ACM Research [ACMR] Conference call transcript for 2022 q2
2022-08-06 05:01:06
Fiscal: 2022 q2
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ACM Research Second Quarter 2022 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will call - I will turn the call over to Gary Dvorchak, Managing Director of the Blueshirt Group. Mr. Dvorchak, you may begin.
Gary Dvorchak: Thanks, Harman, and good morning, everyone. Thank you for joining us on today's call to discuss second quarter 2022 results. We released results before the U.S. market opened today. The release is available on our website, as well as through newswire services. There's also a supplemental slide deck posted to the investor portion of our website that we'll reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, the CFO of our Operating Subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual to differ materially. Those risks are described under Risk Factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain or loss in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR or website. With that, let me now turn the call over to David Wang, who will begin with Slide 3. David?
David Wang: Thanks, Gary, and good afternoon, everyone, and welcome the ACM Research second quarter 2022 earnings conference call. Please turn to Slide 3. Our second quarter results represent a solid recovery following the Shanghai COVID restriction in the spring. We delivered strong revenue and profit profitability as our facility returned to normal operations As we had expected on the Q1 call, the restriction turned out to be temporary. The Chanana facility was reopened on the closed loop production process in later April. As of July 1, operations in Shanghai were largely back to normal. I want to sincerely thank our employees, business partners and the customers for their dedication, as we navigated the COVID pandemic. Let me share some financial highlights for the quarter. Revenue of $104 million was up 9%. Revenue include shipments of tools in the second quarter that could not be delivered in the first quarter due to the later March restriction in Shanghai. A strong product cycle from ECP and incremental business from new customers also contribute to their growth. Shipments were $112 million compared to $82 million last year. Gross margin was 42.4% within our normal range of 40% to 45%. Operating margin was 21.1%. We ended the quarter with $469 million of cash, equivalents and time deposit. For the first half of the year, revenues grew by 50%., cleaning tools grew 27%, while ECP to grow 490% and contributed 20% of the sales. Demand from our top China customer remains strong. We believe many of our customers are in the early to middle stage of multiyear expansion plans, and we see good growth of opportunity for the next several years. We had a growth share of the China market with our chamber cleaning tools based on our technology, good execution and new products. We had incremental revenue contributions for ECP product cycle for both front end and back end and with multiple customers. We are gaining marketing share in China with both ECP and advanced packaging products. Over time, we target 50% of market share in trading in China and 25% share globally. We target a similar trajectory for our furnace product cycle in the coming years. And we are building a longer-term opportunity with the introduction of two new product categories, which are on track for later this year. I will now highlight a few recent announcements. On April 21, we announced that our 18 chamber 300-millimeter C VI, single wafer tool was qualified for mass production by a mainstream memory chip manufacturer in China. This tool provides 20% more throughput than our slot chamber tool, but with a similar footprint and is an important tool to support higher volume production line at one of our key memory customers. We expect the 18- chamber cleaning platform to play an important role with this customer and others for 3D NAND and DRAM. On July 12, we introduced a New Post-CMP Cleaning Tool silicon and Silicon Carbide wafer substrate manufacturing. This tool expands our Canadian product portfolio by serving as a Canadian step following technical mechanical polishing CMP is using manufacturing high-quality substrate. I will now provide some highlights of our major customer initiatives. I will start with the U.S. We recently delivered two ULTRA Cs that find for chamber convenient tools to their fact of a major U.S. semiconductor manufacturers. This is a great achievement for ACM, and testament and our technology and our North American sales and marketing operations. We delivered the first tool in June, which our customer is evaluating based on a unique technology feature. We also delivered second P52 in the middle of July. Our target is to qualify both tools and put them into production by the end of the year. We have a staff of full science service team in the U.S., and we now have a visiting team, our engineering from Shanghai to support inspiration and evaluation. We believe a success a here could be to follow on orders with this customer at server sites and perhaps need due to interest from other major customer in US and Europe.. Next, we remain engaged at a channel based facility of three larger international semiconductor manufacturers. The first is a global IDM with a China-based packaging facility, we delivered the first ultra CTR web-streaming system in Q4 2021, followed by a second to in Q1 and we received additional for delivery later this ar. We're hopeful that a success with our first product could lead to a broader adoption of other WLP products at this important customer. The second is a regional Asia-based semiconductor player with a China-based fab, we deliver ultra ECP map development the tool in Q1 and the customer has begun its evaluation with our service and process team. And the third is a major global semiconductor manufacturer with China fab. We deliver Ultra Ultra C SAPS V 12-chamber cleaning tool in Q2, and we are moving forward with evaluation. Looking into the second half of the year, demand for our tool is strong, and we have good visibility through year and we are starting to receive orders for the first half of next year. We expect solid growth in 2022 and beyond from our core cleaning products. The ramp of our ECP products and increased shipments of our furnace products, we are committed to gaining additional share in $8 billion market addressed by our current products. We have two important new product extension. In cleaning we have a sub, super critical CO2 dry tool and in furnace, we have ARD, both are on track to be delivered in the second half of this year. Furthermore, we are on track to