ACMR - NASDAQ

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ACM Research Fiscal Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. Currently all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instructions will follow at that time. As a reminder we are recording today's call. If you have any objections you may disconnect at this time. Now -- I will now turn the call to Mr. Steven Pelayo, Managing Director of The Blueshirt Group. Steven, please go ahead.

Great. Good day, everyone. Thank you for joining us to discuss fourth quarter and fiscal year 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 investor section of our website that we will reference during our prepared remarks. On the call with me today are our CEO David Wang, our CFO Mark McKechnie, and Lisa Feng, our CFO of our operating subsidiary ACM Shanghai. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, 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. 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 the slides 14 and 15. Also, unless otherwise noted, the following figures refer to the fourth-quarter and full-year of 2024 in comparisons are with the fourth-quarter and full-year of 2023. With that, I'll now turn the call over to David Wang. David?

Thanks, Steven. Hello, everyone, and welcome to ACM Research fourth quarter and fiscal year 2024 earnings conference call. Before I review the results, I will address recent regulatory update from U.S. government. On December 2nd, the U.S. Department of Commerce added a 140 company to its Entity List, two of our subsidiary ACM Shanghai and ACM Korea and other entity under their structure were added to the Entity List. As we have noted, we are one of many that were added and we are not notified of any specific wrongdoing. To be clear, ACM Research, Inc., the U.S. company, we were founded in California in 1998, it is our subsidiary that we are added to the Entity List and announced ACM Research, Inc. Move on regarding the operation of ACM Shanghai in Mainland China, the new regulation will make it difficult, if not impossible, to ACM Shanghai to obtain components from the U.S. On that note, we have been working to localize our supply chain for some time. Events of the past few years, including the U.S. restrictions of 2022 have made it even more important for ACM Shanghai to localize in the supply chain. Thus, we have reduced our U.S. source components to just a small subset. And with our status on Entity List, we are working quickly to complete the transition. Bottom line, we remain committed to support our customer and complying with all global regulations. We think the impact to their -- to our production is manageable and we do not expect a significant interruption of our business. Regarding our global customer, outside of Mainland China, the new Department of Commerce rule mainly restricted U.S. export to ACM Shanghai and ACM Korea. They do not directly affect U.S. company buying two [automation] (ph). We are therefore confident we can continue our effort to expand our business to global customers. Now on to our business results. Please turn to slide three. I'm pleased with our fourth quarter results, which capped with a strong year. For the fourth quarter of 2024, we delivered $223 million in revenue, up 31%. For the 2024 fiscal year, we delivered $782 million in revenue, up 40%. Gross margin was 49.8% for the fourth quarter and 50.4% for the full-year. Operating profit increased 46% in the fourth quarter and 63% for the full-year. We ended the year with $259 million of net cash and time deposits compared to the $212 million at end of 2023. For shipments. Shipments for the fourth quarter was $264 million, up 88%. Shipment for the full-year were $973 million, up 63%. We believe the strong growth reflects ACM expanding market presence and the momentum gained from the new product cycle. Now I will discuss the key growth drivers, both for the market and specific to ACM Research. Turn to slide four for our product SAM. We now estimate our product portfolio address $18 billion global market opportunity. Our current business is primarily driven by three major product groups, cleaning, plating and advanced packaging. We anticipate continued growth in this category and look to incremental revenue contribution from our newer products starting with Tahoe, SPM, furnace, followed by track and LPCVD. Third-party sources estimating that global semiconductor WFE grow by 4% in 2024 to $107 billion. Based on this global WFE, we now estimate that our product address a Serviceable Available Market or SAM of about $18 billion in total. For Mainland China WFE, industrial analysts estimate the market growth by 12% to $38 billion. Our growth rate, 40% revenue and 63% shipment was much higher than China WFE growth. We attribute our strength to market share gain from the current product, new product cycle and a new customer. We also had a good execution from our production and the service teams. Our success start with our customers. Please turn to slide six. For 2024, we had a four customer that individually accounted for 10% or more of the -- of revenue. The Huahong Group was our top customer at 15% of the sales. SMIC was second at 14% and YMTC and PXW were third and fourth at 12%. Now I will provide detail on product. Please turn to slide seven. Revenue from Single Wafer Cleaning, Tahoe, and Semi-Critical Cleaning product grow 43% in 2024 and represent 74% of total revenue. Our growth was driven by a significant increase in Ultra C b backside cleaning tool and good growth from our SAPS, TEBO tools. We also had a contribution from our Tahoe and Bevel Etch tool. Looking ahead, in cleaning, we expect to see several significant product cycles, including high-temperature SPM, Tahoe and other tools from continued growth in the Mainland China. We offer a comprehensive top to bottom cleaning portfolio. We estimate the global Total Available Market or TAM for the cleaning is close to $6.5 billion. And our products support more than 90% of our cleaning process steps. If we take $6.5 billion TAM and ACM $579 million in cleaning revenue for 2024, the post-ACM global market share of cleaning at about 9%. We believe that our completed portfolio of cleaning tools, including SAPS, TEBO, Tahoe, semi-critical, SPM, Bevel Etch and other put us in a strong position to take more share in China in the global market. Revenue from ECP, furnace and other technology grew 46% in 2024 and represent 90% of the total revenue. In the fourth quarter, the segment achieved a record quarterly revenue of more than $50 million, which contribute to more than $150 million for the year. We continue to see momentum for our plating tool for both front-end and back-end applications. We are excited about the initial response to our new horizontal plating tool for panel level packaging where we believe our unique approach is opening the door to make to more global customers. In Q4, we announced that our thermal and plasma enhanced ALD furnace tool have achieved product qualification at the two Mainland China semiconductor customers. Chief maker increasingly rely on their -- the position of the high-quality ultra-thin film with excellent step coverage. We believe ACM's proprietary ARD furnace design are differentiate from the other supplier and enable us to address challenge faced in the advanced 3D structure manufacturing. Our furnace product cycle is also gaining traction with both memory and logical customers. Overall, we had 17 furnace customers in 2024, up from nine at the end of 2023. We expect the revenue contribution from furnace to accelerator in 2025 versus a small amount for 2024. Revenue from advanced packaging, which excludes ECP, but include service and spare parts grew 3% in 2024, and represented 7% of revenue. This category including a range of our packaging tools, including, colder, developer, scrubber, gas sweeper and wet hatcher and also service and spare parts. We believe ACM is one of the only company that offer a full set of web tools, cover plating tool and the furnish tool for advanced packaging. We had a new notable development for this category in 2024, including orders for the four wafer-level packaging tools, which are on track to ship to USA in the first-half of 2025, and we announced three panel-level packaging tool, including a vacuum, flux, cleaning tool for chiplet, horizontal plating tool and Bevel Etch tool, which we see as essentially especially relevant for packaging of GPU and high-bandwidth memory HBF. We are making good progress with our new track and feasibility platform. Both of these products come with ACM innovative and differentiated platform design and allow for process flexibility and high throughput. We have a solid list of ongoing demonstration and the evaluation for both Track and LPCVD. For Track, we plan to deliver a 30 millimeter WPH, in line careful beta tool in the middle 2025. We expect some initial revenue contribution in later 2025 with more in 2026 and beyond. Next, let me provide an update on our production facility. First, Lingang. Please turn to slide eight. In the fourth quarter of 2024, we had a grand opening ceremony for our Lingang Production and R&D Center. I'm pleased to report that we have begun initial operation and inspector site to play a key role in production development and efficient high-volume manufacturing. We expect most of our production to shift from our

