ACM Research Inc

NASDAQ:ACMR

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the ACM Research First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speakers today, Steve Pelayo, Managing Director of The Blueshirt Group. Please go ahead.

[Steven Pelayo]

Good day, everyone. Thank you for joining us to discuss first quarter 2024 results which we released before the U.S. market opened today. The release is available on our website as well as from Newswire services. There is also a supplemental slide deck posted on the Investors section of our website that we will reference during our prepared remarks.On the call with me today [ are ] our CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, our CFO of our operating subsidiary, ACM Shanghai.Before we 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 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 an unrealized gain and loss on short-term investments.For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website, and to Slide 12.Let me turn the call over to David Wang, who will begin with Slide 3. David?

[David Wang, executive]

Thanks, Steven. Hello, everyone, and welcome to ACM Research first quarter 2024 earnings conference call. Please turn to Slide 3. I'm pleased with our results, a solid start for the year, for the first quarter. Revenue was $152.2 million, up 105%. Profitability was good and gross margin of 52.5% and operating margin of 26.2%. And we ended the quarter with just over $288 million of cash and time deposit.Shipments for the first quarter were $245 million, up 175%. As expected, first quarter shipments were higher due to delivery of our finished goods that were not shipped in the fourth quarter of last year. And we also had an execution from our production team during the Luna New Year holiday period.I will now provide detail on product. Please turn to Slide 4. Revenue from single wafer cleaning, Tahoe, and semi-critical cleaning product grew 199% in Q1 and represented 72% of the total revenue.ACM offer what we believe is the industrial most comprehensive cleaning portfolio. We support near 90% of all cleaning process steps for memory [indiscernible] devices. At the high end, we believe our flagship sets, Tahoe and the TEBO single-wafer cleaning products, delivered a technical feature not available from any of our competitors.At the low end, our semi-critical tools, including auto bench have trading incremental growth for our cleaning category over the past [ 2 ] years. We have recently made the progress in SPM market, which we believe will result in share gain and growth in our cleaning business starting this year.Let me provide more detail. SPM stands for sulfuric acid-peroxide mixing. These steps are normally used to clean wafer after photoresist removal process and post CMP cleaning. We estimate the total available market for TAM for SPM tool is 25% to 30% of the total front-end cleaning market.Today, SPM has been a small contribution to our business. Our SPM tools, including Tahoe, low-temperature single-wafer SPM and now our high-temperature, single-wafer SPM tool. Until now, we believe there has been only one major supplier of high-temperature, single-wafer SPM tools.Our engineering team has recent made their greater technical progress with our high-temperature tool. And we believe ACM can now participate as alternative supplier. This is especially important as we believe our customer generally prefer one-stop shop for all their SPM cleaning steps.With the high temperature SPM tool, we believe ACM now has a full product line to meet our customers' requirements. Additionally, Tahoe has been qualified for production by multiple customers and is beginning a ramping phase with a substantial number of order plans for delivery in 2024. Enhancements have been made to its performance, allowing the tool to match particle removal efficiency comparable to the single -wafer process, while reducing sulfuric usage by 50% to 70%.We now expect a meaningful ramp of SPM tools this year as we begin volume delivery across a number of key customers. Finished up on cleaning we'll also expect our [ wet etcher ] cleaning tool to contribute meaningful revenue in 2024. And we are on track to complete evaluation of a supercritical CO2 dry cleaning tool this year for revenue in 2025.Revenue from ECP furnace and other technology declined 3% in Q1 and represented 70% of our total revenue. As mentioned last quarter, we hit an important milestone for this category in 2023 with more than $100 million in revenue. The year-over-year revenue decline is primarily due to quarterly fluctuations.In fact, we shipped [ 3x ] more ECP tool in Q1 '24 versus the same period last year. And we expect the revenue growth for this category for the full year. As noted in the prior calls, we believe the furnace product cycle is perhaps 1 year and so behind ECP. We have a brand -- broader footprint