double our addressable market opportunity with upcoming introduction of two new product categories also in the second half of this year. Now let's discuss our capacity expansion plans. We continue to add capacity to our Chuansha facility. We moved our parts inventory into our third building, which frees up additional 5,000 square meters at our second building for final assembly. We remain committed to grow our production capacity to $625 million this year, and our Lingang construction project is on track. We plan to complete the first production building in the beginning of 2023, with initial production to start by middle year. We are also planning R&D center in Wuxi and Beijing to support several key customers, and we are considering a more meaningful investment with a potential production facility in South Korea. We currently have about 100 R&D engineers and supporting staff, together with for production facility. A larger presence in South Korea with meaningful full production capacity, weâll establish a local footprint via near 2 major players and provide our global customers with a secondary production center to ensure continuity. Before I provide outlook, I'm pleased with the progress with our new auditor. On May 19, we appointed PCAOB compliant auditor, Armanino as our independent public accounting firm for our first year 2022 audit. On June 30, this was ratified by our shareholders. Following our 2022 annual auditing and filing of the 10-K, we expect to be removed from this published by the SEC pursuing to the U.S. holding foreign company accountable factor. I will now provide our outlook. We have a strong order through year end. Due to a tight supply chain environment, we are keeping our outlook unchanged in the range of $365 million to $405 million. The range of our outlook consider among other factors, continued expansion of production and shipping operation in Shanghai. There were sales of unexpected interruption of a supply chain and continued demand by our customers. Now let me turn the call over to Mark, who will review detail on first quarter results, second quarter. Mark, please.
Mark McKechnie: Thank you, David, and good day, everyone. Please turn to Slide 5. Unless I note otherwise, I will refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized loss on trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Before I provide the normal review, I want to address the impact of the COVID restrictions in Shanghai on our business. As a result of the restrictions for the first half of the year, we experienced a negative impact on revenue and shipments and overall results were below the original book, the original plan established prior to the restrictions. In addition, 13 tools that could be not shipped - could not be shipped to customers in the first quarter were subsequently shift in the second quarter. To quantify these 13 tools amounted to $24 million in shipments and $12.9 million in revenue. Qualitatively, we had higher operational costs and some inefficiencies across different groups during the registration. The restrictions did also impact our operating cash flow, primarily with the relatively high percentage of shipments in the latter half of the quarter our accounts receivables. With the easing of restrictions, we are now focused on delivering tools to meet the demand of our customers. I'll now provide financial highlights for the second quarter. Revenue for the second quarter of 2022 was $104.4 million, up 93.8% in the second quarter of 2021. Total shipments were $112 million versus $82 million in the year ago period. Revenue for single wafer cleaning tools, which include SAPS, TEBO, Tahoe and Semi-Critical cleaning was $72.6 million, up 59.7%. Cleaning mix as the percentage of total revenue was 69.5% versus 84.4% last year. Revenues for ECP, furnace and other technologies is $20.5 million or 19.6% of sales compared to no contribution in the year ago quarter. Revenue for Advanced Packaging, excluding ECP, services and spares was $11.3 million, up 34.6% or 10.8% of sales versus the mix 15.6% last year. Gross margin was 42.4%, up from 40.5% in the prior year, which is in line with our normal expected range of 40% to 45%. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses were $22.3 million versus $16.1 million in the second quarter of 2021. The majority of the increase was from R&D personnel for new product development and other factors and increased SG&A costs to scale the business in China and new global markets. Operating income was $22.0 million versus operating income of $5.7 million in the year ago period. The large increase in operating income is due primarily to leveraging our top line. Our operating margin was 21.1% compared to 10.5%. Unrealized loss on trading securities was $0.4 million in the second quarter of 2022 versus an unrealized gain of $3.8 million in the year ago quarter. This non-cash item is excluded from our non-GAAP results. Income tax expense was $7.7 million, as described in our earnings release, the change in the U.S. Internal Revenue Code Section 174 that went into effect on January 1, 2022 has caused a meaningful potential increase in ACM's effective tax rate for the full year. We're still evaluating the impact of the new tax provision for 2022, and we note that Congress is considering legislation to the further capitalization requirement in later years. Net income attributable to ACM Research was $14.6 million versus net income of $4.1 million in the year ago period. Net income per diluted share was $0.22 compared to net income per diluted share of $0.06 in Q2 of 2021. I will now review selected balance sheet items. Cash and cash equivalents, restricted cash and time deposits was $468.9 million at the end of the second quarter versus $533.1 million at the end of the first quarter. Total inventory was $288.1 million at quarter end, up to $271.5 million at the end of the last quarter. This included finished goods inventory of $103.4 million, work in process of $45.7 million and raw materials of $139 million. Net cash used in operations was $33.6 million with net income offset by an increase in accounts receivable and inventory. As I mentioned previously, our receivables were higher due to the relatively higher percentage of shipments made in the latter of the quarter as a result of the Shanghai COVID restrictions. In closing, demand for our tools remain solid, and our operations have returned to a more normal level. We will continue our investments in new products, new customers and capacity as we continue forward on our mission to become a major player in the global semiconductor industry. Now let's open the call for any questions that you may have. Operator, please go ahead.
