ACM Research Inc (ACMR) 2019 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the ACM Research Fourth Quarter and Fiscal Year 2019 Earnings Conference Call.

(Operator Instructions) As a reminder, we are recording today's call.

If you have any objections, please you may disconnect at this time.

Now I'll turn the call over to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group.

Mr. Dvorchak, please go ahead.

Good morning, everyone.

Thank you for joining us on today's call to discuss fourth quarter and fiscal 2019 results.

We released results after the U.S. market closed yesterday.

The release is available on our website as well as from our newswire services.

There's also a supplemental slide deck posted in the investor portion of our website that we will reference during our prepared remarks.

On the call with me today are 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 results to differ materially.

Those risks are described under Risk Factors and elsewhere in ACM's filings with the Securities and Exchange Commission.

Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call.

ACM is not obliged to update you on any revisions to these forward-looking statements.

Also certain of the financial results that we provide in this call will be on a non-GAAP basis, which excludes stock-based compensation.

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

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

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

2019 marked another year of growth and achievement for ACM research.

We made a meaningful progress in our mission to become a major supplier of capital equipment to the semiconductor industry.

We delivered great operational results and ended the year in a solid financial position.

Let me review some of our accomplishments in 2019, as shown on Slide 3.

First, our financial performance was excellent.

We grew our top line by more than 44% to $107.5 million and delivered non-GAAP earnings of $1.17 per share.

We generated $9.4 million in operating cash flow and ended the year with $58 million of cash.

We had additional $60 million in reserve cash from proceeds of the private equity funding into ACM Shanghai.

Second, we showed our production expertise.

Throughout the year, our manufacturing team ramped our second factory.

With 2 facilities running, we are able to ship $115 million of equipment production of more than $100 million is an important achievement.

It demonstrates our ability to scale operations, which is one of several critical factor for winning new business.

Third, we expanded our customer base to 5 major IC manufacturers.

A key advantage is that we're near some of the newest and the most advanced fab in the world.

In September, we delivered a first tool to a new local Chinese DRAM player that brought our total to 5 major front-end customers.

In addition to this new DRAM customer, we are now supplying to SK Hynix, the #2 DRAM player in the world; YMTC, emerging 3D NAND player; Huali and Huahong Wuxi, a growing local foundry; and SMIC, a strategically important China foundry.

Fourth, we expanded our market opportunity by introducing new product and making R&D progress on other products in our road map.

Let me review our progress during the year.

First, in Q1, we introduced 2 new tools for advanced metal plating, as shown on Slide 5. The Ultra ECP ap or Advanced Wafer Level Packaging is a back-end assembly tool that deliver better plating performance with a more uniform metal layer at a large area.

Ultra ECP map or Multi Anode Partial Plating is a front-end fab tool that delivers world-class plating for copper interconnect applications.

This is becoming more critical as nodes migrate to 40 nano and below.

Our ECP tools have estimated TAM of $500 million.

That adds to $3 billion TAM for our core market in single wafer cleaning tools.

Our ECP tools are off to a great start.

We delivered 4 of them in 2019.

The 4 delivers, including both revenue and the first tool evaluation.

Next, Tahoe.

Let's turn to Slide 4. Our first Tahoe customer achieved very encouraging results in the production environment later last year.

They confirm that our Tahoe delivers equivalent performance to competitors but with the just a fraction of the sulfuric acid use.

This tool is on track for acceptance in the first half of 2020, and we believe repeat order will soon follow that.

We are in advanced discussions with the rest of our customers and are optimistic this will lead to several first tool orders later in the year.

We see the environment advantage of Tahoe is a great [cutting] cost to begin discussions with new potential customer in Taiwan, North America and Europe.

Next, TEBO.

We made a great technical progress with TEBO during 2019.

In Q4, we -- our lead TEBO customer confirmed that we met their requirements for damage-free removal of both bigger and small particles on 3D-patterned structure.

As a result, our TEBO tool was qualifying for several production cleaning steps with higher particle remove efficiency for fine particles without damages.

We expect to see a repeat order from this leading customer this year.

Yesterday, we announced another new product, the Ultra SFP ap showing on Slide 6. The name is stress-free polishing for advanced packaging.