of customer activities with more than a handful [ first ] tool currently under evaluation and multiple customers. We are optimistic this will result in qualification and follow-on orders in the coming quarters.Revenue from advanced packaging, which exclude ECP, but including service spare parts grew [ 33.2% ] in Q1 and represented 11% of total revenue. This category, including a range of our packaging tools such as coder, developer, scrubber, [indiscernible] and wet etchers, and also service and spare parts. And we continue to [ draw ] new products and the technology to participate in the next generation of advanced packaging.We believe ACM is one of the only company that offers full set of [ wet ] tools, have a [ packaging ] tool and their copper plating tool for advanced packaging. In Q1, we delivered Ultra C v vacuum cleaning tool to a major customer to meet the flux removal requirement for chiplet and other advanced 3D packaging structures.Today, we also introduced the Frame Wafer Cleaning Tool. This tool is a design for post-debonding wafer cleaning that enable nearly 100% recycled solvent and filtration. We have successfully completed the installation and the qualification of first tool with a key customer.Finished [ upon ] [ end ] product, we are making good progress with our track and PECVD platform. We believe our proprietary technology [indiscernible] tools for success for Mainland China and also global customers. We are engaged with multiple customers that we expect a sequential growth progress in product development and evaluation this year with revenue in 2025 and beyond.Now moving on to our customer, please turn to Slide 7. In China, we believe we have a leading position in cleaning. We have become a multiple product company with a competitive product in the market for plating and furnace. And we have a solid evaluation pipeline for track and PECVD.Our sales and service teams are now [ driving ] deeper adoption of our products across our customer base. Our growth is also being driven by new entrants. On the international front, we plan to deliver Ultra C b, backside cleaning and [ wet etch ] tool in the second quarter of 2024 to a large U.S. manufacturer that qualify its first SAP cleaning tool for revenue last year. This demonstrates a deepening relationship, which we believe can lead to production orders across multiple product lines.Moreover, ACM brand and reputation are gaining recognition among other U.S. chip makers with new engagements and potential opportunity to penetrate their global manufacture site. We recently hired additional seasonal marketing and sales professionals who bring established relationship with the key U.S. semiconductor players.In Europe, we installed our first core evaluation tool, the Ultra C [ SAPS 5 ] cleaning tool at a major global semiconductor manufacturer in the fourth quarter last year. The initial feedback has been positive. And we are optimistic that the volume production order possible by middle of the year.We think Korea we see opportunity with SK Hynix, high bandwidth memory, HBM product. We see potential gains with our SAPS cleaning tool for high [indiscernible] cleaning as well as Ultra ECP for Tier 3 applications. To support growth, we made progress in our facility expanding in China and other regions.Please turn to Slide 8. In China, construction of our Lingang production R&D center is nearly complete. We expect the initial production later this year. In Korea, we are making progress with the key customers. We believe our strong commitment to Korea can improve our relationship with key Korean customers.Our [ resource ] in Korea can also provide another basis to supporting international customers in the U.S., Europe and other parts of Asia. We recently hired a new leader to run our Korea operations, YY Kim. He is a long time veteran of SK Hynix. We are optimistic his experience and relationships will help to adopting our technology and accelerate our business in the region.We continue to invest in our Oregon site to add to our service support and [ demonstration ] capability for R&D and customer activity in the U.S. and Europe.I will now provide our outlook. Please turn to Slide 9. We believe [ probably ] spending in China will remain solid as the country continues on its goal to match its production capacity with end market consumption. We are focused on gaining market share in China, new product introduction and expanding our business to new customers in the U.S.A., Korea, Europe and other Asian markets.We have reaffirmed our 2024 revenue outlook to be in the range of $650 million to $725 million. This implies '23 year-over-year growth at the midpoint. We expect our full year revenue growth for 2024 to outpace both the China and global [ WIB ] [ growing ] rate.Now let me turn the call over to our CFO, Mark, who will review details of our first quarter results. Mark, please?