Q - Quinn Bolton: Hey, guys, congratulations on the nice results and the strong recovery in the June quarter. David or Mark, just wanted to ask my first question around the 2022 guidance. I know you're keeping it unchanged to 3.65 to 4.05. But it sounded like you said that part of the reason you're keeping it unchanged was due to supply chain constraints. So I guess my question is, do you have the demand that could actually lead to upside and you're not changing it because of the supply chain? Or did I miss hear your comment.
David Wang: Okay, Quinn. Hello?
Quinn Bolton: Yes.
David Wang: Okay. As we said that, you know, everybody where that is the supply chain still continue, I should say, still very tidy. That's the reason even we have very strong demand and ROI from customer because uncertainty of this supply chain, that's why we're still keeping 365 and 405 of our projection for this year.
Quinn Bolton: But it sounds like maybe you might have actual demand that could - would allow you to achieve that, but you're keeping the annual target mostly because of concerns around the supply chain.
David Wang: Well, I said if supply chain it's really get better or if we have a lending item can we deliver as we expected and probably can reach high sight of our projections, right? And so it's really this moment - we still have some surprising, right? Sometimes they say they can deliver next month. But when the time comes in is a delay. So there's a certain part holding us for this way. That's why we're still keeping this number, no change.
Quinn Bolton: Got it. Understood. David, second question for me. You've got a number of new platforms coming out in the second half. You've announced two of those, which are the supercritical dry in the ALD furnace tool and then the complete new platforms. Can you talk to us, you introduced those tools? When do you think you'd actually be able to start to rev rec those tools, could the supercritical dry and ALD furnace rev rec in 2023? Or do you think the evaluations for those tools, as well as the new platforms that you haven't announced yet. Do you think this rev rec on those platforms really are going to start to kick in for you and more in 2024? Just trying to think about the timing of these additional growth drivers? Thank you.
David Wang: Yeah, great. Actually, those tool, as I mentioned, will come in second half of this year. So normally, like furnace ARD, also, we have the supercritical CO2 dry including auto, so two new category products. And when we put in the customer side normally it take about a year, 1.5 years, right, the full qualification. So I should say, we're probably expecting real revenue come out in 2024.
Quinn Bolton: Understood. Thank you, David. Thank you, Mark.
David Wang: Thank you.
Operator: One moment for our next question, please. Our next question comes from Suji Desilva with Roth Capital. Please go ahead.
Suji Desilva: Hi, David. Hi, Mark. Congratulations on the execution, challengingâ¦
David Wang: Hi, Suji.
Suji Desilva: Yeah. So just to kind of maybe elaborate on Quinn's question a little differently. I want to ask about the visibility in the sense that you have backlog you were catching up from in the first quarter that show up in the second quarter. Does any of that still remains for the third quarter? Or have you kind of worked through the tools you couldn't ship during the COVID lockdown?
David Wang: Okay. Mark, do you want to cover that?
Mark McKechnie: Yeah, sure. Hi, Suji. So there were two factors, right, for the first half of the year. I mean one is you know, we had - so - and we did deliver all the tools we couldn't deliver in Q1, we delivered in Q2. But certainly, in the first half of the year, our overall production output was impacted. You know, so no, we have not caught up with all the demand for the tools that we have from our customers. The lead times for our deliveries are longer than normal. And so really, if you look at the back half of the year, it's going to be about our execution on the supply chain side and our suppliers, yeah.
