ACMR - NASDAQ

Good day and thank you for standing by. Welcome to the ACM Research First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question answer session. [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.

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 to 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 continue, please turn to Slide 2. Let me remind you that the 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 Risks Factors and elsewhere in ACM's filings with 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 the 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 now turn the call over to David Wang, who will begin with Slide 3. David?

Thanks, Steven. Hello, everyone and welcome to ACM Research the first quarter 2024 earnings conference call. Please turn to Slide 3. I'm pleased with our results, solid start to the year for the first quarter. Revenue was $152.2 million, up 105.0% 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 deposits. 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 exclusion from our production team during the Lunar New Year holiday period. I will now provide the detail on products. Please turn to Slide 4. Revenue from the single wafer cleaning Tahoe and a semi-critical cleaning product grow 199% in Q1 and represent 72% of the total revenue. ACM offers what we believe is the industry's most comprehensive cleaning portfolio. We support nearly 90% of all cleaning process SAPS for memory and logic devices. At the high end, we believe our flagship SAPS Tahoe and TEBO single wafer cleaning products deliver technical feature not available from any of our competitors. At the lower end, our semi critical tools including auto bench have trading incremental growth for our cleaning category over the past two years. We have recently made progress in SPM market which we believe was resulting sheer gain and growth in our cleaning business starting this year. Let me provide more detail. SPM stands for sulfuric acid peroxide mixing. These SAPS are normally used to clean wafer after photoresist removal process and post CMP cleaning. We estimate the total available market for the SAM of our 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 tools. Here now we believe there had been only one major supplier of high temperature single wafer SPM tools. Our engineering team has recently made their greater technical progress with our high temperature tool and we believe ACM can now participate as an alternative supplier. This is especially important as we believe our customers generally prefer One Stop Shop for all their SPM cleaning SAPS s. 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 space with a substantial number of orders planned for delivery in 2024. The enhancements have been made to this performance allowing the tool to match particularly more 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 the number of key customers. Finish up on cleaning, we also expect our bevel etcher cleaning tool to contribute meaningful revenue in 2024 and we are on track to complete evaluation of a single critical CO2 dry cleaning tool this year for revenue in 2025. Revenue from ECP furnace and other technology declined 3% in Q1 and represent a 70% of the 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 tools in Q1 ‘24 versus the same period last year. And we expect the revenue growth for this category for the full year. As noted the in the prior calls, we believe the furnace product cycle is perhaps a 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 be resulting qualification and follow-on orders in the coming quarters. Revenue from advanced packaging which, exclude ECP, but including service and spare parts grew 53.2% in Q1 and represent 11% of the total revenue. This category including a range of packaging tools such as the coder, developer, scrubber, PR stripper and wet etchers and also service and spare parts. And we continue to explore new products and technology to participate in the next-generation of advanced packaging and we believe ACM is one of the only company that offer full set of wet tool, have a polishing tool and copper plating tool for advanced packaging. In Q1, we delivered our ULTRA C v Vacuum Cleaning Tool for major customers to me that the flux removal require requirement for chiplets and other advanced 3D packaging structures. Today we also introduced the Frame Wafer Cleaning Tool. This tool is designed for post post-debonding wafer cleaning that enable nearly 100% recycle solvent and attrition [Ph]. We have a successfully completed the installation and the qualification of first tool with a key customer. Finishing up on product, we are making good progress with our Track and PECVD platform. We believe our advisory technology producing both tools for success for Mainland China and also global customers. We are engaged with multiple customers that we expect there is substantial growth progress in product development and evaluation this year with revenue in 2025 and beyond. Now move 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 a market for plating and furnace. And we have a solid evaluation pipeline for Track and PECVD. Ourselves and the service team 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 v backside cleaning and a bevel etcher tool in the second quarter of 2024 to a large US manufacturer that qualify as the 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 the reputation are gaining recognition among other US chip makers with new engagement and the potential opportunity to penetrate their global manufacturer sites. We recently hired additional seasonal marketing and sales professionals who bring establishing their relationship with key US semiconductor players. In Europe, we install our first ever evaluation tool, the ULTRA C SAPS V 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 HDM product. We see potential gains with our SAPS cleaning tool for high aspirational vehicles as well as ultra ECP for TSV applications. To support growth, we made a progress in our facility expending 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 production later this year. In Korea, we are making progress with key customers, we believe a strong commitment to Korea can improve our relationship with key Korean customers. Our resource in Korea can also provide another basis to supporting international customer in the US, Europe and other parts of Asia. We recently hired a new leader to run our Korea operations, David Kim. He is a long-time veteran of SK Hynix, we are optimistic his experience and relationship will help adoption 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 US and Europe. I would now provide our outlook. Please turn to Slide 9. We believe WFE spending in China will remain solid as the country continues on its goal to match its production capacity with the end-market consumption. We are focused on gaining market share in China, new product introduction and expanding our business to new customers in the USA, Korea, Europe and other Asia markets. We are reaffirming our 2024 revenue outlook to be in the range of $650 to $725 million. This implies ‘23 year-over-year growth at the middle point, we expect that our full year revenue growth for 2024 to outpace both the China and global WFE growing rates. Now let me turn the call over to our CFO Mark, will review details of our first quarter results? Mark please.

