Good morning and good afternoon. I'm Tim Arcuri. I'm the semiconductor and semi-equipment analyst here at UBS. Pleased to have ACM Research for our next session. We have Mark McKechnie. McKechnie, wow. Who is the CFO who I've known, Mark, for a long time. So thank you for joining us, Mark. Yeah, thanks for having us here. Not a bad time of the year to be in Phoenix. Yes, for sure. So maybe we could just start with the somewhat obvious topic of discussion: the recent export controls. A couple of your subsidiaries got put on the list. How do you think about all of that and how it impacts the company? Yeah, you bet. No, thanks, Tim. Good afternoon or good morning, everybody. So we've been—we're no stranger to this, right? We got—there's always some kind of regulations hitting. But I think I would start out, make sure everyone recognizes that ACM, we were founded in the U.S. in the late 1990s, right? So we started a company here in the U.S., and then we set up the subsidiary in 2005, 2006. We really got put on the map maybe 2010, 2011 when we started scaling up a special type of cleaning tool, our SAPS tool, which helped SK Hynix with their 45 nm products. And then we scaled our whole subsidiary, was where significantly all the growth has been. So at this point in time, last year, close to 95% of our business was from mainland China. And these regulations just hit—let me kind of dig into some of those. I think the big kind of the first takeaway is, what were they? 140-some-odd companies got added to the entity list. I think a good number of those were equipment players in China. So we're not aware that we weren't notified of any specific wrongdoing on our part other than we supply customers in the China region. So the tricky part, I think for everybody, it's going to be some additional challenges for our supply chain going into China. And so we're assessing that as now it'll take us a while to kind of work through that. I think maybe a year and a half ago or so, or when the regulations first hit us in 2022, we commented that maybe 5%-10% of our supply chain came from the U.S. And so what I can tell folks is that us and the industry, we've had some time to localize our supply chain, kind of move around. And we've had COVID. We had the earlier restrictions. And so the industry has adjusted to that. Again, we're going to have to manage through that. We're not down to zero coming from the U.S. But I think us and the industry will have to manage through that. The other piece I'd say is what happens to the overall spending of China Inc., right? And you probably want to dig in a little bit on China WFE. And so we could, even if our tools we can continue to build and what have you, but we'd also have to pay attention to the impact from our customers from the rest of the supply chain. So let's actually talk about China WFE. Then I want to talk about some of your products. But let's just talk about China WFE. I think certainly however much you think it's down next year, it wouldn't be as impactful for you because your portion of that wouldn't be down as much as if you're a domestic U.S. guy that's banned. But how do you think about domestic China WFE next year, just as a whole and as it impacts ACMR? Yeah, and big picture. And I think you've talked to a number of other suppliers that supply into China. I think everyone is talking about the headline numbers being down next year, right, for WFE in China. And I think I also heard some commentary that the 2024 number had some pre-purchasing, right? People knew about these restrictions coming. We don't think necessarily there was pre-purchasing of our tools, but we think there were other tools that were pre-purchased. So whatever the headline number that comes out for 2024, our sense is that it would include some pre-purchasing. So headline number next year, perhaps down. And before these regulations hit, the new restrictions hit, we were planning for growth based on continued market share gains at some of our customers. We have a couple of pretty important product cycles kicking in where we've got products, but it's been very limited revenue, and then we're also working to develop our international business, which is still a pretty small part of our overall revenue outside of China, and so we'd look for some contribution for that. So you think even if I just take what the big some of the companies who have talked about it, KLA just today is talking about domestic China being down low 20s%, and others have said down mid-teens%, and we're down sort of mid-teens% plus as a firm for domestic China. So would you say the domestic Chinese equipment companies are a relatively small portion of that 20%, give or take, of that domestic China number? Would you say that the domestic China and you being within that? So the question is, do you think that still grows even if the overall number is down? Yeah, I think it's possible. Yeah, I do think that's possible. I think that's some of the signals you're getting from other suppliers in there. Again, these regulations are two days old, right? So it's hard to predict that. But prior to the regulations, that's clearly what our view was. How much, just last question on that, how much domestic localization? I don't want to say pressure, but that's not the right word, but how much incentive is there for the domestic Chinese chipmakers to localize with domestic Chinese equipment companies? I think it's pretty high now, right? With the regulations, it's certainly gone up a bit. But the nature of the industry, you always want your suppliers to be as close to your facilities as possible, right? And over the past five years or so, we've been through the COVID restrictions, right? And so I think during that period, our subsidiary had a capital raise in China, and we've managed to really gain a significant amount of share and grow into different product lines. So the localization push, I think, is kind of natural, right, in general. Your supply chain needs to be near some of the fabs that are going up. And the combination of COVID and the restrictions