Suji Desilva: Okay. Thanks, Mark. That helps to paint a picture there. And then David, perhaps, the foundries in China, SMIC and some others are starting to be able to deliver leading-edge nodes, maybe with or without EV and they have obviously a mix of trailing and leading edge or trying to grow into. Is there an uplift potential for your addressable market as the foundries in China try to target the leading edges more? Or is that kind of nascent and maybe less of an opportunity versus what you're shipping today?
David Wang: Yeah. And obviously, actually, you know, that â the media energy product, right? And at this moment, I think we're really focused on their 28-nano and above h right, a lot of products. Weâre still right now is 45 and 28-nano, and put this way, as a larger market exists in China here, you can still use 45-nano and 28-nano technology to make the product. So we see that the potential is still tremendous, right? It's including cover our cleaning product. For example, we announced about bench that's mostly using for the 45 not above and obviously, 28-nano right. So I still see the potential going in there. And the you know, if there are products you can be keep growing as this fab build up and for those 28-nano and above.
Suji Desilva: Okay. Great. Maybe if I could sneak in one last quick question. On your U.S.-based semi cap equipment partner. Any updates there on the, I guess, the development effort you are working with? Thanks.
David Wang: Yeah. As we said, we have Q2 has been delivered, right to their - one of the major U.S. customers and we're re-expecting those two tools and will be qualified probably by end of this year, and which also are needing additional PO, also additional other kind of product that interest. And meanwhile, we're also working closely with other customers in the U.S. and also in Europe, right? I think our goal is really a global market and is our target. So with our differentiated product you know, in the in capability and also in the future furnace, right, especially ARD were developed right now. So we see still a lot of potential market you know, get our differential product and to be penetrated into the global market.
Suji Desilva: Okay. Thanks, David. Thanks, Mark. Congrats, again.
David Wang: Thanks, Suji.
Operator: One moment for our next question, please. Our next question comes from Donnie Teng with Nomura. Please go ahead.
Donnie Teng: Hi, David and Mark. Thank you for taking my question. Can you hear me?
David Wang: Yes.
Donnie Teng: Congrats on the strong results. I think the first question is still regarding to the second quarter results. I think previously, our impression is like the second quarter sales may be less than US$100 million or not as high as today. Could you elaborate more on - it was mainly due to just the tours, shipment being postponed from first quarter to second quarter, and we probably miscalculated couple of tours in the second quarter? Or it's because of like some customers will want to put in first in the second quarter. I just want to have an idea what's the mismatch in the second quarter sales result in the previous impression? Thank you.
David Wang: Mark, do you want to cover orâ¦
Mark McKechnie: Yes, I can cover that, David. Yeah. Thanks, Donnie, for the question. So really, the - the upside in Q2, I'd characterize that as just good execution by our factory. It really - as we discussed earlier, its the customers' demand for our tools was pretty high. So we quantify how much move that we couldn't ship in Q1 into Q2. But we had that, we have pretty good output and also on the customer acceptance side, the combination of that drove the upside for Q2.
Donnie Teng: Understood. So sounds like its mainly due to demand driven rather than just â rather than like pull-in orâ¦
Mark McKechnie: No. Yeah, Donnie, it really was - the demand was there and it's there for the back half of the year. So to be clear, it was really the execution of our factory and we watchingâ¦
David Wang: Yeah, let me add on the Donnie, your comment, actually went up we're still not there, we will meet our demand in Q2 from our customers. Some of this product we deliver in Q3. That's the status. Because you know, we still lost almost April and even back to the 2.19 production in May, as a lot of restrictions to happen for the logistic deliver and also the clearance of the customer of the import parts. So anyway, that's the real still impact our Q2 revenue and the shipments.
Donnie Teng: Understood. And can I have a follow-up on the full year guidance again. So it looks like we are facing some supply chain constraint or supply chain uncertainties. Does it mainly refer to our component supply or the customerâs capacity expansion uncertainties? Just want to have a more clear view on what exactly mean the supply chain uncertainties to have some constraints to our full year guidance?
David Wang: Yeah. Well, actually, our customer demand still very strong, right? And we can see that RPO has paid up this year and some GEO go to the Q1, Q2 next year. Really, this moment is I think their factor is secure some shorting or long-leading parts. Of course, we're ramping our production and we still need to training our staffing and manufacture people to increase our efficiency and then deliver to, right? So that's the major constraint for our revenue. I call their, you know, realization.