This tool combines ACM proprietary SFP electropolishing and CMP technology into one platform.

We believe this is the first of its kind in the world.

The Ultra SFP ap incorporates a built-in electrolyte recycle and reuse system.

It reduced the amount of slurry by 80% versus conventional CMP.

We delivered our first tool during the fourth quarter of 2019 for leading Chinese wafer level packaging customers.

We expect to recognize revenue this year upon customer acceptance.

In general, we are focused on broadening our product line.

We are committed to gaining share in the $3 billion plus TAM for the single wafer wet cleaning tools.

We estimate that our SAPS, Tahoe and TEBO tools cover more than 50% of this market.

We believe our share of the Canadian market will grow as our customer achieve scale production and as ACM gain additional customers.

We are also adding new products in adjacent markets to -- expanding our opportunity to address even more of the industrial total wafer fab equipment spend.

We are -- we estimate the combination of new ECP and SFP product add another $700 million to our TAM.

Moving on, I will now discuss some of the more strategic efforts we are making to build the foundation to achieve ACM longer term objectives.

First, we raised capital in the U.S. The follow-on equity offering added $25 million to our balance sheet.

We are deploying the proceeds to invest in customer development in new regions, including North America, Europe and Southeast Asia.

We also begin a significant marketing push in this region to support our growing direct sales effort.

Second, we entered into a framework agreement to acquire land rights in the Lingang region of Shanghai, 30 miles from ACM headquarter.

By middle year, we expect to complete a definitive agreement for the land.

We expect to begin construction of a new R&D center and a factory later this year and start initial production at that facility at end of 2022.

Finally, we are gearing up for our Shanghai stock market listing.

We are pursuing the listing for 2 reasons.

First, we want to raise our profile with regional customers and our supply chain.

Second, we want to raise local capital in our primary market of China at attractive valuation.

To meet the requirement for the listing, we added several independent strategic local investors.

We sold 8.3% of the outstanding share of ACM Shanghai to those investors at $675 million pre-money valuation.

This reached $60 million.

We are on track to submit our application for the listing in the middle 2020 and to price the transaction by end of the year.

Before I turn over to Mark, I would like to update you on how the coronavirus situation has impact our operations and outlook.

I'm proud and thankful to report that more than 90% of our staff are back to the work at both our Shanghai fab facility, which are showing on Slide 7.

We took early action in February before employee return from Lunar New Year to make sure none took unreasonable risk to rush back to work.

We also took steps to ensure a safe workplace upon return.

At this point, Shanghai appears to be stabilizing with the number of new reported COVID-19 cases falling.

Our production lines are now back to normal starting and our supply chain does not appear to be a issue.

We are working to increase our manufacturer capacity to prepare for heavy loading in Q2 and Q3.

We have been in constant contact with our customers, in particular YMTC.

As many of you know, YMTC's first factory and its center of operations are in Wuhan, and they are fully committed to scaling production.

YMTC and all of our customers, in fact, continue to run their fabs uninterrupted through the Lunar New Year and after.

We have a local service team member in Wuhan to provide close support to YMTC.

They have been on-site supporting YMTC during the challenging times.

We are monitoring the situation on day-by-day basis.

We have shipped a number of the YMTC tool delivered from the first quarter into the second quarter, but otherwise, I'm pleased to say our operations with YMTC appear to be recovering as the city begin to relax its lockdown.

Meanwhile, other customers in less affected city have been managing -- have already returned to work.

We expect the business to return to normal operations during Q2, with the constraints become less of the factor on our business.

As looking ahead, we remain optimistic.

Let me share our current outlook as shown on Slide 8. Q1 revenue and shipments have been impacted by the virus.

Although, part of our business shift from Q1, our internal forecast are strong for Q2 and Q3 and include significant demand for demo tools.

We have a good visibility in Q3 due to firm orders and customer forecast as well as number of tools awaiting acceptance.

Accordingly, our full year 2020 outlook is unchanged.

We expect revenue to be in the range of $130 million to $150 million, as we announced on January 13.

This represents 30% annual growth at the midpoint.

Our outlook is based on a couple of important assumptions.

First, the virus situation continue to steadily improve in China and stabilizes in the rest of the world; second, low end of the revenue range, assuming muted DRAM recovery and EBITDA revenue contribution from new customers.

