationships which we believe can lead to production orders.

Furthermore, this enhanced ACM brand and position 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 manufacturers in the fourth quarter. To support growth we made a progress on our facility expansion in China and other region. Please turn to Slide 8. In China, construction of our Lingang production and R&D Center is nearly complete. We expect initial production in middle 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 global market. We now have more than 150 employee in Korea with their facility including sales administration, small scale production and the development lab with a clean room to support internal R&D and wafer demos for the customer evaluation.

And we are making initial plans to building a new factory on the land we purchased early last year. We believe a strong commitment to Korea will improving 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 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 implying 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.

Mark McKechnie: 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, unrealized gain loss 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%. The full year 2023, this category grew by 31.5%. 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, product mix, currency impacts.

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% 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 for 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.

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Operator: [Operator Instructions] Our first question comes from the line of Suji Desilva with Roth MKM. Your line is now open.

Suji Desilva: 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?

David Wang: Okay. Thanks, Suji. Okay. I think this tool we ship a year ago, right then through our service process engineer hardworking and then we have our first tool gather acceptance. So this will be getting to the production, their mass production. And also I want to see that this specific SAPS megasonic tool really address the customer needs. And we can see — get a good convenient performance and also much less particle consumption. So that’s really customer like the tool. And we believe this definitely — first full qualification will lead it to their additional order for the same customer. So meanwhile, and as mentioned also we have a second different tool, which is backside and also wafer cleaning. It was ordered by the same customer and was shipped them in the second quarter of this year.

So oversee that is this a key customer in the U.S. and we want this to be another example and also encouraging other big players and adapt our differential technology. So we’ll say that will be their good outcome. And also there’s, of course, international, I call the revenue contribution to our year 2024 forecast. We can see that too.

Mark McKechnie: Yes, Suji, I just add for 2024. I mean, a lot of things go into our forecast. We don’t have a — 2024 will be a building year for us for the for the international and we’d expect some additional contribution, you know, whether we get an order that ships for one or several tools that ships this year or next year will depend on how big it can be for us.

Suji Desilva: 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.

David Wang: Yes, I think in the Q3 we also call or mention about the delay and it’s because of our customer they’re building a plan. And there are certain, I call the plan delay or the installation not enough, either resource or floor plan not fast enough. But anyway, there’s continuing investment going on. So those portion of the delay, as I said, will be definitely delivered in 2024. And that’s also added to our shipment. Those two has been built already. It’s going to also save the cash we spend last year already. So we’ll see that happen. And I would say that also the total shipment we expect in 2024, and there will be quite an increase, we believe even will increase rate higher than their quarter revenue increase, right, in compared to 2023. So that’s another I consider a great year for us in 2024.

Suji Desilva: 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?

David Wang: Yes, I mean, you can see that CXMT is our third customer in the year 2023, right? So we’re expecting this memory business to continue to grow. And again, other — memory in China is still multi-year expansion. And so we see that as good market for us and also we see that continue to grow.

Suji Desilva: All right. Thanks, guys. Congrats again.

Mark McKechnie: Yes. Thanks, Suji.

David Wang: Thank you.

Operator: 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.

Charlie Chan: Thanks for taking my questions. David, Mark, happy Chinese New Year. And Gong Xi Fa Cai and congrats for 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% Y-on-Y growth. So I calculated your midpoint suggesting the ACMR is growing like 23% Y-on-Y. So what was the discrepancy between your ACM Shanghai entity versus the parent company?

David Wang: 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 show the difference of both, I call the forecast. In general, see that is U.S. GAAP will be first tool take a long time evaluation and after that you can recognize repeat order just on the shipment, right? But in China, GAAP is no matter is new or is a repeat order. You have to really install and basically. you know, kind of initial acceptance by their customer then you can recon revenue. So that slight difference show, 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.

Charlie Chan: 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 customer, 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 indicator we should pay attention to, right to check the China CapEx sustainability.

David Wang: 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, it’s 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 the chip, especially mature modes in China is way higher than capability that can be produced in China. So you look at that gap, I’m still saying next few years and China and WFE, this market will continue to grow.