Donnie Teng: On the circa to let us know what kind of components we are facing, maybe have a much longer lead time. Could you give us some examples?
David Wang: Well, I don't really touch the detail, right? I will say, you know, I have a vendor, right, supply. If I mention on the product, they maybe not happy. Anyway, not a lot, a few of them and so we're still lacking a quarter secured or they are full production capacity either, right? I think there also you know, supply other customers, too. So it's really a shortage. So we're still working very close with them. And also, we are also working on second source. Even at some time, we have changed our design and changing the components, and that's the strategy we're taking right now.
Donnie Teng: Yeah. Understood. And my second question is regarding to our progress with the customer. So it looks like we have quite - quite good progress in different type of equipment. But if we want to focus on the priority of these projects or these customers, could you maybe give us a more clear view on which new equipment or which customers that we are more confident in winning orders or to see a more meaningful sales contribution in the near term. Based on the prepared remarks, you mentioned about all these projects. Thank you.
David Wang: Yeah. Okay. Well, obviously, you can see we have our first new customer, right? Obviously, this moment, also have another second tier jump in IGTV customer in China. And also have a bunch of second-tier customer, right, in there, that's probably - as also I can see they're growing and they are building the final line and also the pilot in the production too. So it's a lot of I call their demand there. But also, as I mentioned, that the top of the five customers taking roughly probably 65% of our total revenue.
Donnie Teng: Okay. Great. But just - I just want to maybe to see if you could prioritize all the new projects you've just mentioned in your prepared remarks, lots of names there right like IDM companies, Asia-based customers, et cetera. So just a little bit of distraction. I just want to see if you could kindly prioritize the importance of those projects or when exactly maybe by THE sales contribution timeframe, you know, ranked by the timeframe issue, if you could?
David Wang: Yeah. Well, as I mentioned, the top customer, you know, take it â I just mentioned already, right? But at this moment, it's too early for us to tell you who is number one, number two, because so this is the only Q2 to timeline. I will say, by end of the year, we're going to publish what will be the number one, number two, right? But probably you know, changing in ranking by the five, I already mentioned to you, right? And I said, SMIC, 1TC, as of the top, maybe top 5, top 6 mid-changing depend end of the year. So we have to give you the real number by probably the end of this year, which is Q1, early Q4, earning for next year.
Donnie Teng: Okay. Great. Thank you, David. Thank you, Mark.
David Wang: Thank you.
Mark McKechnie: Thanks, Donnie.
Operator: One moment for our next question, please. Our next question is from Edison Lee with Jefferies.
Edison Lee: Hi, thank you. Hey, David and Mark congrats on the great results. I have two questions. Number one, just more about demand, particularly in light of the recent talk by the U.S. government to step up their export restrictions of SPE to China. What do you think is the impact is that step-up is going to materialize, particularly on, for example, DUV, which could impact not just 14-nanometer or below, but potentially 28, 40, 55. So that's my first question.
David Wang: Okay. Well, it's - I should say, we're not adjusted by public information. We heard that is 40-nano and below, right? And anybody talk about 28-nano moment, right? So you're looking to in a nano and for those, I call the, they did not use any EUV, they're not using advance through there. So I think plenty of nano is still viable technology and for the - a lot of applications, right? And also, if you pair together with advanced packaging together as a lot of it product makes. So that's why I see a lot of fabs still build in China, and most of them is 28 and also 45 above. Also, that's our major revenue come from this moment. Of course, we have also penetrated the market outside China. And with that in mind, so we want our product, either cleaning, top of it, and also their furnace product, we're getting the more advance application in the market outside China.
Edison Lee: But as far as you know, what do you think the Chinese customers, your Chinese customers have started doing in response to this risk of more difficulty in buying SP from the U.S. Have you seen any change in your customer strategy? Are they accelerating procurement or expanding faster? What have you seen from your customers?
David Wang: Well, I mean, this is daily changing information. I really cannot comment customer right now, maybe too early to say anything right now, right? So yeah, its probably I have a real limited information to comment on my customer right now.
Edison Lee: Okay. No problem. My second question is about rising cost of materials and components because obviously, given logistics issues, inflation, we think that a lot of components and material prices have been going up and your gross margin in the second quarter actually is higher than the first quarter. So we wonder if you haven't been able to pass on some of these material cost increases to your customers or how does that work, if the material and component costs totally shutoff
David Wang: Sorry, as my sound here, not clear. Can you repeat the question?