probably add some gas to that fire. Great. Can we talk a little bit about your tools? I think I want to make sure people know that your tools are not just me-too-copycat tools by any means. And you have a lot of innovations in clean and plating. And so I just wanted you to talk about some of those things and maybe some of the technologies that you're the most levered to. Yeah, you bet. No, thanks for that question. The whole culture at ACM is really we're driven to build. The two main driving factors are building world-class tools. We just so happen to grow our business in China, but always focused on IP and developing state-of-the-art, world-class type tools that can help our customers in China, but also have an attach rate to the global market. So the second piece ties to that. The company is kind of uniquely structured. Again, a U.S. parent company founded here in the U.S. Our subsidiary grew in China, but we are squarely focused on the global market. And so I think the last major trade war with Japan, right, was they were building out DRAM, and they tried to build some local DRAM capabilities. A couple of equipment players, the whole ecosystem really scaled up, and then they managed to take that international. Our business plan is pretty similar, rhymes with that. Scale the business where we had the traction in mainland China. But we've got a lot of active efforts right now, and we're hoping that we can scale up our non-China business over the coming years. I think you have about 35% market share of the China cleans market, something in that range. Obviously, as we go to smaller geometries, the cleaning intensity is going up. Can you talk about maybe some of the particular parts of the cleaning market that you're going after? I think the sulfuric acid part of the market, which is dominated by a particular Japanese supplier. I think that's an area that you're kind of going after. Maybe you can double-click on that. Yeah, you bet. So cleaning is our legacy, right? That's where we started. That's kind of where we got put on the map early on with our SAPS tool. And so it's a little over 70% of our business last year. And we came at it from the high end with the Megasonic cleaning, Tahoe, TEBO, and SAPS. And we moved into semi-critical tools as well. We scaled that out a few years ago. And at this point in time, cleaning, our core market, we cover about 90% of the steps. So we feel we can go head to head with any of the major Japanese players and what have you with our product offering. You mentioned sulfuric acid. We've had this Tahoe tool on our roadmap for a while, right? We've been talking about it perhaps even before our U.S. IPO in 2018. This past quarter, we announced a pretty major breakthrough with Tahoe, and we are pretty optimistic about the future for that. Essentially, this Tahoe tool has got a great ESG component to it, whereby sulfuric acid, when you move from below 28 nm from mature nodes down to below 28, you have to move from batch mode to single wafer clean, and so the consumption of sulfuric acid goes up by perhaps a factor of 10, and so just moving to single wafer, you start mixing it together. A lot of that sulfuric acid is wasted, and you have to dispose of it. Our Tahoe tool fixes that with the hybrid solution where we have a tank batch mode where we do the sulfuric acid cleaning, and then we keep the wafer wet when we move it into the single wafer. Ultimately, we consume 75% less sulfuric acid when you start moving to the more advanced nodes, and so the breakthrough we had was our performance was always not quite up to par with the single wafer competitors, and what we announced this past quarter was we're at parity with that, so now we get the same performance with the ESG benefits, and we're seeing we've got a handful of tools that are major China customers, and we're seeing pretty good demand internationally for that. This is something that, like Screen, for example, I see Kenji here in the audience, but this is something that Screen can't do? I mean, I'd let them talk about it. They could probably have a different approach to save on the sulfuric acid side. But the hybrid approach, we feel that we've got good patents and protection on that. Yeah. Great. Can you talk also about your furnace tools? I think you're gaining some traction also on the furnace side. Yeah, Furnace, we've delivered a good number of demo tools over the past year. So we've got evaluations. Revenue for that has been pretty limited to date. So we're anticipating we've got a pretty good range of products on that front, but we're looking for that to contribute some more meaningful revenue in 2025 as we get some acceptance and repeat orders for shipments. Yeah. And then on the ECP side, it seems to me like there's a big opportunity in advanced packaging. I mean, huge. So maybe can you talk a little bit about that? Yeah. So plating our ECP line, we've got both the front end and back end. Actually, ACM was originally founded when it was founded in the U.S. That was the target, the original target for the company. I think when David founded the company then, we weren't able to commercialize some of the tools immediately. That's when he set up the subsidiary in Shanghai. But he was told that the technology was 10-15 years forthcoming. Last year, I think we scaled that to close to 20% of our business. We had a good strong product cycle. That was a combination of front end and back end. We've been focused on the whole shift to advanced packaging. We've been talking about that for close to five years. And so we recently announced three new products, a portfolio of products for the panel-level packaging and cleaning to address that market. So we're feeling pretty positive about the potential for that business. And now back to the domestic China market. I think there's not a firm edict from the PRC government, but I think a suggestion or a push that two-thirds of equipment lines be sourced from domestic tool makers. I mean, obviously, there's areas that they can't source domestically, litho, and inspection. But basically, that