Charlie Chan: 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 assumption for 2024?

Mark McKechnie: 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 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%.

Charlie Chan: Okay. Okay. Yes. So — yes thanks for the recap those guidance.

Mark McKechnie: You bet. You bet.

Operator: [Operator Instructions] One moment for our next question. Our next question comes from the line of Mark Miller with The Benchmark Company. Your line is now open.

Mark Miller: I believe you — well, first of all, congratulations another great quarter. But just wanted to get a little more into the OpEx in the December quarter. You did mention the sales and marketing was down. You said it was because of demo systems. I’m confused why that fell so much.

Mark McKechnie: 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.

Mark Miller: Can you give us a little bit — you said you had a lot of quals underway. Can you give us a little more color of what’s going with your quals and timing of quals in terms of when you expect revenue generation.

Mark McKechnie: In terms of — yes, David, he’s asking about our evals at our customers. Maybe I’ll let you address that and then I can add to it in.

David Wang: In general, right?

Mark McKechnie: Yes.

David Wang: Okay.

Mark McKechnie: And so that’s — I think Mark, you know our finished goods inventory is largely comprised of evaluation tools at our customers. And so I think, yes, David.

David Wang: Yes, let me see that. Obviously there’s this finished goods in the customer side for evaluation. Mostly the first tool. And those first tool can be their first of new customer, right, especially their first time buyers. They want to make sure those tool and not just qualify for 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 pretty new, brand new tool. And we need a customer to real, we call it a beta tool, right? You need a real 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 kind of tool will be considered as our first tool.

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

David Wang: Okay, great. So Hynix actually is a real long-term customer, right. And we are fully engaged with the customer, I mean, Hynix right now because we are real — emphasize our investment also expansion our R&D force also manufacturing in Korea. We do have about 150 employee in Korea right now. As I mentioned, we bought a land and also to building factory there at a future property time. So key point I’m trying to see that is we have multiple tools like cleaning, copper plating and including furnace and also a developer of PECVD and also Track. So all these five tools will try to engage with the customer in Hynix and because of a relationship and also because of our local R&D force and also we offer customer with differential product and differential technology, which is quite interest or get interest from the customer in Korea.

Mark Miller: Thank you.

Mark McKechnie: Thanks, Mark.

David Wang: Thanks.

Operator: [Operator Instructions] One moment for our next question, please. Our next question comes from the line of Christian Schwab with Craig-Hallum Capital. Your line is now open.

Christian Schwab: 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 else so globally year-over-year.

David Wang: Okay, great. I think the ACM — we’re started beginning you know even from the Bay Area, right. ACM our R&D philosophy is, I would call differentiation, right, and each product we’re building like cleaning you already know that SAPS, TEBO, and Tahoe is pretty our differential product and same thing for the copper plating. So our goal is building differential product and this moment widely has been accepted by the local customer in China. And with those differential product and the technology I think we can penetrate or get into international, right, example is that we already get into the Hynix you know and also we have one bigger manufacturer, U.S. adapt the SAPS already also have a European company and also adapted SAPS megasonic cleaning too.

Beyond that as the next one is our Tahoe, our TEBO plus we have a super-critical CO2 dry with Tahoe — with TEBO tool will be real be exciting for their patent way for cleaning tool, right? And beyond that is also I said that we have also furnace and for furnace ARD and including copper plating and it was another very candid product and to be able to penetrate international market. So as I say that is of course developed PECVD and the Track also has our proprietary differential design point. So ACM really develop their — I call this our differential product which is real offer differentiation offer their different benefit than our other competitor doing. That’s our confidence and also our proven record. We can put the tool and sell in international market.

Christian Schwab: Great. So congrats again on a very differentiated and better product than your competitors. Just in a quick last follow-up then is on the international front. You know, how much of the year-over-year growth are you looking for from that? I guess, I know it was kind of asked earlier but you mentioned it numerous times as why you thought you would outgrow the market. So I’m just wondering if you’re willing to provide any clarity — more clarity there.

Mark McKechnie: 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.

Christian Schwab: 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?