Thank you, David. Good day, everyone. Please turn to slide 11. Unless I know it otherwise I'll refer to non-GAAP financial measures, which excludes stock-based compensation, unrealized gain/loss on short-term investments. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Also, unless otherwise noted, the following figures refer to the fourth quarter and full-year of 2024, comparisons are with the fourth quarter and full-year of 2023. I'll now provide financial highlights. Revenue was $223.5 million for the fourth quarter, up 31.2%. For the full-year 2024, revenue was $782.1 million, up 40.2%. Revenue for single-wafer cleaning, Tahoe and semi-critical cleaning was $155.2 million, up 26.9%. For the full-year 2024, this category grew by 43.3%. Revenue for ECP-fronted packaging, furnace and other technologies was $51.7 million, up 60.9%. For the full year 2024, this category grew by 46.2%, and revenue for advanced packaging, excluding HCP services and spares was $16.6 million, up 4.2%. For the full year 2024, this category grew by 3.3%. Total shipments were $264 million for the fourth quarter versus $140 million in Q4 of 2023. For the full-year 2024, shipments were $973 million, up 63.1%. Gross margin was 49.8% for the fourth quarter versus 46.8%. For the full-year 2024, gross margin was 50.4% versus 49.8% in 2023. We have updated our long-term business model to a gross margin target range of 42% to 48% versus the prior range of 40% to 45%. We do expect our 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 $58.4 million for the fourth quarter, up 34%. For the full year 2024, operating expenses were $193.4 million, up 25.2%. Revenue grew faster than OpEx for the year, demonstrating a solid operating leverage in our model. We invested in research and development to expand our product line and we invested in sales and marketing to reach new customers around the world. For 2025, we plan for research and development in the 12% to 13% range, sales and marketing in the 7% to 8% range, and G&A in the 5% to 6% range. Operating income was $52.8 million for the fourth quarter, up 46.4%. Operating margin increased to 23.6% from 21.2%. For the full year 2024, operating margin increased to 25.6% from 22.1%. Income tax expense was $17.3 million for the fourth quarter versus $8.1 million. For the full-year 2024, income tax expense was $35 million versus $19.4 million in 2023. For 2025, we expect our effective tax rate in the 12% to 15% range. Net income attributable to ACM Research was $37.7 million for the fourth-quarter versus $28.7 million. For the full-year 2024, net income attributable to ACM Research was $152.2 million versus $107.4 million in 2023. Net income per diluted share was $0.56 for the fourth-quarter versus $0.43. For the full-year 2024, net income per diluted share was $2.26 versus $1.63. Our non-GAAP net income excluded $8.8 million in stock-based compensation expense for the fourth-quarter and $49.6 million for the full-year. For the full-year 2025, we expect stock-based compensation to be in the $35 million range. I will now review selected balance sheet and cash-flow items. Cash, cash equivalents, restricted cash and time deposits were $441.9 million at year-end versus $369.1 million at the end-of-the third-quarter 2024. Net cash, which excludes the short-term and long-term debt, was $259.1 million versus $198.5 million at the end-of-the third-quarter 2024. Total inventory at year-end was $598.0 million versus $628.7 million at the end-of-the third-quarter 2024. This included raw materials and work-in process $304.9 million and finished goods inventory of $293.1 million. Finished goods inventory primarily consists of first tools under evaluation at our customer sites together with finished goods located at ACM's facilities. Cash-flow from operations was $88 million for the fourth-quarter and $152 million for the full-year 2024. Capital expenditures were $12.3 million for the fourth-quarter, $85.3 million for the full-year 2024. For the full-year 2025, we expect to spend about $65 million to $75 million in capital expenditures. That does conclude our prepared remarks. Now let's open up the call for any questions that you may have. Operator, please open up the floor for questions.