says that everything beyond those two markets gets sourced domestically. So that's a pretty big headwind to, and I ask Applied and Lam about this all the time. It's a very big headwind to their business if the PRC can really push this. So do you feel that when you win, what component of it? And I know that you're a leader in terms of technology, but how much are the Chinese chipmakers, are they buying based on technology most of the time? Or how much do you think that this push from the PRC to have domestically sourced companies comes into it? I mean, it's really hard to say, Tim. I think it's a good question. From our perspective, the whole firm is really focused on building world-class tools and not me-too-type products. And really, since our eye is on the global market, we're 100% focused on building differentiated products. So there might be some. I think during COVID, it was tough for some of the competition to get in and out of China, I think, for the obvious reasons. So our teams were able to kind of work closer with our customers and build out some additional product lines. So really hard to say exactly how much. But for us, we're really focused on we don't want to win business that way, necessarily, right? We want to win business on the merits of our products. Yeah, got it. I think a few months ago, you set out a $3 billion long-term target in terms of revenue. What are the underlying assumptions to that? Is it based on wafer fab equipment, like a certain wafer fab equipment market size, a certain share for you? And is there a timeframe that you would expect that to? Thanks for bringing that up. So I think this was a couple of quarters ago. We had previously set a $1 billion target. And so, of course, we were getting close to that. And so we updated that to a $3 billion target. That was split $1.5 billion from mainland China and then $1.5 billion internationally. And the assumptions behind that within the China market are easier to get to, right? Because that's most of our business now. And so we break it down. We look at from our core market and cleaning, I think we've got about 30-35% share now. And within mainland China, our target is 55% share. Similar type numbers for plating. If you move down the line for Furnace, PECVD, Track, we have lower market shares. To get to that number, because we just haven't scaled the business yet. But hopefully, we can do better on that. So within China, it's based on market shares within those. And it's based loosely on a $30 billion WFE for China, mainland China. And then outside, it's really based on. It's really just starting to some of these evaluations that we have with some of our major customers in Europe over here in the U.S. and Southeast Asia. It's starting to convert those into orders and production commencement. Great. How much does your strong presence in China help you win customers beyond China? I know you have a new demo lab and R&D center, I think, in Oregon. You have a lot of headcount in Korea. How does your presence in China help you win outside of China? I think ultimately, we'll put our R&D team and ultimately our production near our customers, right? It's that kind of industry. And so thanks for bringing up our Oregon facility. Back in October, we bought a 40,000 sq ft facility with a nice clean room. Kind of we're building up a services team, right, to service additional U.S. customers and the rest of the world. But yeah, it's a big deal, right, to bring demo tools, our own tools into the clean room and even some additional R&D outside of mainland China. I think Hynix has been a bright spot for you beyond mainland China. Is there something particular about Hynix's evaluation of suppliers or something that has made you have so much success there? Well, so SK hynix, number two DRAM player, right? They were our first major customer, right, for our SAPS tool back in 2010, 2012, some odd. So there's a long history with us and SK hynix. We've got some tools in their Korean facilities. Most of our revenue for them was to the Wuxi facility. And so we're working pretty aggressively to penetrate their Korean operations. And as you noted, we have a good team in South Korea, engineering team. We have production facilities, demo facilities. And so we're hopeful that'll convert to additional business with SK hynix. I think in Taiwan, you have a couple of evals and you're pushing some opportunities there. Is there any impediment, you being seen as a domestic Chinese supplier or having a big exposure in domestic China? Does that help you in Taiwan or does that hurt you in Taiwan? That's a great question. I think we want to win whichever customers we deal with. The goal is to help our customers build better chips, right? And so you bring world-class tools to them. We think you can get through any of the, hopefully, the political challenges. Yeah. I think I just want to go back and talk about advanced packaging. I think it's, I don't know, 5% of revenue, something like that today. I mean, we've seen everyone's talking about this. What are some of the competitive differentiators for you? Are you working on large panel packaging or just wafer level? Yes. It's been a business for us. It's always been kind of a smaller business for us. There's smaller tools, coaters, developers, strippers, and the like. But we also have plating as well. I think having plating and the other small tools and the technologies, we think, is important. In terms of, I think, some of the, and we do have a whole panel-level packaging product line that we've announced. Tim, I'm the CFO, the money guy. I probably won't be able to add too much more on the differentiation side. Yeah. I guess just, I mean, we've seen acquisitions from both Applied and Lam. They both bought companies to sort of bolster their large panel opportunities. Do you have a panel level offering today, or is that something you have to go out and acquire? No, we do. We announced three product panel level tools over the past several quarters, and specifically on the advanced packaging line. Okay. Can you talk