To conclude my section, I would like to thank our customers, partners and shareholders for their continued support and confidence in ACM Research.

I especially want to thank our employees for their hard work and dedication during this challenging time.

Our entire team is focused on what we can control.

We're investing in R&D to enhance current products and develop new products.

We are building our global sales and marketing infrastructure.

In order to penetrate new customers in new regions, we are scaling production capacity to fulfill the wave of new demand we are seeing coming.

As we grow, we are committed to a thoughtful balance between current profit and the investment growth.

We believe that growing fast with the profitability would deliver the maximum value to our shareholders.

I will now turn the call over to Mark, who will discuss the financial results in more detail.

Thank you, David, and good day, everyone.

Q4 was another strong quarter ending 2019 on a high note with good profitability.

For the full year, we grew our business significantly with increased market share, good customer exposure and expanded production at our second factory.

We added several new key products, including our ECP tools for advanced metal plating.

We closed the year with $58 million of cash on our balance sheet, up from $27 million a year ago.

I'll now put some detail around our full 2019 results.

Unless I note otherwise, I will refer to non-GAAP financial measures.

A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.

First, highlights of our results for the full year shown on Slide 9. Revenue was $107.5 million, up 44%.

We break out our 10% customers on an annual basis and will provide occasional color on quarterly costs.

As you can see on Slide 11, for 2019, we had 3 10% revenue customers, which I will now describe.

First, Huali and Huahong Wuxi accounted for 26.5% of revenue versus 24.2% in 2018.

They grew by 58%, a good contributor of growth as we expanded penetration from Huali Shanghai fabs to additional factories of Huahong and Wuxi.

YMTC was our largest customer at 27.5% of revenue versus 39.6% in 2018.

Our revenue from YMTC was unchanged year-over-year.

As expected, YMTC ramped its wafer production from 5,000 per month to 20,000 per month during the year.

Even though the wafer starts increased significantly, the number of tools was about the same due to subscale utilization of our tools at the initial 5,000 wafer per month level.

SK Hynix accounted for 19.8% of revenue versus 23.8% in 2018.

Revenue from SK Hynix was up 20% year-over-year.

SK Hynix was a big contributor in the first half and fell off in the second half due to challenging DRAM market conditions.

SMIC and JCAP were larger revenue contributors in 2019 as compared to 2018 but less than 10% customers for both years.

Total shipments were $115 million versus $95 million in 2018.

Gross margin for the year was 47.3% compared to 46.2%.

This was above our normal expectations of 40% to 45% due to a favorable product mix.

We expect gross margin to continue to vary on a quarterly basis due to product mix and manufacturing utilization.

Operating income was $21.3 million compared to $9.8 million.

Operating margin was 19.9% versus 13.2% a year ago.

Net income attributable to ACM Research was $21.5 million for the year versus $9.9 million.

2019 net income included a benefit of 2 items, which ACM considers onetime in nature.

This includes a tax valuation allowance release or benefit of $4 million for the year and a realized gain or benefit of $1 million from the effective foreign currency fluctuations on our operating results.

Net income per diluted share was $1.17 compared to $0.55 in 2018.

This includes a net benefit as discussed above of 25% -- $0.25 per share for the tax and currency items.

For the fourth quarter, shown on Slide 10, revenue was $24.6 million, up 18% from the fourth quarter of 2018.

Total shipments were $25 million versus $35 million in the fourth quarter of '18 and $43 million in the third quarter of 2019.

Keep in mind, third quarter 2019 shipments had been neutrally strong due to the acceleration of a number of shipments from the fourth quarter.

Gross margin was 50.7% versus 49.6% in the prior year period.

Operating income was $4.5 million, up 39% from $3.2 million in the year-ago period.

Operating margin was 18.3% versus 15.5% in the prior year period.

Net income attributable to ACM Research was $4.6 million versus $2.9 million in 2018.

This includes the benefit of $2.3 million from a tax valuation release and the impact of foreign currency fluctuations on our operations.

Net income per diluted share was $0.23 compared to $0.16 in 2018.

This includes an aggregate benefit of $0.05 for the tax and currency items for the quarter.

Now I'll review the balance sheet.