[Operator Instructions] And our first question coming from the line of Charles Shi with Needham & Company. Your line is now open.

Hello. Yes, just wanted…

Hi, Charles. Good morning.

Good morning.

Yes, good morning. The line cut up a little bit. Just want to make sure it's my turn. So maybe the first question that you guys reiterated fiscal ‘25 revenue outlook. It's the same outlook you provided in January, low point -- at the low-end, up 9% year-on-year growth, at the high-end 21% year-on-year growth. Can you provide a little bit of color on what goes into the assumptions to the low-end versus the high-end, and what are the scenarios? I think the press release, you did mention that various spending scenarios by your customers this year baked into the range of the guidance. I want to get a little bit more color on that. Thanks.

Okay, Charles. Actually, this prediction of the revenue is real based on the last year our shipment which is some of them were record revenue this year. Obviously, we can see the customer PO, customer -- their expansion plan, probably just a moment I can say about Q2-Q3, and there is still some Q4, we cannot see that, right? So that's the -- that's why really from the -- in early time of the year, we give the -- this low-end and high-end projection, right? So cover of the detail assumption there. I cannot elaborate too much detail, but anyway, there's a range we put there. So maybe the time go through Q2, or looking for Q4, and that moment made more clear in Q4 we can readjust to our revenue projection. So that's a typical process. We do that every year.

Got it. And maybe a quick follow-up. Sounds like you're saying you have good visibility at least through the third quarter. This year, it's only like Q4 a little bit unclear at this point. Is that correct?

Yes. I think there some Q3 was still -- maybe add more, right, this moment still early year of the year, but definitely, we see the PO Q3. But Q4 was still, I said, not clear, right? So that will be waiting, say maybe Q2 timeline or end of the Q2, we can see that more clearly in the Q4 timeline.

