ACM Research - Q2 2023

Transcript

Operator (participant)

Good morning, and thank you for standing by. Welcome to the ACM Research second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yujia Zhai, Managing Director of the Blueshirt Group. Please go ahead.

Yujia Zhai (Managing Director)

Thank you, operator. Good morning, everyone. Thank you for joining us on today's call to discuss second quarter 2023 results. We released results 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 portion of our website that we will reference during our prepared remarks. On the call with me today are our CEO, David H. Wang, our CFO, Mark McKechnie, and Lisa Sang, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, and 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 the risk factors and elsewhere in ACM's filings with the SEC. 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 unrealized gain, loss in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, please refer to our earnings release, which is posted on the IR section of our website in slide 12. For that, let me now turn the call over to David Wang, who will begin with slide three. David?

David H. Wang (Founder and CEO)

Thanks, Yujia. Hello, everyone, and welcome to ACM's second quarter 2023 earnings conference call. Please turn to slide three. For second quarter, revenue was $144.6 million, up 39% from the same quarter last year. Shipments were $153 million, up 37% from the same quarter last year. Gross margin was 47.6%, and operating margin was 22.4%. We achieved record revenue and EPS as our operating and industrial supply chain largely returned to a new normal following several years of COVID-related disruption. This result were driven by strong mature nodes by our China customer, market share gain, and the penetration of a new product and new customer. Let me touch on each of these, beginning with the mature node investment in China.

Last year, following U.S.-China trade restriction, some industrial analysts predicted China's WFE market will be declined dramatically. At the time, we predicted a fairly quicker shift to spending on mature nodes in China. After an expected pause as industrial adjusted to the new export regulations, our prediction appeared to be playing out as we are now seeing broader signs that China is indeed speed up its capacity expansion in mature nodes. This is driven by the substantial gap between China's mature nodes capacity and their market consumption. We see continued investment in 28nm and 45nm and above front-end fab capacity. We also see the ramp up EV production in China as a driver of China-based investment in both power devices and other 28 and 45nm devices.

This creates a good terrain for us that we believe is still in early stage as China intensify effort to boost its domestic semiconductor capacities, capabilities. We believe we are well positioned to benefit and further increase our market share due to our strong market position, leading differentiated technology, and broad multi-product portfolio. Moving to product, please turn to slide four. Single wafer clean, Tahoe, and semi-critical cleaning grow 55%. In the last few years, we introduced and began ramping our semi-critical product line, including AutoBench. Last year, we introduced Bubble Etcher and high temperature SPM tools. Over past quarter, we introduced supercritical CO2 dry. ACM has one of the broadest cleaning product portfolio in the industry, covering nearly 90% of all cleaning process steps.

We believe this product portfolio will play a key role among mature nodes development in China, and advanced nodes in our international effort going forward. ECP, furnace, and other technologies declined 7% due to quarterly fluctuation. However, for the first six months of 2023, ECP, furnace, and other technology grew 40% year-over-year. Growth in this category was driven primarily by ECP product cycle, with some contribution from furnace. Our higher temperature anneal and LPCVD furnace, including Nitride and Poly, and ARD, have expanded to multiple customer and are under evaluation. Advanced packaging, including ECP, service and spare grew 14% in Q2, and 58% year-over-date. This category includes a range of packaging tools, including encoder, developer, scrubber, PR sweeper, and wet etcher, and service and spare parts.

ACM is the only company that offers both a full set of wet tools and advanced plating tool. We believe advanced packaging will become more important as the industrial looks for packaging innovations such as 2.5D, 3D in the future, and fan out to drive the higher performance for new applications such as AI and GPT. Finish up on products. We continue to make good progress on sales efforts with our new track and PECVD platform. We're in active discussion with our key customer, we are planning to deliver more evaluation tool this year. Similar to our leading plating and furnace product line, our track and PECVD platform have a proprietary technology that we believe will making them winner with major customer, both in China and outside China. Moving on to customer. Please turn to slide five.

We continue to make progress on customer, both inside China and internationally. In China, we believe ACM tools are now used by nearly all of the semiconductor manufacturers. Our sales and service team are working to expand their deployment of each of our major product line across our growing customer base. In addition to our current customer, we are also seeing a good number of well-funded new entrants. Our team has done a good job of getting good traction for our product with these customers. As this, our new customer, this will be reflected in our shipment this year until customer acceptance at a later date. Also, as some of you may have heard, on July 21st, 2023, Hua Hong Semiconductor, a greater strategic customer, announced the pricing of its Shanghai Stock Market IPO and expected to start their trading soon.