about gross margin? I mean, you've consistently, I think last quarter, I was looking at the financials, you're maybe 50%, 51% last quarter. And you said your long-term target's 40%-45%. Why 40%-45% long-term and you're at 51% now? Yeah. For us, I mean, it's been good news, right? I think it's a good indicator of our technology that we bring and kind of our cost structure. Our gross margins are really based on our product mix, right? It's within our cleaning tools, plating, even packaging. There's a whole range. And so we've been fortunate that our mix has been skewed to the upper end, and we've done a good job of our cost structure on some of our semi-critical tools. I'd say perhaps half of the upside versus our target could be from the product mix. We've also had some currency benefits. A lot of our tools are priced in dollars. And as you know, a lot of our costs will be in renminbi or Asia-based. So that's helped us a bit. And so the 40-45, I think we encourage folks, if they're looking at our long-term gross margin profile, to think about us in that way. Great. So my understanding was that I think ACM Shanghai currently pays a dividend, I think, to Shanghai shareholders. But I think the CEO recently noted that a dividend to U.S. shareholders is not in the plan. How do you think about that? Yeah. Tim, thanks for bringing that up. So, where people come to us, so first off, that is correct. ACM Shanghai does pay a dividend to its shareholders and 82% owners. So we get a nice piece of that. And so that's a nice cash flow for our US operation. In terms of a dividend to the U.S., I think what people are getting at is the market cap of our ACM Shanghai subsidiary is close to $7 billion, right? And so our U.S. market cap is about $1 billion, right? So we own 80% of that. It's about a 5 to 1 discount, right? So we're getting 20 cents on the dollar for our paper value. So I think investors and us included are looking for a way to, can we monetize that? Will we ever be able to get that money out? And so we get asked about, will we pay a dividend to the U.S. shareholders? And ultimately, it's about can and when would we sell those shares. And look, we're in it for the long run as a majority owner of ACM Shanghai. We believe it's possible to sell a few shares here and there and then bring that back to the U.S. We don't see any challenges to doing that. We have publicly announced our subsidiary that they're planning a primary capital raise. And so that's in process right now. And so that's probably our first priority. But following that, if that discount remains, we believe it's possible to sell a little bit of that stock and bring it back to the U.S. But this was. I mean, this has not always been the case, but I, and again, I don't cover it, but I always think of this as being a topic for the company because this has been a. Valid. This has been there to varying degrees for a while. So why hasn't the company tried to take money out of Shanghai already? So first off, there was a three-year lockup, right? So from the IPO of the ACM Shanghai back in 2021, there was a three-year lockup. That actually came past due in November of this year, right? So that lockup, there's other factors there, but that's technically lifted. And so that's a big reason why we haven't really considered that up until now. And then at this point in time, it's possible. We're really more focused on the capital raise in Shanghai. And then perhaps we take a look at this after that. I guess how much of it comes down to, I mean, sure, there's the valuation arbitrage, but you're also in growth mode too. So you probably want to focus on investing in the company and. What would we do? If we did raise capital there, if we sold, so yeah, the first use of proceeds would, of course, be to grow our business. The $1.5 billion target outside of mainland China, we're going to need capital to grow that. We would want to use that for acquisitions or to grow the business. Yeah. Okay. And then maybe can you talk about just with respect to some of the competition? Who do you see as being particularly tough for you to overcome in some of these markets? I mean, there's some strong players, right? We're just a small player that's grown pretty well over the past five years or so, but we're still a fraction of the size of some of the major players in each of our core product areas, right? There's a different group of competitors in cleaning versus plating, PECVD, track. So it's a broad range, and we're kind of running into some bigger players for sure. And are there any other aspects of the story? We talked about plating. We talked about furnace. I mean, furnace is an area that seems some of the U.S. suppliers have. I don't want to say disengaged from that market, but I think that there's other focuses for TOC Electron and some of the other players in that market. So how do you think about where, as everyone's going in one direction, you can sort of backfill in some of these areas? I mean, it really feels like we hit on most of those, right? I mean, within cleaning, there's some potential products like those for us ahead. Within plating and kind of extending that to the panel level packaging is a great opportunity for us. And I'd say PECVD and track are pretty new platforms for us. We're kind of in alpha beta mode on those. So 2025 is going to be more evaluations, kind of broadening the customer base on that, and hopefully converting that to revenue in 2026 and beyond. I guess last question, do you have any efforts in adjacent markets? I mean, you're mostly focused in deposition and etch and clean. Any opportunities in any of the other markets? Materials maybe? I don't know. Not that I'm going to announce today here, Tim. Yeah. Yeah. Okay. But I mean, those are in theory, those are areas that you could go into too, so. Yeah. If you look at the SAM of the tools, the areas that we've kind of identified, it's about $16 billion. So we have some work to do to grow into that. Great. Okay. Well, Mark, thank you for the time. I appreciate it. Great. Thanks, Tim. Thanks, everybody.