Yes, Charles. And that's pretty normal visibility at this time of the year. We go through our year-end planning process and then come back early in the year and kind of test that. And of course, we took a look at it before we reported here on the quarter. So it's pretty standard visibility going into the year. As David noted, it's based on the POs that we have in hand. It's based on also kind of the forecasted POs that we still would probably get as we move through the year and then the timing of some of the customer acceptances from first tools last year, yes.

Basically averaging our manufacturing time is about six months right now, five to six. So that will be the right part of the projection for the -- looking there two quarter, right? Yes.

Yes. Got it. The other question I think usually before Chinese New Year, there's a little bit of a -- I would call, information black hole about the outlook for the new year, but now we are coming out of that and especially in light of the recent export control by the U.S. and obviously a few of your customers were added to Entity List. And it's getting a little bit hard to predict what would be the impact of export control, because we did see YMTC, which was added in ‘22, it came back to your 10% customer list, but there is another customer [Indiscernible] 2024, 10% customer list that got recently added. So maybe we can get a little bit sense based on what you're seeing right now, the export control rules, do they have an impact, positive or negative, on your customers' spending plan in 2025 and any sort of movement you're seeing at a little bit of micro-level, customer-to-customer level, if anything you can provide, that would be great? Thank you.

Well, I mean, this is a very broad question, real customer is different, right? And I want to say definitely some customers get an impact, right, because they put on Entity List. And some customer, we still see their expansion. So it's really hard to give you the general description, right? At this moment, we're also working with the customer to figure out how much impact -- we're still on the process to access and evaluation this kind of impact.

Got it. So maybe the last question, looks like the plating furnace product-line, you have three segments and you're reporting that particular segment has done pretty well and probably growing even faster than the wet clean product-line. I think you just mentioned plating, you become a leading supplier in China and especially for the front-end, I was kind of curious like, what do you see the market-share of plating and especially in the front-end and versus packaging. Can you give a little bit color on that front-end versus back-end for plating and where the share is and where do you think the trend is going for ACM? Thank you.

Yes. I think our market-share is about 30%, 30% to 35%. And it actually both in the front and back-end, right, it's almost like the same. So, we're still in the one-third, 35% -- 30% to 35% of the market-share in China.

Got it. Thank you.

Okay. Thank you, Charles.

Thanks, Charles.

Thank you. [Operator Instructions] Our next question coming from the line of Mark Miller with The Benchmark Company. Your line is now open.

Once again, congratulations on a very nice quarter. I was just wondering a number of equipment firms -- semi-equipment firms are projecting strong growth in their AP-related sales for 2025. What are you thinking about in terms of the AP sales you're expecting this year?

Oh, the advanced packaging. You're talking about that…

Yes, yes.

Okay. Well, yes, I think we do see the advanced packaging growing. And, obviously, all this kind of a 2.5D and the 3D in the proposal is one thing. And there are certain other, I want to say, advanced packaging going on here. So we see that expansion basically. And I think this year probably will be better than last year in terms of advanced packaging.

Yes, Mark, one thing I'd point out, it's a little tricky, because some of our ECP group includes both the front-end and the back-end packaging, right? So and then our advanced packaging group is everything, but the ECPs. So it's -- when -- at some point, we'll -- we can give some more detail when that becomes a bigger percentage of overall revenue, but it's -- at this point, it's hard to kind of see that our back-end packaging group.

Also I want to add to that is -- Mark, is also the panel packaging is still the play, right? So, we do have three products in the market. We see that will start contributing to our revenue in 2025 too. So that's another new field or new part of the technology we work on.

Okay. I was just wondering if you could give us some sort of estimate how your sales breakdown related to, say, memory, logic and electric vehicles, what percent of your sales are related to each of those three areas?

Yes. Mark, it's tough. We don't generally break that out. I think you can look at our 10% customers and kind of take a guess, right? So we've got four of them that were a little over 50% of our business. And so -- yeah, we generally don't look at it by those end-markets like that and we haven't broken them out. We get that request though so we could look into perhaps updating you on that in the future. But at this point, we don't have the detailed breakdown.

Okay. You said that four customers accounted for roughly 50% of your -- or over 50% of your business. Is that correct?

I think that's right. Yes, it was over 52% for the four customers. Yes.

Thank you.

Yes.

Thank you. [Operator Instructions] And I see there are no further questions in the queue at this time. I will now turn it back to Mr. David Wang for any closing remarks.

Okay. Thank you, operator, and thank you all for participating on today's call and for your support. Before we close, Steven is going to mention our upcoming Investor relation events. Steven, please.