Edison Lee: Yeah. It's about material cost increases and component cost increases. As we think that because of the inflationary pressure and also because of logistical challenges, I think component costs start going up. So we wonder what you can pass on some of those cost increases to your customers? And how does the pricing work?
David Wang: Great. Okay. So we do see some in parts to increase price, right? Because of the â our supply side components, also their raw materials start changing. We do not, I should say, increase our pricing for the sale yet, okay? But for a certain portion of their product, if it's really increased a lot, we're talking to the customer right now, right, because the component increase pricing. So at this moment, I should say, our major component prices still not changing. You know, where import is, some parts on Japan, depreciation of Japanese yen and as we'll not include too much pricing of their parts. But we do see some parts from Europe and from U.S. got increased, right, because of their strong and dollar. Anyway, so we see minor - I mean, it's still a minor impact for us. It's not a real much significant to our cost.
Mark McKechnie: Yeah. Hey, David, if you don't mind, I'd add something here. Edison, and David made a good point. The renminbi weakened about 5% during Q2. And so a lot of our tools are priced in dollars. So you don't see a big impact on revenue. And on COGS, the supply is something like as David noted, some of it is in yen, some of it comes from renminbi and then we get the Western currency, Europe and U.S. So there is that impact. But overall, youâd also - the weaker renminbi does help out in our operating expense, right? So certainly contributed a bit and big picture question at Shanghai operations looks cheaper in U.S. dollars, right, than it would have - if the expense was in dollars.
Edison Lee: In that case and a follow-up by asking what percentage of your revenue for example, in 2Q â is 2Q a fair an example, is store-based?
Mark McKechnie: Yeah, it's the substantial majority. I don't think we break out the exact amount. But David, I'd say the substantial majority, but we're not going to give a percentage, yeah.
Edison Lee: All right. Okay. So basically, all your Chinese customers or the majority of the Chinese customers are basically buying things denominated in U.S. dollars from you guys?
David Wang: Yes, that's correct.
Edison Lee: Okay. Okay. That's great. Thanks a lot. Thatâs it from me.
Operator: Thank you. One moment for our next question, please. Comes from Chaolien Tseng with Credit Suisse. Please go ahead.
Unidentified Analyst: Thank you. This Jovian from Credit Suisse. I have one. This is a quick follow-up question to the question that Donnie asked. I'm curious what is that in the to change some equipment design, partial design of the component, does they take more time for the customers to qualify than the usual case?
Mark McKechnie: Hey, David, are you there? I think we might have - we might have lost David.
Unidentified Analyst: Okay.
Mark McKechnie: I see David there. Davidâ¦
Operator: Please unmute it. Please unmute.
Mark McKechnie: Jovian, give me one second. I'll try to call David on the WeChat just to see if he isâ¦
David Wang: Is it better now?
Mark McKechnie: Jovian, give me one second, I'll try to call David on the WeChat just to see if he isâ¦
David Wang: Is it better now?
Mark McKechnie: Right. Better, David, yeah.
David Wang: Okay. Can you Mark, repeat the question?
Mark McKechnie: Go ahead, Jovian. Can you repeat your question?
Unidentified Analyst: Yes. Earlier, I think when you answering Donnie or someone's question, you mentioned that in some cases that the company may change a little bit of equipment design or some components inside the cost of the component shortage. My question is, in this case, would that take - will the customer need to get more time to re-qualify your tools with the new design component inside?
David Wang: Yesâ¦
Mark McKechnie: Can you repeat your question?
Unidentified Analyst: Yes. Earlier, I think when you answering Donnie or someone's question, you mentioned that in some cases that the company may change a little bit of equipment design or some components inside the cost of the component shortage. My question is, in this case, would that take - will the customer need to get more time to re-qualify your tools with the new design component in sight?
David Wang: Yes, good question. Actually, it depends on the components of what you're changing, right? If it is a very sensitive component, you have real re-qualify, but for say example some flow meter, you got different vendor, different manufacturer if the boast is a real well-known manufacturer, you can change the flow meter to another kind of flow meter, right? So it's not necessarily you're changing everyone. However, before you change it, you have to really talk to the customer. And also custom has also their experience about the components or this parts within change. So when we reach the agreement, then we're going to change it, right? That's the normal process we' doing.
Unidentified Analyst: So actually, before we change, we need to get there kind of upgrade?