[Mark McKechnie, executive]

Thank you, David, and good day, everyone. Please turn to Slide 11. Unless I note otherwise, I will refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized gain or loss on short-term investments. Reconciliation of these non-GAAP measures comparable to GAAP measures is included in our earnings release. Unless otherwise noted, the following figures refer to the first quarter of 2024 and comparisons are with the first quarter of 2023.I will now provide financial highlights for the first quarter of 2024. Revenue was $152.2 million for the first quarter, up 105%. Revenue for single-wafer cleaning Tahoe and semi-critical cleaning was $109.5 million, up 199%. Revenue for ECP, furnace and other technologies was $25.8 million, down 3%. As David noted, we anticipate good growth for the full year to 2024 in this category.Revenue for advanced packaging, excluding ECP services and spares was $16.9 million, up 53.2%. Total shipments were $245 million for the first quarter, up 175%. Gross margin was 52.5% versus 54%. This exceeded our normal expected range of 40% to 45%. For the full year, we now expect gross margins to fall in the upper end of our target range. We do continue to expect gross margin to vary from period-to-period due to a variety of factors such as sales volume, product mix and currency impacts.Operating expenses were $40.1 million for the first quarter, up from $29.2 million. R&D was $19.4 million versus $13.3 million. The year-over-year increase reflects additional personnel and other expenses to support our product development pipeline. The decline versus Q4 '23 was primarily due to reduced spending on internal R&D development tools.Sales and marketing was $11.1 million versus $8.9 million and G&A was $9.5 million versus $6.9 million. For 2024, we plan for R&D expenses in the 13% to 15% range, sales and marketing in the 7% to 8% range and G&A in the 5% to 6% range.Operating income was $39.8 million for the first quarter, up from $10.9 million. Operating margin was 26.2%, up from 14.7%. We recorded a realized gain of $0.3 million for the first quarter from the sale of short-term investments. Recall that realized gains are included in non-GAAP earnings.Income tax expense was $4.4 million for the first quarter versus $2.9 million. For the full year, we plan for an effective tax rate on non-GAAP pre-tax income in the 15% to 20% range.Net income attributable to ACM Research was $34.6 million for the first quarter, up from $9.9 million. Net income per diluted share was [ $0.52 ] -- sorry, net income per diluted share was $0.52 for the first quarter versus $0.15.Our non-GAAP net income excludes $14.6 million or $0.22 per share in stock-based compensation expense. This reflects a full quarter impact of the significant grant of ACM Shanghai shares made in the third quarter of last year, in addition to our normal ACM Research grants. This was the first major grant by our subsidiary since the 2021 Star market[ IPO ].Our management team considers the grant as a critical differentiator to attract new talent for new product development and to retain key employees.I will now review selected balance sheet items. Cash, cash equivalents, restricted cash and time deposits were $288.3 million versus $304.5 million at the end of the last quarter. Total inventory was $581.1 million versus $545.4 million at the end of last quarter. This includes raw materials and work in progress, which totals $318.2 million and finished goods inventory of $262.9 million. Finished goods inventory mainly includes first tools and evaluation tools at our customers and also includes finished goods at ACM's facilities.Capital expenditures were $25.4 million. For the full year, we expect to spend about $100 million in capital expenditures. This primarily includes continued investments in our Lingang facilities, remodeling for our new headquarters for ACM Shanghai and our investments in Korea and the U.S. and some fixed asset expenditures.That concludes our prepared remarks. Now, let's open the call for any questions that you may have. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question will come from the line of Suji Desilva from ROTH.

[Sujeeva De Silva, analyst]

Congratulations on the progress here. Maybe some high-level questions. So outside of the core SAPS products, which of the new product categories is going to help drive the highest growth in '24, just to understand how you're diversifying the product categories?

[David Wang, executive]

Yes, good. And obviously, as I mentioned here, cleaning tool has continued our major portion of the revenue. And we see that this, as I mentioned, is SPM tool, which cover middle and lower temperature by Tahoe and also single-wafer. And also, we'll make a breakthrough in a high-temperature SPM tool and that will be also another driving factor. And plus, also our, this our [ wet etcher ] and also continuous we are growing our auto bench for the mature [ nodes ].And then, looking at the real next year, when looking for probably our semi-critical CO2 to start contributing on our revenue too. So that's the one on the cleaning side. And they look in their ECP. We'll continue to see that growth and both in the front end and also on the advanced packaging side and wherever -- and quite a good backlog in ECP.And also, we see the furnace will start contributing for our revenue too this year and also continue next year. And we have basically order LPCVD and ALD study evaluation and orders -- vacuum and [ new ] versus [indiscernible] continued getting the market. So that's the major driving force this year for our revenue contribution.Mark, anything you want to add on that?