Our cash balance was $58.3 million at the end of 2019.

Cash was up $11 million from the end of last quarter and up $31.1 million from the end of last year.

The increase for the year was driven by positive free cash flow and our capital raise in August of 2019.

We held $59.6 million in restricted cash at year-end.

This is from the proceeds to ACM Shanghai for its 2 private equity funding rounds.

The restricted cash will be unrestricted when we submit our China IPO application.

Short-term borrowings at year-end were $13.8 million, down from $15.7 million at the end of Q3 and up from $9.4 million at the end of 2018.

Total inventory was $44.8 million at year-end.

Finished goods inventory grew to $19.3 million at year-end, up from $18.6 million at the end of the third quarter and $16.5 million at the end of 2018.

We view the increased finished goods inventory as a positive indicator as it reflects the deployment of additional first tool systems to potential customers.

Cash flow from operations was $14.2 million for the fourth quarter and $9.4 million for the year.

Capital expenditures were $0.2 million for the quarter and $1.1 million for the full year 2019.

To conclude, we are executing on our strategy.

We are participating in the growth of major new IC fabs.

We are ramping production, and we continue to develop and deliver innovative new products.

We are positive on our opportunities in China and the expansion outside of China.

We're committed to achieve our mission to become a major player in the semiconductor equipment market.

Now let's open the call for any questions that you may have.

Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Donnie Teng from Nomura Securities.

Congratulations on very strong 2019 results.

And my first question is regarding to our shipment and sales outlook this year.

So I calculated the accumulated shipment sales since third quarter 2017.

And I found that we probably still have like $30 million of backlog.

So I'm wondering whether if our sales momentum this year is largely intact is mainly driven by the backlog or we are also seeing a very strong shipment growth this year.

This is my first question.

Okay, thank you.

So let me answer first.

Maybe I'll give the -- Mark add in more.

Actually, like you point out, yes, there's a deferred revenue last -- last year and to this year, and we estimate those $30 million were record revenue this year, obviously.

So by all projections, obviously, we'll see more shipments this year much more than last year.

I also can see same amount even more will be same as deferred revenue to 2021.

So to answer your question, yes, we see more shipments better more than last year.

Mark, anything you can add in if you have?

Yes.

The only thing I'd add -- thanks, David, and thanks, Donnie, for the question.

So yes, if you look at the revenue opportunity of the finished goods inventory.

So finished goods inventory ended the year at $19.3 million.

We reported that.

And so that's carried at cost.

So you could kind of do a quick conversion to the revenue value of that.

It's about $36 million or so.

And yes, as David said, we expect to grow shipments, and we see, obviously, that add some visibility to our revenue as we get acceptance and take revenue on those products.

Okay, great.

And my second question is regarding to our growth outlook.

Could you tell us what kind of customer or applications are still growing strong this year despite of coronavirus?

I think, as you mentioned, it's like YMTC is still on track.

So I think YMTC is growing very strong.

And for Huahong, they have Wuxi fab and is ramping up, as they mentioned in the earnings call.

But I'm curious about SMIC.

It's because SMIC spend most of their CapEx on 14-nanometer capacity.

Like out of the $3 billion CapEx, they spent $2 billion there.

So I'm wondering if SMIC is also a very important growth driver for us and whether our growth from SMIC is mainly from their 14-nanometer or just purely from the 8-inch in Tianjin or other fabs.

Okay.

Thank you for the question.

Actually, like you mentioned, we have a continued demand from YMTC.

And also we see the demand from -- heavily from Huali, their 20-nano fab and also the Wuxi Huahong fab.

And we also see some initial probably investing or some [technological] transaction from our SK Hynix, right, second half of this year, too.

As a matter to the SMIC, yes, they did a lot of R&D research 14-nano and this year ramping.

And we definitely participate in that [ramping].

Also beyond that, also we have the demand from the Beijing 12-inch fab, too.

So I expect this year, revenue from SMIC should be increased more than last year.

Got it.

So basically, for SMIC, it's like both from like 14-nanometer in Shanghai as well as the 12-inch fab in Beijing.

Yes.

That's -- I see that, yes.

Got it.

And my last question is regarding to DRAM customers.

So as you know, I think coronavirus is causing some uncertainties on end demand for sure.