David Wang: Yes, we have the of grant, we tell them, hey, if this component you want it, it takes more long time. And then if you give these components, we give you SPAC or the detail, I call it function, functionality or the description when we got the permission for a customer, then you can change it. Of course, we'll do some internal test first, too.
Unidentified Analyst: Thank you, David. And my next question is, I'm quite curious as for the second quarter finished goods. About how much for that is claim furnace versus ECBIP
David Wang: You mean the components in the ease cleaning or ECBâ¦
Unidentified Analyst: For the inventory finished goodâ¦
David Wang: I seeâ¦
Unidentified Analyst: Took half already, but we have a program. I am just curious about how much for clean, furnace, ECP or others?
David Wang: I think most of our inventory of finished goods is still most convenient tool, right? Almost closer percentage of revenue-wise, probably close to 70% is a cleaning product and also see 20% our ECP. Of course, they have 10% of our packaging, roughly exist. Of course, we have some other new products, which is furnace, right? We're not taking the revenue yet. So some portion were also into the finished goods inventory.
Unidentified Analyst: And David, yeah, my next question is on the furnace side because that something we've been quite looking for true since the last year, early this year. So first would you might share with us how many earnings there coupled tools were shifted in the second quarter. And first, second half of this year about how many furnace tools would you expect to book in our revenue?
David Wang: I probably cannot give that detailed number right now. But I think it was last year on the 20 driven to ship right? This year, I think we project total anywhere between 30, around 30 number range, total this year.
Unidentified Analyst: Okay. And by now, I know there's the COVID-19 lockdown, its impacting China. But I'm just curious that by now, because its kind of early August already. Do you feel the furnace co-brands with multiple customers are kind of on schedule within expectation? Or do you feel there's kind of a bit delay?
David Wang: Hey, Mark. I am sorry, the sound is very low.
Mark McKechnie: Yeah, Jovian, if I understood your question, we've answered that on a couple of the other previous questions. The demand is still some â there is some catch up for us, right? There's more demand that customers â so really we need to catch up on them too relative to the customer demand is we certainly didn't fully catch up in Q2 and so we've got more work to do.
Unidentified Analyst: Yes, Mark, I understand that. But I'm just curious on the funding side?
Mark McKechnie: On the furnace side, please go ahead and ask your question again, Jovian, make sure we understand?
Unidentified Analyst: I am just asking about furnace or for the furnace qualification, asking a separate whatever with our memory or logic foundry customers. So I'm just curious for furnace, do you think so far everything is on schedule or do you feel there is a little bit of the delay with one or more customers?
Mark McKechnie: I see. David, did you get the question? Just she is just asking meâ¦
David Wang: Yes. I think you're voice here, very weak. And I don't know, can you repeat the question?
Mark McKechnie: I'll repeat if you can hear. Can you hear me, David?
David Wang: I can hear you very well.
Mark McKechnie: Okay. So what she asked, she asked if the restriction caused any delays on our - the qualification of our furnace tool?
David Wang: You mean the restriction for the components?
Mark McKechnie: No, no. The COVID related to Shanghaiâ¦
David Wang: Okay. Actually, not really much because at this moment, our furnace and most portion was made in Korea and some portion made in China. So - and also volume not as big as coming into, right. So it's some impact, but not really much.
Mark McKechnie: Maybe, David, I think really, she was asking about like just the evaluation, our ability to have our services team and our customers at our customers to help them with the evaluation of the furnace.
David Wang: So you're saying, how we evaluate the tool?
Mark McKechnie: Yes, as I understand, its she wanted to know the restrictions during Shanghai interrupted our ability or our customers' ability to evaluateâ¦
David Wang: Mark McKechnie: David, we lost your voice a little bit there. I'm sorry about that. Maybe Dave, could you answer again.
David Wang: Okay, now its better?
Mark McKechnie: Thatâs better.
David Wang: Yeah. Now clear.
Mark McKechnie: David, continue. I think that's it. But David, maybe just to answer her question one more time because your earlier answer didn't come through clearly.
David Wang: Okay. I said during the COVID-19 recession period and our process and some engineer, another 3 travel rate from Shanghai and also some components we're going to ship from Shanghai, that's why it will impact some of the tool of furnace evaluation in housing side.
Mark McKechnie: Got it. Great. Okay. That's fair. Operator, it looks like there's no more questions. If you want to pull one more time andâ¦
Operator: Certainly. We have a question from the line of Charlie Chan with Morgan Stanley. Your line is open.