David Wang: Yes, Christian, this is a very good question. I think the way we’re doing right now, obviously it’s quite a quicker fast grow in the Mainland China market, right. A lot of product we qualify here now. So those — I think our goal was you know reaching $1 billion even by China market only, right? We think in the next few years we should be reaching our goal and simultaneously in a couple of years, two years ago we started also global market expectation penetration. So the key is really how we execute our international sales plan. Now we have hiring good people and sales guy in Korea, actually also in the U.S., in Europe. And we’ll see that there are quite a bit of progress. And let’s put this known for the international market and as we talk to the customer, everybody looking for, back in the game, you know differentiation, right?

So with that in mind and as I mentioned, couple of products we have right now, we do have confidence as their first, I call their U.S. customer adapt tool. We see more of our customer may adapt additional other tool too. So we see that happen. But then you’re asking, which year is how to give you precisely. But I think as I said, we have a big revenue with a strong financial supporting from sales here with also differential product, definitely will penetrate into the international market. If asking next few years is very exciting, we have to quickly execute our plan and to quickly reach that goal. And eventually, as I mentioned a couple of times before, we under half from Mainland China, half from outside Mainland China, right? So like you said, the real revenue contribution actually be more bigger outside Mainland China.

Christian Schwab: Thank you. That’s great. No other questions. Thanks, guys.

David Wang: Thank you.

Mark McKechnie: Thanks, Christian. Yes.

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

Charlie Chan: 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 are also including some engine equipment? Thank you.

David Wang: Yes, I think the primary we sell to the SiEn is 12-inch tool, right. And also their most expansion now is a mature node. So we actually sell a lot of our auto bench. They’re probably the largest auto bench customer right now for us in China. So of course they also buy the wafer, right. So that’s why primary driving there to become the second largest customer in 2023. And looking forward, I think also we are very good relation and engagement with them in copper plating, our furnace and also online. So that’s another contribution we can say from SiEn, right. And it’s great customer and we’re happy with our — I said, you know, our auto bench tool be largely deployed and investigate the production line.

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

David Wang: Well, I mean, we’ll strictly to follow all the aspect control rule, right. And said here and for those whatever restrict their customer, we have to be very carefully 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.

Charlie Chan: 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.

David Wang: Yes, well let’s this, 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 the 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 the 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.

Charlie Chan: 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?

David Wang: Well, obviously more than — other than Hynix also looking for other player, right, is key here. Then the memory market HPM is really booming, right. That’s key here. So we see that demand there as I mentioned right. This is cleaning, copper plating it’s real demand there. I don’t know what time we come back to 10%. Our customer is how to predict it right now we’ll see right. Especially second half year or next year it’s really we want to see something recover from DRAM market.

Charlie Chan: Okay. Got you. Thanks, David.

David Wang: Thank you.

Operator: 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.

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

David Wang: Thank you.

Edison Lee: 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?

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

Edison Lee: 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?

David Wang: Yes. I think the key driving force is I want to say that China WFE market is continue — you know people say maybe — I mean slightly increase at least a flat. I see that that’s number one important. But second most important we have our gain for our, I call a higher growth rate is because we have continue — have a new customer coming. And also we have gain on market share from existing customer and also do have back a furnace will do the more contribution this year and for revenue, right? So that’s all they’re added together that give us a basis to forecast our growth rate higher than the growth rate of the WFE market in China.

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

Mark McKechnie: Yes. Hi, Edison. We didn’t break it out, but we did a couple other questions about that. We mentioned it wouldn’t be a very significant contribution for 2024. We expect that to build in the coming years, but it’s not a very significant piece. We think it’ll be bigger than it was this year. And so you got the numbers — and you’ll get the international numbers shortly, but it’s not going to become a huge. I wouldn’t expect it to be more than 10%. Yes.

David Wang: 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.

Mark McKechnie: Yes.

Edison Lee: Okay. Got it. Thank you very much.

Operator: 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.

Steven Pelayo: Okay. Great. Thanks, Mark and David, and thank you all for participating on 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.

A – David Wang: Thank you.

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