Under the most bearish case, do you think that our sales from DRAM customer can be still maintained stable compared with 2019 in terms of absolute U.S. dollar amount or...

At this moment, I do not see very clear.

As I mentioned, we do see some technology upgrade, and this is now the real expansion for the capacity.

It's more like they transition from certain technology to certain advanced nodes.

They need more of our tools, right?

So we see that ordering were coming in, say, the second half.

And as a matter of their real capacity expansion, this moment, I should say, we're cautiously watching and carefully waiting, and we're still waiting for customer sign right now.

(Operator Instructions) The next question comes from the line of Suji Desilva from ROTH Capital.

Good to hear your staff is safe and back to work there.

So first question on the gross margin.

Can you talk about the factors that drove that above target, what the pricing elements are there and whether those will persist or revert to normal in the next few quarters?

Okay.

So Suji, as I said, yes, last quarter, our gross margin is actually beyond our range, which is 40% to 45%.

It's really a matter of a combination of the tools and combination of the technology we sell.

I still feel, since we are growing ourselves in the future, we still believe even this year or maybe for next 1 year, we'll still consider 40% to 45% is our normal range.

Right?

Obviously, some year can be higher, some of year can be lower, but I still think that's the range where as we think -- we're definitely thinking right now.

Obviously, beyond a couple of years later, as we have a more advanced tool accepted, we're moving that gross margin to the next level.

So that's our assessment right now.

Mark, anything you want to add on that?

No, I think you covered it well.

It's, every quarter, just our product mix and customer mix, you can have some variance.

It doesn't take a lot of tools to shift the gross margin one way or the other.

But yes, we are very confident in our long-term model.

Okay, that's helpful color there.

And then on the '20 -- we're in the '20 guidance for revenue.

Can you talk about the mix of that that would be a non-SAPS as you diversify your revenue stream from the core SAPS revenue?

Yes.

Actually, so Suji, I can see that as we have more product on the line, right, you can see that we don't have Tahoe as we introduced in the market today -- I mean this year -- last year.

And we see there probably multiple customer interested and to this Tahoe product because of the large quantity of the sulfuric acid saving and which is real protecting environment.

And also we see there positive repeat order coming for the existing customers of Tahoe.

Beyond that, I can see that there is -- also have a plating tool.

And we're probably seeing more of a customer buying tool for their both back end and also the front end.

So that all add together, probably we think about their new product which beyond the SAPS, this year will add additional $15 million, $20 million more sales.

And so that's why I see a growth potential and with our new product gain additional customer and give us new revenue driving stream.

Next question comes from the line of Christian Schwab from Craig-Hallum.

Congratulations on extremely solid execution in this challenging time.

Two quick questions.

How many tools -- first one is, how many tools is the opportunity for the Tahoe after acceptance there?

Okay, great question.

I think we see a few -- I mean at least 3 more customer interested in the Tahoe and that new customer, right, possibly will have -- this customer give us conditional PO or first tool PO.

And then we do have a repeating order come from the existing customer, which is our first-time Tahoe customer, right?

So we're expecting probably about 4 and the tool.

If we're working -- I mean lucky, maybe another -- add another 1, so that we see the 4, 5 tool this year for the Tahoe delivery.

But obviously, not all of this will [recommend] revenue by end of this year, right?

So that really depends on how we deliver tool and how we can be qualified for the new customer, and that will account for the revenue this year.

Okay, great.

And then my second question, I think the big fund, the National IC industry investment fund is about to kick off its big second phase of capital investment to the local chip guys in China.

Is that supportive of your solid outlook for this year?

Or could there actually be upside to your estimates as that begins to flow in the marketplace?

Yes.

Actually, measures -- [IC Sino] is really boosting for the -- actually the fab building and fab expansion plan, as we mentioned a couple of times and a China customer, and they are really under multi-year expansion plan, either called YMTC or the Huali Huahong Group and all the SMIC and also other new DRAM customers, too.

So they have a multi expansion plan.

And obviously, this is a new funding injection into their -- our customer side and will definitely be improving our visibility and give us more of an opportunity.

Beyond that, there's also a couple of, I should say, the power device fab also gaining supporting from those funding.