The total proceeds were RMB 21.2 billion, or approximately $3 billion. In the U.S., evaluation at our key customer is progressing well, we remain optimistic for qualification later this year. In Europe, we announced an order for our first evaluation tool from a major semiconductor manufacturer in the first quarter of this year. The tool is planned for deliver in early Q4, we are beginning to build a local service team to support effort. To support our growing initiatives, we continue making progress on our facility expansion in China and other regions. Please turn to slide 6. In China, construction of our Ningbo production and R&D center is nearly completed and expected to begin initial production later this year. In Korea, as noted in prior call, we have increased our commitment in this region.

We believe a strong commitment to Korea will improve our relationship with our key customer, SK Hynix and others. In Q1 of this year, we completed the purchasing of a land in a high-tech area outside Incheon, as a site for a new R&D and production center. In the U.S., as noted last quarter, we leased a facility in Oregon to add to our service, support, and demonstration capability for R&D and custom activities in the region. As a reminder, for 2023, we expect to spend about $100 million CapEx. This includes continued investment in our Ningbo facility, remodeling our new headquarters for ACM Shanghai, and our other investment in Korea and the U.S. I will now provide our outlook for the full year, 2023. Please turn to slide nine.

We reaffirm our 2023 revenue outlook to be in the range of $550 million-$585 million. The range of outlook reflects, among other things, management's current assessment of the continuing impact from the international trade policy, together with the expect the spending scenario of a key customer, supply chain constraint, and the timing of acceptance for the first tool on the evaluation in the field. Now, let me turn the call over to our CFO, Mark, who will review detail on our second quarter results. Mark, please.

Mark McKechnie (CFO)

Thank you, David. Good day, everyone. Please turn to slide 10. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude 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. Also, unless otherwise noted, the following figures refer to the second quarter of 2023. Comparisons are with the second quarter of 2022. I'll now provide financial highlights for the second quarter. Revenue was $144.6 million, up 38.5%. Total shipments were $153.4 million, up 37%. Revenue for single wafer cleaning tools and semi-critical cleaning was $112.5 million, up 55%. Revenue for ECP furnace and other technologies was $19.1 million, down 6.7%.

For the first six months of 2023, this category grew by 39.6% versus the prior year period. Revenue for advanced packaging, including ECP services and spares, was $12.9 million, up 14.3%. Gross margin was 47.6%, up from 42.4%. This exceeded our normal expected range of 40%-45%. The increase in gross margin was primarily due to a favorable product mix, improved gross margins for specific product lines, and a favorable impact from fluctuations in the renminbi to U.S. dollar exchange rate. We expect gross margin to continue to vary from period to period due to a variety of factors such as sales volume, product mix, and currency impacts. Operating expenses were $36.3 million, up from $22.3 million.

The increase was due to higher R&D, sales and marketing, and G&A costs in support of our new customer and new product activities, and a boost in the post-COVID travel. Operating income was $32.4 million, up from $22.0 million. Operating margin was 22.4%, up from 21.1%. We recorded a realized gain of $3.9 million from the sale of trading securities for the quarter. Recall that realized gains are included in the non-GAAP earnings. Income tax expense was $7.6 million, down from $7.7 million. Recall that as a result of the change in Section 174 of the U.S. Internal Revenue Code, our effective tax does remain elevated, primarily due to the requirement to capitalize and amortize previously deductible research and experimental expenses.

Net income attributable to ACM Research was $31.3 million, up from $14.6 million. Net income per diluted share was $0.48, up from $0.22. Now I'll review selected balance sheet items. Cash and cash equivalents, restricted cash, and time deposits were $376.1 million at the end of the second quarter, versus $381.7 million at the end of the first quarter. Total inventory was $471.1 million at the end of the second quarter, generally flat versus the end of the first quarter. Capital expenses for the second quarter were about $6.7 million. I'll now provide an update on our auditor.