Thank you, David, and good day, everyone. Please turn to Slide 11. Unless I note otherwise I'll refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized gain and 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 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 volumes, 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% percent 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 52 point - 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. Or 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 US 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 Instructions] Thank you. Our first question comes from line of Suji Desilva from Roth. You're now connected.

Hi David. Hi Mark. Congratulations on the progress here.

Hi, Suji.

Just a couple. Hey guys. 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 are you diversifying the product categories?

Yeah, good. And obvious that you had I mentioned cleaning tools has continued our major portion of the revenue. And we see that there is this dimension is SPM tool with a cover middle and lower temperature by Tahoe and also single wafer. And also we have our mega breakthrough in a high temperature SPM tool and that's going to be also another driving factor. And plus also have this - our bevel etcher and also continues aware of growing our auto bench for the mature auto nodes. And then looking the real next year, by looking for property are semi-critical CO2 will start contributing on our revenue too. So that's the one on the cleaning side and they are looking the - our ECP will continue to see that growth and both in the front end and also on the advanced packaging side and we have in the quite good backlog in ECP. And also we see the furnace was that contributing for our revenue too in this year and also continuing next year. And we have basically our PECVD and the AOD starting evaluation. And others vacuum [Indiscernible] continue to get into market. So that's a major driving force this year for our revenue contribution. Mark, anything you want to add on that?

Yeah, no, thanks. David and thanks, Suji. 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 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 out 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.

Okay. Great, yeah, now my second question was going to be similar on the geographic diversification, maybe I can hone in on the US customer and perhaps you can give us a sense of what some of the next milestones or steps are as you seem to making good progress there.

Yeah, as I mentioned, we're continuing marketing spending on our customer base in the US. And we have our one key customer going to shipping our second tool - second type of tool with bevel and wet etch to this key customer. Meanwhile, we also are talking just kind of multiple customer in the US both for the front end and also for the packaging side. So, we see the potential and globe - in the US market. And meanwhile, we'll also access the market in the Singapore and also European, right? Well, our first tool has been delivered to the one key US – I mean, European customer. And we think that will be in the qualification phase now. We are expecting this first tool while resulting the second repeat order. I think, that's it, right? Hey Mark, anything you want to add?

Yeah, yeah. So, no, thanks. International I think when we talked about our guidance when we first presented it last quarter, we got at it to a lot about how much would contribute from international. This year it’s still a build year. We're hopeful that we can get following the qualification of the US 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 here and any significant orders would probably be for shipments next year.

Okay. Thanks, David. Thanks, Mark. I'll pass it along.

Thank you.

Thank you one moment for our next question. Our next question will come from the line of Christian Schwab from Craig-Hallum. Your line is open.

Hey great. Thanks for taking my question. 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 multi-year area, I know you've outlined $1 billion of sales in China and the market outside of China for your products is materially greater. On a multi-year outlook, you have increased conviction now that this business can be much bigger than $1 billion.

Yeah, actually in their - on our layout, we're pretty confident we're going to reaching even beaten down a market by only China market. And obviously at the same time we're penetrate or exploring international market with our differential technology. So we see that the trend continue accelerating. So as I said, we're looking to the key customer in the US and they're probably their manufacturing in Singapore and also we're looking with the Taiwan customer too, plus recent, right, we hired our key - a core key account manager in the Korean operation and which David Kim, he is a real veteran of SK Hynix. And so we're really put effort and marketing and sell our product in global. So we're saying obviously, the international revenue and the contribution were getting to our total growth. As I said, in the long term we want to have their revenue come from China and half of them from outside China. So that's a goal still in our – is to continue our goal here.