So we see that expansion or new fab will give us a new opportunity, too.

Next question comes from the line of Patrick Ho of Stifel.

Maybe first off, in terms of the supply chain, you mentioned in the prepared remarks that it's fine and everything is going well.

Can you discuss any potential disruptions that you did have over the last few months and whether that's part of the reason why you're pushing out some of the system deliveries into the second and third quarters?

And what gives you confidence that it's now resolved where you don't have to use your second or third source suppliers?

Okay, great.

Actually, for the supply chain, I'll give you the outline first.

At this moment, I should say probably our major supply, probably 70% come from outside China.

In that foreign, I call the import for China, in which probably most of them from Japan and some are also from Korea.

And we do have about less than probably 10% from U.S. and 10% from Europe.

That's our supply chain distribution.

In the last 2 months, 3 months, I -- we didn't see any supply chain delay, right?

During that time, obviously, China got to suffer.

We do have [to see] some our machine shop and get the people another [on time], they tend to [lose] their job.

But at this moment, all our supply in China from machine shop has been online already.

So as I see that is our major tool pushing from the Q1 to Q2 is obviously you see that is in Wuhan, our customer YMTC, they do have a manpower or their subcontract.

They cannot go to the Wuhan restrictions.

So that's why some tool we suppose ship to the YMTC in the Q1 was pushed for the Q2, that's the major reason, right?

So obviously, we'll watch carefully for our supply chain now since coronavirus is kind of spread out.

And however, we're lucky to see Japan and Korea got stable.

And hopefully, in near -- a few months, we can see U.S. using -- getting stable.

So we are so far cautious watching but we feel probably okay for our real long, I call the, foreign imported components at this moment.

Great.

That's helpful.

And maybe a question for you, Mark.

In terms of CapEx for this year, especially as you get the third facility signed on and begin the process there.

Can you give a little bit of color on how much you think potentially you're going to invest in CapEx for 2020?

Yes, Patrick, thanks for the question.

Yes.

So the CapEx for 2020, it's just normal run rate operations.

$2 million to $5 million is what we're looking at, adding a second floor to production at our second factory and some other upgrades, so that's kind of our normal run rate.

We did talk about the land for our new production and R&D site out there in Lingang.

So if we reach an agreement on that, we could see putting some money down for that, and we might even spend some on the construction side there this year.

So depends on exactly when it starts, but that land could be on the order of $10 million and maybe $5 million to $10 million of spending on construction depending on when it starts.

Our next question comes from the line Charlie Chan from Morgan Stanley.

So my question -- so first of all, congratulations for your great results and great execution during this kind of environment.

My question is really about your overseas customers opportunity.

Can you please give us some color whether you will be able to enter the 7-nanometer logic foundry opportunity?

So I guess it is related to your chance for 3-nanometer and also for the current 7-nanometer and 5-nanometer baseline.

Do you think customer could change the baseline for you to use your higher performance products?

Okay, Charlie, thank you.

By the way, thank you.

We have not seen each other.

One day, I should visit you.

Anyway, so thank you for the question.

And actually, you mentioned about the top-tier customer.

And ACM has been really working very hard and while at this moment, heavily engaged with 2 of top 3 guy in the industry.

So let me give the first, our preparation, right?

We believe as ACM want to be the constant vendor for the top-tier guy, you have to get a certain size, which is, at this moment, we also are moving about [40] employees and $100 million in revenue, this year, even more higher.

So also we are having strong balance sheet reading for this, I call the penetration process.

So we have about current $100 million in cash and we'll also get more from the China IPO in, hopefully, end of this year.

So as I see that is we are in the right spot and size to be able to supporting big guys' demand, big guys', I call it, requirement.

So as a matter -- come to the -- next one is technology.

With our technology, TEBO and SAPS and Tahoe, we definitely -- we have confidence those technology will be needed for the top-tier guy to enhance their yield and reduce the capital spending, especially sulfuric acid.

And also most important for their -- as the small geometry coming in 7, 5, 3 nano and the yield improvement is critical for their economical ramping up.

So we have very strong confidence.

And as a matter, you see that is we are working very hard, and we're -- this is a matter of time.

And hopefully, we can bring 1 of these 2 customers this year and have even more, right, together, but we're hoping bring 1 over this year, and the possible bring another next year.