On July 21st, 2023, Armanino informed us that it will resign as our independent auditor, effective as the earlier of, A, when we engage a new auditor, or B, the filing of this year's 3rd quarter 10-Q report. They advised us this was due to their decision to exit from the practice of providing financial statement audit services to all public companies. As a result, our audit committee has begun the process to select and appoint a new auditor. We filed an 8-K with the full details on July 27th, 2023, and I would note that we've also seen a number of similar filings from other Armanino clients. Regarding the search for a new auditor, we are considering several options, including U.S. and China based auditors. That concludes our prepared remarks.

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

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. The first question comes from Quinn Bolton with Needham & Company. Your line is open.

Quinn Bolton (Managing Director and Senior Research Analyst)

Hey, guys. Congratulations on the very strong second quarter results. I guess, you know, kind of big picture question for the second half of the year. I know you're not, increasing your 2023 guidance, but, since you're not increasing the guidance, it looks like revenues may flatten out, or at least grow at a much, much slower rate in the second half. How are you, you know, thinking about the second half? Was, was the second quarter really that sort of COVID supply chain catch up, and, and do you see more normalization now? Or just, just any thoughts you could share on the, on the second half, or the shape of revenue in the second half would be helpful.

David H. Wang (Founder and CEO)

Yeah. Okay, Quinn, in general, actually, in looking at the last couple of year, our second half year was stronger than the first year, first half of the year, right? I think that trend will probably continue. Regarding to the supply chain, I should say it's much better than last year, but still feel some, you know, components get constrained. You know, I'm thinking maybe second half of this year are going to improve further, you know, for supply chain. Mark, anything you want to add on?

Mark McKechnie (CFO)

Yeah, you bet. Quinn, our overall outlook, obviously, we factor in, we're looking at a flattish overall CapEx for overall China. I think there's a lot of debate about that. You know, we see better growth from our, our new products, share gains and new customers. First half, second half, I mean, you can look at the numbers, it's about 40%, 60%. You know, we'd expect Q3 to be up, and depending on where the year plays out, Q4 could be down, which is, that's a normal type seasonality for us. Yep.

Quinn Bolton (Managing Director and Senior Research Analyst)

Got it. Sort of perhaps a return to more of a, a, a down fourth quarter, you know, post a couple of years of, of COVID, where I think seasonality was, was largely out the window. Got it. The second question, just Mark, for you on the auditor. I know that this has been a thorn in your side for, you know, probably a couple of years now. To the extent that you select a China based auditor, can you just sort of walk us through? I, I believe there's now, you know, a process in place where PCAOB has oversight of Chinese-based auditors, and so if you select China, that shouldn't have any impact on your listing status in the U.S.

I, I know it's been a, you know, a subject that, that's raised lots of questions, so can you just walk us through the, the latest, you know, implications to, to the extent you, you do select a China-based auditor? Thanks.

Mark McKechnie (CFO)

Yeah, you bet. No, thanks for that question, Quinn. I think, as you know, last year, we did cut over to Armanino as a U.S. based auditor, and they completed a good audit for our 2022. It was signed by, you know, officially a U.S. auditor. The rules, you know, there was a positive development late last year, the PCAOB was able to inspect the China auditors. The so-called HFCA Act, which would result in a delisting if you were on a certain list, you know, 3 consecutive years in a row, that became moot, at least for, for the foreseeable, now that we believe the PCAOB has been granted the inspections in China.

you know, that's, that's why we pointed out, you know, in terms of, our possibilities range, you know, a U.S. auditor, we could, we could certainly go with a China-based auditor as well, and, you know, maintain our listing, at this point.

Quinn Bolton (Managing Director and Senior Research Analyst)

Great. Then a final quick one for me. David, you, you mentioned sort of expanding placements of track and PECVD this year. Can you give us sort of any sense how, how broad you may be able to go with, with those evaluations to an expanding customer base, or to an expanding base within your existing customers, with track and PECVD?

David H. Wang (Founder and CEO)

Yeah, actually, you know, as I, as I mentioned there, we, we do have also differential technology with the PECVD, right? Now we're actually have a two model, one for memory application, another one for the real logic, right, boundary application. This year, we're, we're working with probably both side of customer, and we, we try to get the evaluation going on, and obviously, revenue will come next year, right? PECVD is a huge market and also has a, you know, really our second to dry product, other than our furnace. We have a really, you know, high expectation and also work with a lot of effort and put the both, you know, on this product and also expecting and, you know, very good outcome for the future and the driver ACM continue to grow in the next few years at a high growth rate. It's an exciting product.