[Mark McKechnie, executive]

Yes. No. Thanks, David, and thanks, Suji. Yes, I think one of the things we wanted to stress on this call is within cleaning -- even though, we've been doing cleaning for a while, we have a few pretty strong product cycles underneath that can drive additional growth.And then when we start looking internationally, it's hard to say how our mix is going to play out between products as we go on late this year and into 2025, because it seems like a lot of our new customers might be starting with cleaning as well. So I'll leave it at that, Suji.

[Sujeeva De Silva, analyst]

And my second question was going to be similar on the geographic diversification. Maybe I can hone in on the U.S. customer. And perhaps you can give us a sense of what some of the next milestones or steps are as you seem to be making good progress there?

[David Wang, executive]

Yes. As I mentioned, we're continuing marketing expanding our customer base in the U.S. And we have our one key customer been shipping our second tool -- second [ type of ] tool with [indiscernible] and back side to this key customer. Meanwhile, we're also talking this kind of multiple customers in the U.S. and both for their front end and also for their packaging side.So we see the big potential in the growth in the U.S. market. And meanwhile, we also access the market in the Singapore and also European, right? Our first tool has been delivered to the one key European customer. And we think there will be -- in a qualification phase now. We're expecting this first tool result in their second repeat order. I think that's it, right?Mark, anything you want to add?

[Mark McKechnie, executive]

Yes. So -- thanks. International, I think when we talked about our guidance when we first presented it last quarter, we got a lot about how much would contribute from international. This year is still a build year. We're hopeful that we can get -- following the qualification of the U.S. customer we're hoping that we can get some orders here soon. We're not certain how much will fall into this year versus next and that's always been the plan. But -- so -- and even for the European -- so we probably expect some contribution. But really, this is a build year and any significant orders would probably be for shipments next year.

[Operator]

Our next question will come from the line of Christian Schwab from Craig-Hallum.

[Christian Schwab, analyst]

I just have one follow-up to the earlier conversation. Now that you're seeing broadening potential success in the international market, it seems that on a bigger picture multiyear area -- I know you've outlined $1 billion in sales in China in the market outside of China for your products is materially greater. On a multiyear outlook, do you have increased conviction now that this business can be much bigger than $1 billion?

[David Wang, executive]

Yes. Actually, our layout, we're pretty confident we're going to reach even $1 billion market by only China market. And obviously, at the same time, we penetrate or the exploring international market with our differentiated technology. So we see that trend continue accelerating. So as I said, we're looking at the key customers U.S. and they're -- probably they're manufacturing in Singapore.And also, we're looking with the Taiwan customer too. And plus recent, right, we hired our key -- I call key top manager in the Korean operation, which is [ YY Kim ]. He's real veteran of SK Hynix. And so we're really put an effort in the marketing sell our product in the global.So we're seeing, obviously, the international revenue and the contribution we're getting to our total growth. As I said, in the long-term, we want to half of our revenue coming from China and half of them from outside China. So that's a goal still in our -- is continue our goal here.

[Operator]

[Operator Instructions] Our next question will come from the line of Ross Cole from Needham.

[Ross Cole, analyst]

On behalf of Chi Tsai today. So shipments in the first quarter were pretty high. I know you don't typically guide shipments. But do you have any thoughts on the rest of the year? Do you expect the Q1 shipment level to sustain through a similar level or possibly go higher or lower in the next 3 quarters?

[David Wang, executive]

Yes. Okay. Let me answer, maybe Mark can follow up. Obviously, first quarter shipment [ higher ] is partially contributing our delayed shipment in Q4 of last year, right? So that's why part of the reason, plus also our manufacturing on a difficult job in the Luna New Year. So we'd say probably Q2 was slightly lower than Q1, but also continue to see that growth in Q2 and Q3 and Q4.So Mark, anything you want to comment?

[Mark McKechnie, executive]

Yes. No, thanks. And Ross, I appreciate the question. Yes, so we still -- we certainly expect shipments to continue to look to be higher than our revenue growth for the year. I mean it's a pretty solid shipment year. But yes, as David noted, Q2, they probably normalized a bit relative to that inventory piece. But we'd expect it to kind of shift back up in Q3 and Q4.

[Operator]

Our next question will come from the line of Charlie Chan from Morgan Stanley.