So that's our strategy to put on.

And third, we also hire high-power actually sales force and both in Taiwan, also in North America.

There's one additional announcement we're doing very soon, very high power to help us sell in the U.S. and North American market.

So with that, all I said, ACM will be very positive, and we'll be working hard and to penetrate those top-tier customers.

Mark, anything you want to add on that?

David, no, I think you summarized it pretty well.

I mean we're -- really, everything we do here at ACM is to become a major player, broaden our product line, developing the balance sheet, our capacity plans.

And we're putting some serious resources in place to realize our goals.

(Operator Instructions) Next question comes from the line of Mark Miller from Benchmark.

You mentioned your situation with respect to the coronavirus.

But I'm just wondering, what's the situation with some of your major customers?

Are they back to normal?

Okay.

Thanks, Miller.

As I said is I probably mentioned a couple, YMTC in Wuhan.

There, actually, they never stopped manufacturing even in the Lunar New Year time line.

Obviously, they're in, I call it, full production today.

As a matter of -- if they want to install a new tool, and they're waiting for city to really get -- the people can move in, right?

Hopefully, those kind of things can happen in Q2.

With that confirmation, then probably we can install and can have our people move into Wuhan to install those tool.

But I say that, even in the worst case, I still have a service guy -- about 20 service guy in Wuhan, and that is still possible.

You saw the tools, maybe a little of slow pace.

So that's the worst case situation.

In other cities like Beijing and our customer, SMIC, in Shanghai, Huali Wuxi and SK Hynix and also Huahong Wuxi.

They are so far pretty open right now, and there, we can have our engineers sent to there.

We can have our visiting to those customers.

So that almost become normal right now.

Just was wondering, the smartphone production is supposed to be down around 12% year-over-year this quarter, may also be softer in the second quarter.

Are any of your customers adjusting their production schedules you know about?

This moment, I should say, our major customer, we have not seen any slowdown yet.

And their -- our -- their investment plans there to deliver time-based on the -- still on our plan or our production schedule, right?

As a matter of a DRAM customer, as I mentioned, they're still moving to the new advanced nodes.

They're still buying for the buyout tool to expand in the new generation technology.

So for the capacity-wise, we're still cautious, watching right now.

And we have not got a clear sign yet.

I'm sorry if I missed this.

What was stock-based compensation in the fourth quarter?

Mark, can you answer that?

Yes, I can look that up.

It's on the table in the earnings release.

In the presentation slides?

Yes.

It's in the table in the earnings call.

But yes, stock-based compensation here looks like $650,000 for the quarter and $3.6 million for the year.

We actually had a big jump.

The reason it was high and believe the third quarter was some of the options we granted to our China IPO employees, regarding the China IPO, there was a bump for that.

You indicated tax and effects of foreign exchange increased the -- were positive by net benefit of $4.7 million for the year.

What were they for the quarter in terms of how do they add on to the quarter?

Yes.

For the quarter, it was about $0.05.

So you had -- if you adjusted relative to 14% tax rate, it'd be about $1.7 million on the tax.

We had a partial valuation release in Q3, and we did the full release for the year.

So it's about $1.7 million delta in Q4.

And then we actually had a foreign exchange loss from operations of about $600,000.

So that was a headwind to our earnings.

But net-net, we reported $0.23 non-GAAP earnings in Q4.

And there was -- apples-to-apples it would be a $0.05 lower.

So it would have been like a $0.17 number if you took out those onetime items.

(Operator Instructions) Next question comes from Charlie Chan from Morgan Stanley.

So David, I know it's a little bit sensitive but also related to your potential China IPO.

Given the circumstance of China-U.

S. tension and your big exposure to China customer like YMTC, SMIC, do you consider potential restriction on your technology export to your China customers from the U.S. government?

And how is the company going to address these potential risks?

Okay.

Well, good question, Charlie.

And basically, the technology we're selling in most market right now is a single wafer technology, right?

We have cleaning.

Those technology actually was developed in the last 10, 15 years in Shanghai.

So based on our -- talking with our lawyer in the U.S., that's not in the restriction category of the export technology category right now.

However, we do see some kind of 25% initial rule, right, components if we import and using U.S. components.