Quinn Bolton (Managing Director and Senior Research Analyst)

Thanks, David. Thanks, Mark.

David H. Wang (Founder and CEO)

Thank you, Quinn.

Operator (participant)

Please stand by for the next question. The next question comes from Suji DeSilva with Roth Capital. Your line is open.

Suji DeSilva (Managing Director and Senior Research Analyst)

Hi, David. Hi, Mark. Congrats on the progress here. Digging a little bit on the ECP furnace category. I just want to make sure with the decline here. Was the furnace products uptake, the newer product uptake, still ramping? Within, is there just supply chain catch up across that category?

David H. Wang (Founder and CEO)

Great, great. Actually, our furnace, by end of last year, we only have, you know, got three customers. However, this year, we're really, you know, we're expecting to increase more customers, right? Probably by end of this year, we're hoping our customer base becomes double-digit. Revenue-wise, yes, not as quickly as contribution as copper plating. However, you know, our customer base increased quite dramatically, right? Now we also have other, you know, high temperature, high temperature NEO and also LPCVD and the Nitride poly depo. Also we are two of our, we call them ALD process, you know, tools also on the, on the customer qualification process, and it show their very promising data. We'll see that will be, you know, play in probably next year, right? More of a contribution to revenue.

I said, this is also a quickly growing market, you know, for us.

Suji DeSilva (Managing Director and Senior Research Analyst)

Okay, great. That's good progress there. Then, for the Korea operations, David, could you give a sense what the next milestones are as you start to, you know, get the land there and try to build that out? Just give us, give us some kind of things to look for in the next several quarters to keep track of.

David H. Wang (Founder and CEO)

Great. Actually, you know, Korea and, you know, SK hynix become a customer in 2011, right? It's really long-term relationship. We sell a lot of tool onto the Wuxi fab, and obviously, now they're building more of our, they're, probably building factory, more advanced nodes. Most likely, they can probably focus on the Korea side. That's really, make us to the, you know, our effort, more focus on the Korea market. That's why we're going to increase investment, and we're still going to hire more R&D people. Like, our furnace and ECVD, and also their track, is real joint development between team in Shanghai and in Korea. We're now really, you know, fully engaged with, with hynix regarding not just only cleaning, right?

Cleaning, actually, we have about 90% of their process step we can cover, and also engage with the copper plating. Further, we're building also, obviously, the furnace in the PECVD and also track. You know, we'll also try to, we'll probably become their, you know, major supplier in the future for Hynix. Meanwhile, we're building a strong R&D and also their manufacture base in Korea, are really helping us expanding our technology and further to, you know, U.S. and their Taiwan, and region, and also Europe market. We have a really, you know, dual R&D manufacturing center is really what make ACM to be and real flexible. It is a dynamic, you know, status, you know, situation.

Suji DeSilva (Managing Director and Senior Research Analyst)

Okay, great. No, it sounds like, sounds like a good opportunity. Then lastly, just want to sneak one last question in. Just on your, on your advanced packaging, with the talk in the market of AI and high bandwidth memory, CoWoS at TSMC and Intel's EMIB, all these areas. I'm just curious, do you see an exposure there to the growth in AI, generative AI, or, maybe is that advanced nodes versus trailing nodes? Just give me a sense of the advanced packaging opportunity you may be able to lever, you may be leveraged to there.

David H. Wang (Founder and CEO)

Yeah, actually good. The ACM has a real good product lined up, right, for their real advanced packaging. We have a really, you know, flex, you know, I call the shape of their tool for copper plating. Also, we have a wider, you know, cover wider process tool, including coater, developer, wet etcher, you know, stripper and cleaning, right? It's real well preparation. Also, we do have a SFP, stress-free polishing, and also for, you know, this advanced packaging application. We are well-positioned. Like I said, yes, we're fully engaged with their, you know, all their top-tier customers, and also we are most engaged with their demand, you know, customer in China, too.

It's really, I see the very growing in the market. Like I said, AI, GPT, they've been driving high, high end of the advanced packaging and application. Our product, you know, really prepared for this application.

Suji DeSilva (Managing Director and Senior Research Analyst)

Okay. Thanks, David.