Fantastic. No other questions. Thanks.

Thank you. Next question.

Thank you. One moment for our next question. [Operator Instructions] Our next question comes from the line of Ross Cole from Needham. Your line is open.

Great. Thank you guys for taking my question on behalf of Charles here today. So shipments in the first quarter were pretty high. And I know you don't typically guide shipments, but do you have any thoughts on the rest of the year? Or do you expect the Q1 shipment level to sustain through a similar level or possibly go higher or lower in the next three quarters?

Yeah, okay, let me answer, maybe Mark can follow. Obviously, first quarter shipments higher is partially contributed by our delayed shipment in Q4 of last year, right? So that's why part of the reason, plus also our manufacturing on the difficult job in the Lunar New Year. So we will say probably Q2 was slightly lower than Q1, but also continue to see that a growth and in Q2 and Q3 and Q4. So, Mark anything you want to comment?

Yeah, no, thanks. And Ross, appreciate the question. Yeah, so, we still - we certainly expect shipments to growth up 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 normalize a bit relative that an inventory piece, but we'd expect it to kind of shift back up in Q3 and Q4.

Great. Thank you. That was my only question.

Great. Thanks, Ross.

Thank you. One moment for our next question. Our next question will come from the line of Charlie Chan from Morgan Stanley. Your line is open.

Hi, David, Mark, thanks for taking my question and also congrats for very good results inclusion et cetera. So I'm not sure, but I feel like this time around you are more open to talk about Hynix, SPM business 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 you said that now are confident project wins in the recurring order may come from that.

Yeah, actually Hynix is one of our key customer, right? And they are also is a real long-term customer too. Then we now we add them one of our obviously our flagship SAPS megasonic cleaning can offer much uniform megasonic or energy contribution. So therefore, you can clean every via of the wafer, which is a very important for TSV and the process. And second one real copper plating, right. It's really either packaging, 3D, 2.5, 3-D and also in the PSV. So we're engaging with the customer and which we think about the potential of the product and definitely can be the potential choice for them to take. So, we are doing the important right now.

Okay. Okay. In, [Indiscernible] there is a kind of a key technology right? It can be used in advanced packaging from simple or TSMC’s SOIC. So, just my understanding, I think it's not just a TSMC can provide the colors of FD advanced packaging I think Intel even the Encore may have advanced packaging stuff, right? So, are you guys going to supply to those opportunities?

Yeah, 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 customer right now. And I think this market obviously only a few player. And we can get an alternative choice for them to take. Also, we do have some differential technology, what differential outperformance with other guys? So we're very confidence and we can get it in the market and for the outside China market.

Okay. Yeah, and actually my second question is about this - also international markets. I remember four years ago that to cover the stock. Over that has the question when we're going to get in TSMC, right? And four years later, I feel like TSMC business to be very, very important target. They continue to open a new fabs not just in the US, 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 win this 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?

Yeah, well, I mean, obviously, like you said, TSMC is one of our key customer target. And we're working with them more than a year. And we are still engaging with them, by the way. And so, we're in evaluation talking process right now, right? As I said, all cleaning, also a couple braking definitely is one of the key product right, differentiate with other players. So we are confident, right? In the – anyway probably I cannot tell what's going on, but that we are fully engaged with TSMC is our potential target obviously.

Okay. Okay yeah, that's all the question I have. Thank you for your time. Thank you.

Thank you.

Thank you. One moment for our next question. And our next question will come from Mark Miller from the Benchmark Company. Your line is open.

Well, congratulations on another upside report. Just wondering if you're seeing any impacts such as push outs from slowing of EB [Ph] demand from China?

Okay, that's a good question. Actually, we see there a field - I mean, quite the customer focus on their IGBT production line. And we see that is continual growth because anyway IGBT for largely in China is still early stage, right? So, we see the customers continuing spending and for this IGBT investments. And also we do have a very good product in cleaning and also in furnace, right of supporting this IGBT, just wondering how cash how cash flow went during the quarter? Did you consumed cash?

Yeah, hey Mark. I'll take that. So and it'll show up in our Q, but cash flow from operations was. $9.6 million. We used nine about $9.6 million, yes.

Thank you.

Thank you. 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.

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 29th, we will present at Craig-Hallum’s 21st Annual Institutional Investor Conference in Minneapolis. From June 25th to 26th, 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 where 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.