That 25% that is probably down to 10%.

With that a challenging?

Yes, we do have -- see some challenge there.

If that do happens, we have to real -- shipping the product or we have to form the alternative choice, supply chain to replace those components, right?

That's so far our strategy, try to protect our investors' interest and also make company continue to grow in this kind of dynamic environment.

Okay.

And my next question, if I may, is about your value and pricing versus your key competitors.

Sorry, I didn't know about this.

But do you need to process some discounts versus Japan or U.S. vendors when you approach your customers?

You mean our pricing from -- I make sure the question.

You mean our operation pricing components or our selling price per customer?

Your selling pricing to the customer and if you can give us a rough market share in China.

Okay.

Well, I mean pricing always kind of challenging, right?

And the -- and obviously, we constantly get pressure from customers, lower the pricing.

However, I think our strategy, try to sell product is by our product quality and value added, especially for yield improve and also for added excellent, better service for our customer, I say, local customer in Korea and in China, potentially in Taiwan.

So we offer better quality and value-added product.

Again, obviously, you're looking for reasonable pricing and for the customer.

So that's our strategy right now.

Answer to your question, yes, we try to really sell their value-added and moreover consider cost of their ownership not just by selling price, so that's our strategy.

Okay.

Then in your market share in China.

Yes, Mark?

Yes, please.

Yes.

David, if you don't mind, I would just add -- yes, I would just add to that is, look, like we're a small company with -- but growing bigger with some big aspirations.

So David and the team, every one of our products has some innovations backed by patents, and we have to do a little better on the performance side.

So we cut our teeth with SK Hynix, improving the yields at the steps.

The Tahoe product, similar performance, but we're going to reduce the amount of sulfuric acid use.

So we always have something innovative to drive the customers to use our products.

And we feel that we offer a bit more and can get a good price for that.

And maybe, Charles, I want to add one more word here.

I do believe the company was sustaining R&D arm and sustaining there in all operations or give a certain profitability of the company.

We're not real pushing pricing down to get market share.

We'd rather maintain certain pricing.

We leave out some market share to other competitors coming.

We feel that more win-win situation and that's our strategy.

We have our last question from the line of Quinn Bolton from Needham.

First question, Mark, just a clarification on the timing of the restricted cash.

Did you say that you have access to that restricted cash or it becomes unrestricted upon the filing of the STAR Market transaction or on the listing, the successful listing of that transaction?

Yes.

Charles, yes, so I'm glad you asked that.

So yes, Quinn, we do -- we did say that on the call that when we submit the application, we're going to unrestrict the cash as opposed to when we achieve the listing.

Yes.

Great.

And then second question for me, just can you guys give us any sense of the number of tools or the dollar revenue that may have shifted from Q1 to Q2 as a result of the coronavirus effects?

Okay.

Quinn, it's a good question.

But as we said the rule in our general earnings call, we do put the -- not normally give a guidance for the coming Q or next Q, right?

The reason for that is because 1 tool, and if it's deliver in the Q1 versus Q2 will cause fluctuations sometimes 10% to 15%.

That gives us real projection on the earning for the next quarter is very difficult.

That's why we'll say at this moment and maybe for a while, we're not going to give the clear projection for the coming quarter.

However, if we see our revenue, say, maybe quarterly come to $50 million or $60 million, $70 million per quarter, then in that time, will be, even more clear.

In that case, one tool, get a delay or get up, not much impact our final projection accuracy.

So I really hoping understand that, and we're in that situation.

However, as you can see that maybe Q1 is the lowest quarter in the whole year.

And we can see strong Q2, Q3 demand.

And we don't know Q4 or Q3, I think, right now.

We don't know Q4, right?

Maybe Q4 will be lower than Q3 or maybe Q4 can be higher than Q3 depends on the [manufacture of] DRAM.

So that's our assessment for this year's revenue.

Thank you.

With that, I would like to hand the call back to the management, Mr. Yang -- Mr. Wang, I beg your pardon, for closing remarks.

Okay.

Thank you, operator, and thank you all for participating on today's call and for all your support.

This concludes the call, and you may now disconnect.

Ladies and gentlemen, thank you for participating.

We know -- I will now -- you may now disconnect your lines.