Operator (participant)

Please stand by for the next question. The next question comes from Christian Schwab with Craig-Hallum Capital. Your line is open.

Christian Schwab (Managing Partner and Senior Research Analyst)

Great, thanks for taking my question. You know, in the prepared comments, we talked about market share gains, you know, inside of China, you know, can you give us an elaboration on that? Are we gaining market share, you know, across all product lines, or is it more, you know, targeted at cleaning and ECP and furnace? Any color there would be great.

David H. Wang (Founder and CEO)

Yeah, actually, you look at the cleaning, right? The cleaning product, we're increasing 55%. you know, I mean, three years ago, we only have a single wafer or semi-critical tool, mostly, you know, still a single wafer site. However, last year, you know, two, three years, introduced AutoBench, which is really, you know, major, I call the market for the forty-five nano technology and above, by also including power device. This is really driving our cleaning tool, continue, you know, increase. Obviously, copper plating, and also increase quite a lot, right? Now, we're having number one, you know, in a, like a local, supplier in a cleaning number one, and also the copper plating number one.

Also, I would say, you know, the furnace wise, as I mentioned, we're continuing to increase the customer base, and that will be also the, you know, I look in the next few year, will also become bigger driving for the revenue too. More than that, is also we're now spread our cleaning and copper plating and in the outside China, right? That's really big sign. We see that again, their intention or gain their interest and from their, you know, top-tier customer outside China.

Christian Schwab (Managing Partner and Senior Research Analyst)

Great. Well, a question for Mark. You know, given the supply chain issues and, and COVID costs are kind of behind us, or at least greatly diminished, is it time to potentially raise the gross margin target range for the company on a consistent basis, or is there just still too much volatility in mix to raise it at this point?

Mark McKechnie (CFO)

Yeah, I'll take that. On the gross margin, you're correct. I mean, we've, we've come in at the upper end of our range or maybe a little better, the past few quarters or so. Christian, I think, we, you know, our gross margins are quite dependent upon product mix, new products and, and, old products. That we have a, a range across them. I think for now, you know, we're going to keep our 40%-45% range. Of course, we always like to do as well as we can, but we're not, we're not ready to move that range higher.

Christian Schwab (Managing Partner and Senior Research Analyst)

Okay, great. No other questions. Thanks, guys. Great quarter.

Mark McKechnie (CFO)

Yep. Thanks, Hugh.

Operator (participant)

Please stand by for the next question. The next question comes from Chalani Singh with Credit Suisse. Your line is open.

Speaker 9

Hi, David and Mark. Thanks for taking my question. The first question is about the customer new order momentum. Can you talk about the recent customer new order momentum? Do you see that improving or compare with the first half of this year? Can you talk about the order momentum by front-end and back end? We are thinking that back end equipment order have had earlier correction. We are thinking that as of now, the back-end order may have some improvement, especially from the Chinese customers. Thank you.

David H. Wang (Founder and CEO)

Okay. Actually, I should say our, our front-end customer, you know, existing customer, obviously, you know, they continue spending, right? That's driving our, our growing. Also, we see significant of our second tier, third tier customer order coming in, right? That's really also become their, our, actually driving our shipment and also driving our revenue too. That's one side and the end, also the back end, really depends. Some customers still, I call, pausing, and some customers is still, you know, tech, you know, it's kind of investment too, right? You are say, you know, I should say this year, obviously not good as last year, right? Looking forward, I should say, still keep going, but then maybe, maybe some customers still slow down, but there's some customer invest for back end. We'll see, you know.

Speaker 9

Mm-hmm. Okay. So front end, you, we understand that there are many, many tier 2, tier 3 emergence fabs in China. I mean, ASML talked about the same a few weeks ago, we are just thinking, if we look at the front end, revenue exposure, would you say that right now the revenue contributions are all from the older momentum? Would you say it's about, maybe one-third from these tier two or three customers already, or even maybe half of the new orders from the tier 2, 3 customers? Thank you.

David H. Wang (Founder and CEO)

I, I really cannot give the real breakdown, right? I mean, this is real dynamic moving. For the end of this year, we can give you really what's the top 10, whatever, you know, 10% above customer, right? I can say some, you know, second tier and third tier customer will be become obviously adding to our 10% customer end of this year, right? That you can see the people, I mean, all the second tier grow. This moment, I really cannot break down, you know, is a, you know, percentage wise. I can, you know, significant kind of, I can say, shipment revenue come from the second tier, third tier customer, because they're all driving for the mature nodes.