[Charlie Chan, analyst]

Also congrats for very good results [ execution ], et cetera. So I'm not sure, but I feel like this time around you are more open to talk about Hynix, HBMs no matter claiming or the ECP business opportunity. May I know if you have a significant revenue there? I remember you kind of have some demo tool there. But is that now a [ upfront ] project wins in the recurring order [ and ] come from that?

[David Wang, executive]

Yes. Actually, Hynix is one of our key customers, right? And there also is a real long-term customer too. They only now add more of -- obviously, our flagship SaaS megasonic cleaning can offer much uniform megasonic energy contribution. So therefore, you can all clean every [indiscernible] of the wafer, which is very important for Tier 3 and the [ process ].And second one, real contemplating, right, it's really in either packaging 3D, 2.5, 3D and also in the Tier 3. So we're engaging with the customer. And when we think of expansion of the product and definitely can be the potential choice for them to take. So we're still in the process right now.

[Charlie Chan, analyst]

Okay. And may I know this kind of key technology, right, can be used in advanced packaging, for example, [ cohort ] or [ TSMC ] [ SOIC ]. So that's my understanding. I think it's not just a [indiscernible], if can provide the [ cohorts ] of 2.5 D advanced packaging?I think Intel, even Encore, I mean, have advanced packaging stuff, right? So are you guys going to supply to those opportunities?

[David Wang, executive]

Yes. Obviously, like you said, definitely our copper plating can using for the other customers, right, for this advanced packaging process. And so, we're approaching multiple other customers right now. And in this market, obviously only a few players and we can get an alternative choice for them to take.Also, we do have some differentiated technology, what differentiate our performance with other guys. So we're very confident we can get it in the market and [ they're ] -- for the outside China market.

[Charlie Chan, analyst]

Okay. Yes. Actually, my second question is about also international markets. I remember 4 years ago, when I thought [ you covered ] the stock, always I had a question, when are you going to get in TSMC, right? And 4 years later, I feel like TSMC is to be very, very important target. They continue to open the new fabs not just U.S. but also Japan and next will be Germany, including both the mature [ nodes ] and the leading [ edge ]. So my question is that, what do you need to do, right to really -- when is the customer -- Can you give us some color whether it's a technology or kind of production location or pricing, whatever? What's the issue right now?

[David Wang, executive]

Yes. Well, I mean, obviously, like you said, TSMC is one of our key customer targets. And we're working with them multiple years. And we're still engaged with them, by the way. And so we're in still evaluation talking process right now, right? As I said, our cleaning, also our copper plating definitely is one of the key products, right, differentiated with the other players.So we are confident, right? And the -- anyway, probably, I cannot tell you now what's going on. But we are fully engaged with TSMC is our potential target, obviously.

[Operator]

And our next question will come from the line of Mark Miller from The Benchmark Company.

[Mark Miller, analyst]

Congratulations on another upside report. I guess I was wondering if you're seeing any impacts such as pushouts from the slowing of EV demand in China?

[David Wang, executive]

Okay. That's a good question. Actually, we see -- I feel, I mean, quite a bit of customer focused on the IGBT production line. And we see that continue to grow, because anyway, IGBT production in China is still early stage, right? So we see the customers continue spending and -- for this IGBT investment.And also, we do have a very good product in cleaning and also in the furnace, right, supporting this IGBT market.

[Mark Miller, analyst]

Just wondering how cash flow went during the quarter? Did you consume cash?

[Mark McKechnie, executive]

Yes. Mark, I'll take that. So it'll show up in our queue. But cash flow from operations was $9.6 million. We used about $9.6 million.

[Operator]

And I'm not showing any further questions in the queue. I'd like to turn the call back over to Steve for any closing remarks.

[Steven Pelayo]

Okay. Thank you, operator, and thank you, all, for participating in today's call and for your support. Before we close, let me just mention a couple of upcoming Investor Relations events.On May 29, we will present at Craig-Hallum's 21st Annual Institutional Investor Conference in Minneapolis. From June 25 to 26, we will present at the 10th Annual ROTH London Conference at the Four Seasons Park Lane, London. Attendance at the conference is by invitation only. For interested investors, please contact your respective sales representatives to register and schedule one-on-one meetings with the management team.This concludes today's call and you may now disconnect.

[Operator]

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.