Charlie Chan: Hi, David. Hi, Mark. And congrats for the strong recovery on not just the revenue but also the stock price. So my question is about your view about the future China CapEx sustainability. I know you have a very high backlog to digest, but some memory fab or foundry fabs to cut their CapEx recently, right? So do you expect your new bookings to slow down in the coming quarters? And what would that mean for your maybe coming year growth? That's the first question, okay.
David Wang: Actually, weekends daily impact this year, right? As I said, weaker some deal aiming for Q1, Q2 next year, even with that, I was still talking to their key customer in China and even the next year. So as I said, the key customer outcomes in China seem in the month expansion, probably they are another, as you say, they are in the middle, right, they become spot, this way. Of course, they have a timing, their technology make sure they're - their yield and their technologies amounts to the second point and expanding faster. But that expanding trend as you say, is not changing. So we would say, there is obvious cycle coming, right? We will talk about cycle, probably in our next or you know, start to decline. And what I should say, the policy cycle in China probably delays than a world cycle. So year or two, I feel still pretty comfortable given a year from now, right.
Charlie Chan: Okay. Thanks, David. I kind of agree because it's a local efficiency driven, right? But once that capacity or expansion plan gets completed. I think the cycle impact will still be there. But I agree with you, it would be 1 or 2 years later. And my next question is maybe to Mark, it should be similar. How soon can you be removed on the provision from U.S. I know you have changed the accountant, but I just want to make sure has to be the next of 10-Kk, 20-K or from the quarterly reporting you can be removed from the provision?
Mark McKechnie: Yes. Thanks for asking. So as you know, we were put on the list, the conclusive list actually, following the filing of our 2021 10-K. And so we showed up on a list for the first time as a result of that. Now that we've appointed a U.S. based auditor PC of the compliant. And the - after Dave, we've completed our 10-K filing for 2022, and they're signed as the principal auditor. I guess the way it would work is we would not show up on the list again, in 2022. So we can't get removed from the list that were put on in 2021, but we wouldn't show up on the list for a second time. And that's the way it would play out. So we don't - we would not expect to be added to the list for a second time. And therefore, we don't expect our U.S. stock to be subject to the delisting that could occur if you're on the list for three consecutive times.
Charlie Chan: Okay. So that event will happen maybe next April or May when you report the 10-K?
Mark McKechnie: That's right. It would be more likely, I guess, for us accelerated filer, we would review the 10-K and would expect to come out in March. And so the list would come out, folks will show up as a - second time on the list following that. So we just simply wouldn't show up the second time on the list.
Charlie Chan: Okay. Yes, maybe just a small follow-up about your new power line . Is that a post that CMP cleaning is the so-called the new power line or is just kind of an appendix over your current cleaning tool?
Mark McKechnie: Yes. Actually, that's the tool, and a substrate manufacturer company, right? I what to do that, normally we have CMP of wafer. And however, cleaning performance from the typical CNG machine is other studies by customer requirement. So what they do is they probably do their so then further we clean the wafer mandate in dry box. That's a possibility. Obviously, we are also designed for the that's our product, in the market.
Charlie Chan: So it doesn't belong to the two new power lines.
Mark McKechnie: No, no, no. Not just expansion of our mini cohortâ¦
Charlie Chan: Okay, great.
Mark McKechnie: But particularly by customers, they are not CNG, only cleaning for their CNG mini applications, so it belongs to cleaning part.
Charlie Chan: Yes, just a wish, right? I mean management has been saying that in the second half, you announced a few new power lines, were literally in the second half. So do you think the next quarter results, meaning 3 months later, you will announce then or between you probably will announce the - at least one of the new power lines?
Mark McKechnie: Yes. Well, I mean, we really have a lot of product, evolve, right, and I just make sure, so I couldn't - we have announced this first. But we have about for the DRAM, I mean the capacity in process. And second one, ARD furnace, right, vertical. Then we also have two new category, as we â weâre not have keep name yet, but this market, they are adjustable market $8 million as a new complete new category products and that what is all sustain half of this year. So it's a real exciting moment.
Charlie Chan: Okay. Okay. We will be patient to that and also looking forward to the announcements. And I will leave that one detailed housekeeping staff in our follow-up call. So thanks for the time today. Thank you.
Mark McKechnie: Thank you.
Operator: And thank you. And that will conclude the Q&A for today. I will turn the call back to David Wang for final remarks.
David Wang: Okay. Thank you, operator, and thank you all for participating on today's call and for your support.
Operator: And with that, we conclude our conference. Thank you for participating, and you may now disconnect.