Speaker 9

Okay. significant revenue and shipments from. Okay.

David H. Wang (Founder and CEO)

Yep. Increase, right?

Speaker 9

Okay.

David H. Wang (Founder and CEO)

Compared, right.

Speaker 9

Oh, it-- okay. Oh, oh, do you mean significant revenue shipments from the tier 2, 3 customers, or do you mean the significant increase in revenue?

David H. Wang (Founder and CEO)

Increase, increase, increase.

Speaker 9

Increase.

David H. Wang (Founder and CEO)

Yeah.

Speaker 9

Okay.

David H. Wang (Founder and CEO)

Increase.

Speaker 9

Got it. Thank you. Next question, is about, when you look across your, product, across, cleaning, copper plating, burning, do, do you still have any tools that with over six months lead time or even say, 10, 12 months lead time? Because we still hear from a, a, a small number of, international equipment suppliers that there remains some tools still with over six months lead time. I'm just wondering if it's the same for ACM. Thank you.

David H. Wang (Founder and CEO)

Yeah. Actually, last year, right, we do have a real experience, a long leading time, right? You know, some product, 10 months, sometime, you know, even more than 10 months. This year, actually, that time has been shrinking, right? Actually, every still between five to seven months, depends on product, and also depends on, you know, specific components we have to, you know, get in the hand. Has been, you know, improved. You know, we're expecting continuing improve.

Speaker 9

Mm-hmm. Well, let's see. Thank you, David. Next question is that, when I look at the revenue by region, it's very great to see that the revenue from non-China actually grew quite decently in second quarter, although that's still just 7% revenue. I'm just wondering, is this increase mainly from the front end or back end business?

David H. Wang (Founder and CEO)

you mean outside China?

Speaker 9

Yes.

David H. Wang (Founder and CEO)

Yeah, I can.

Speaker 9

In second quarter, it was about 7% revenue.

David H. Wang (Founder and CEO)

Yeah. Our majority is still, you know, and come from, you know, mainland China right now, right? We see that there, as I said, there are, you know, our outside China-

Speaker 9

Yeah

David H. Wang (Founder and CEO)

... sales activity keep grow and more, more attention, you know, from the customer, as I mentioned, you know, in Korea. Korea so far, you know, we have Hynix as a major customer. Also, we see the traction for other packaging and, you know, customer in Korea, interest in our plating tool. The same thing, we also have, you know, customer from U.S. continue interest in other application tool. Also, you know, we have also European customer, right? So we'll say, you know, in next few year, we're expecting a lot of happen for our international efforts and for cleaning, for plating, and also expecting furnace, where we also play, you know, another revenue driving in our international efforts.

Speaker 9

Okay. Understand. Thank you. David, David, if possible, may I just ask about furnace? Because I have been expecting some decent revenue growth from the furnace, but I see in second quarter, it says that, still not yet a lot of new revenues from furnace. I'm just thinking, can you share a bit more about the furnace? I mean, I know you talked about this early already, but I'm just thinking from the revenue perspective, what would be the major revenues, new revenues from furnace coming from, for to this year or maybe from 2024?

David H. Wang (Founder and CEO)

Yeah, I will say, you know, we'll have a more customer base increase, right? As I mentioned earlier, by end of last year, we have three customers for furnace. This year, probably, you know, we're hoping by end of this year, we can increase the total customer number to a double digit, right? Again, revenue wise, you know, it's hard to tell, right? New customer, you know, take time. I would say more of a revenue we expecting is happen next year for contribution.

Speaker 9

Okay, understand.

Mark McKechnie (CFO)

Great. Next question, please, operator.

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Please stand by for our next question. The next question comes from Mark Miller with The Benchmark Company. Your line is open.

Mark Miller (Wall Street Analyst)

Congratulations on a very strong quarter.

David H. Wang (Founder and CEO)

Thank you, Mark.

Mark Miller (Wall Street Analyst)

Just a couple of questions about the eval tools in Europe and also U.S. When would you expect them to be revenues? Would that be next year, probably?

David H. Wang (Founder and CEO)

Good question. Actually, we have this, you know, two tool is in the evaluation, and we are expecting, and the, you know, one of the.. I mean, the tool get a qualification end of this year, right? Either, you know, end of this year or beginning next year, that's our expecting get a, and become recognized revenue.

Mark Miller (Wall Street Analyst)

Are there any other tools, outside of Europe and U.S., and especially in China, that are eval tools?

David H. Wang (Founder and CEO)

outside China or inside China?

Mark Miller (Wall Street Analyst)

Inside China.

David H. Wang (Founder and CEO)

Oh, we also have a eval tool, right, inside China. You know, I mentioned about their, you know, foreign company have a, they have all, they have their manufacture in China, and we have a copper plating. We also have a cleaning tool, also a bunch of packaging tool, right? In the, in those foreign company, which has a factory in China. I would continue expecting, you know, expanding another base too. Obviously, we also have a, you know, evaluation tool into the, you know, Chinese customer too, right? Which is a, quite a bit in the furnace and some plating tool, and also our, you know, variety of, of a cleaning tool, right? For instance, we have a Bubble Etcher and also supercritical CO2, and those, those two are also in the customer for evaluation.

Mark Miller (Wall Street Analyst)

Just a couple of housekeeping questions. What was stock-based comp and cash from operations?

Mark McKechnie (CFO)

Yeah. Hey, Mark. stock based comp was about, it's in the press release, but about, $2 million, for Q2. Then, cash flow from operations, in Q2, was positive, about $6 million.

Mark Miller (Wall Street Analyst)

Thank you.

David H. Wang (Founder and CEO)

Thank you, Mark.

Operator (participant)

Please stand by for our next question. The next question comes from Robert Mackay with Blue Lotus. Your line is open.

Speaker 8

Hey, Mark. Thanks for taking my question. I wanted to ask about inventory levels. They've been a little bit high for two quarters now, and I was just kind of wondering, you know, what the reason for that is, and if we can expect to see that come down in later quarters? Yeah. Thanks.

David H. Wang (Founder and CEO)

Hey, Mark, you want to take care of that question?

Mark McKechnie (CFO)

Yeah. I didn't hear the question.

David H. Wang (Founder and CEO)

Can you speak louder? I think his questions are regarding our inventory.

Mark McKechnie (CFO)

Oh

David H. Wang (Founder and CEO)

... you know, a little higher. He said, you know, in next few quarter is going to be reduction or not? That's his question.

Mark McKechnie (CFO)

Okay. Yeah, we, we did not. Can you hear us on our end? We didn't hear that question.

Speaker 8

Yeah, I can hear you. I can hear you.

Mark McKechnie (CFO)

Okay. Yeah, Okay, so David repeated the question. It's about the inventory, is that correct?

Speaker 8

Yeah, exactly. Just wondering why it's, you know, a little bit high. Yeah.

Mark McKechnie (CFO)

Okay. Again, I didn't hear the question well, but I think I, I can address it if it has to do with the inventory. Our inventory at the end of the June quarter, there were three factors to it, it was $471 million. It was split between raw materials, about $192 million. Work in process was $109.8 million, and then finished goods inventory was $168.9 million. You know, we, we did the finished goods inventory, a lot of that is tools that are under evaluation, being evaluated by our customers. That is an important metric for us. In terms of our overall inventory levels, we are working on bringing them down a bit.

We, we built some inventory, one based on our forecasts, but also, you know, given the supply chain tightness. You know, as David noted, some of the supply chain is loosening up, so, we're looking to, to bring those inventories down to more normalized levels.

Speaker 8

Got it. Got it. Super clear. I don't know if you can hear me now.

David H. Wang (Founder and CEO)

Your sound is still light. Can you close the speaker?

Speaker 8

I'm on the, I'm on my headset. Yeah, I'll speak as loud as I can. I was wondering if there's kind of any information you can share on the orders from, you know, Huahong, on its new expansion this year. Are we, are we already factoring that into our revenue guidance?

David H. Wang (Founder and CEO)

Yeah. Actually, you know, Hua Hong has been, as a, you know, as I, as I said, is, you know, they try to, I mean, they're gonna get IPO very soon, right? The reason about the property, you know, $3 billion. They have also multi fab, you know, built in different locations, right? It's, it's really our strategic customer, where we expecting, give a lot, you know, quite a bit of contribution for our revenue in the future, right? This year, some happened also, you know, a lot is back in next year, next two year. It's greater, you know, great customer, and also we have a strategic relationship with our community tool, public tool, our partners, right? It's wider acceptor, you know, evaluates and qualify in, in, in, in the Huahong group.

It's, it's great. You know, we're, we're looking for customer continued growth, and, also we're continue, you know, give a better service, supporting with our portfolio product to the Huahong group.

Speaker 8

Got it. Got it. Very clear. Once again, sorry for my microphone quality. I just wanted to follow up a question on the revenue guidance. I think, you know, our, our revenue guidance is still quite wide. I, you know, I was just wondering if there's anything, anything you can share about why it remains so wide?

David H. Wang (Founder and CEO)

Yeah. Well, I mean, probably, you know, you're right. A little wider, I mean, that's, that's still the uncertain, right? So we're probably in the Q3 timeline, giving more narrow of the our, our guidance. This moment, I think, including, you know, we'll be keeping, no changing.

Speaker 8

Got it. Is there just, some uncertainty about, you know, some orders from some customers? Is that the reason for the, the wide range?

David H. Wang (Founder and CEO)

Can you repeat the question? Your sound is too small. Can you repeat again?

Speaker 8

Yeah. I just wanted to know if, if the wide range is mainly due to some uncertainty about, you know, some customer orders, or, you know, what, what kind of information do we need to be more certain about our, our guidance for the year?

David H. Wang (Founder and CEO)

Yeah, I think it's probably, you know, you are right. Some are still order, some are still, you know, components shortage, right? Both together. That's probably give us, you know, kind of wider, projection right now.

Speaker 8

Got it. Got it. Great. Then, the last question I'll ask, and maybe I'll go back into the queue after, is about the dividend. I think we, you know, our Shanghai subsidiary issued quite a large dividend, and I was wondering what we are, what our plans are for that dividend, if we're just gonna invest it in, you know, what we're planning to do with that. Yeah. Thanks.

David H. Wang (Founder and CEO)

Great. Actually, you know, as we announced, we have a dividend, right? Go to all the shareholder, you know, ACM Shanghai company, which is 82.5%, will come to the ACM USA. We've been doing with money, investing in marketing stock, but also continue, you know, investing there, even our other R&D activity, you know, demo center in the U.S.. We're planning other things as well, right? We're going to put the money into the build, enhance ourselves and the marketing and sales capability, helping product, you know, and go to the first year customer in the world.

Speaker 8

Got it. Got it. Thank you very much, and sorry for my audio quality. I'll go back into the queue. Thank you, and congrats on the good work.

David H. Wang (Founder and CEO)

Thank you.

Mark McKechnie (CFO)

Please stand by for our next question. Our next question comes from Mark Miller with The Benchmark Company.

Mark Miller (Wall Street Analyst)

Thank you for the second question. How should I think about modeling R&D for the remainder of this year?

Mark McKechnie (CFO)

Mark, I'm sorry, can you repeat the question?

Mark Miller (Wall Street Analyst)

How, how should I think about modeling R&D expense for the rest of the year?

Mark McKechnie (CFO)

Oh, R&D expense. Yeah, let me give you some thoughts on that. You know, R&D overall was about 12.7% non-GAAP in 2021, 15.3% in 2022. Yeah, we're looking at for the, for the year, about 14%-15% would be the right range for R&D.

Mark Miller (Wall Street Analyst)

Thank you.

Mark McKechnie (CFO)

Yep. Thanks, Mark. I show no further questions at this time. I would now like to hand the call back over to David Wang for closing remarks. Again, I show no additional questions.

David H. Wang (Founder and CEO)

Thank you. Thank you, operator, and thank you all for participating in this call and for your supporting. Before we close, Yujia is going to mention our upcoming investor relation events. Yujia, please.

Yujia Zhai (Managing Director)

Thanks, David. From August 22nd to the 23rd, we will be at the annual Needham Semiconductor & SemiCap Conference. From August 29th to the 30th, we will be presenting at the 20th annual Jefferies Semiconductor Conference in Chicago. On September 13th, we will present at the 10th annual Benchmark TMT Conference in New York City. As a reminder, attendance at these conferences is by invite only. For interested investors, please contact your respective sales representative to register and schedule 1-on-1 meetings with the management team. All right, this concludes the call. You may now disconnect. Thanks.