ACMR - NASDAQ

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the ACM Research First Quarter 2025 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Steven Pelayo, Managing Director of The Blueshirt Group. Steven, please go ahead.

Good day, everyone. Thank you for joining us to discuss the first quarter 2025 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, 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 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 includes stock based compensation pardon me -- 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 13. Also, unless otherwise noted, the following figures refer to the first quarter of 2025 and comparisons are with the first quarter of 2024. I will now turn the call over to David Wang. David?

Thanks, Steven. Hello, everyone and welcome to ACM Research first quarter earnings conference call. We've just completed another important quarter, not only in terms of performance, but also in how we are advancing our position in this global semiconductor industry. Before I review the results, I would like to highlight a few recent developments and reflect the momentum we are building and the direction we are heading. We were pleased to see ACM Research recently appeared on the list of the Top 20 Global Semiconductor Equipment companies for 2024 as published by a leading third-party market research firm. That recognition reflects the steady progress we have made over the year and the growing impact of our innovative products. In China, we estimate our market share in both wafer cleaning and cleaning reached more than 25%, which translates to more than 9% global for each product category. This speaks to their trust, we have earned from leading customers and also strength of our product portfolio. Our panel level packaging tool received the 3D InCites Technology Enablement Award. As a reminder, Panel Level Packaging is a next generation solution for high performance AI chip packaging. This award is yet another great validation of ACM commitment to delivering innovative and enabling technology to our customer. At the same time, we're all aware that global trade environment is shifting. With new tariffs and evolving policies, we are operating in a more complex and less predictable environment. In this new period, we think the strategy we set forth many years ago, develop world class tools, established R&D and production in key countries where major semiconductor customers are located, and focused sales effort on the global market becomes even more important for our future success. ACM is a U.S. company with deep operational strength in Asia. We're in a unique position. We have rebuilt a successful business in Asia by delivering world class tools. As a multi-product company, we're expanding our tool offering to better support our customer in Asia. We are now taking important steps to expanding our business into global market. In the U.S., we are investing in Oregon facility, starting with the Class 100 clean room for wafer demo and R&D activities. And we're laying the groundwork for initial production capacity in our Oregon facility. We currently believe this is the best way to reduce tariff uncertainty for the U.S. customer, and it is also a good business to establish production close to a customer. We believe that ACM position as the only U.S. company with a full top to bottom cleaning product line combined with Technology Lab and the commitment to production in Oregon put us in a good position to take on the global market. Now onto our business results. Please turn to Slide 3. For the first quarter of 2025, we delivered revenue of $172 million, up 13% over year. Shipment were $187 million down 36%. We know that shipment in Q1 of 2024 was especially strong due to customer demand. So this was another -- this was a tough comparison. We anticipate a return to year-over-year shipment growth in the second quarter. Gross margin was 48.2%, exceeding our targeted range of 42% to 48%. We ended the quarter with a net cash of $271 million, up from $259 million at the year-end 2024. Now I will provide detail on product. Please turn to Slide 4. Revenue from single wafer cleaning, Tahoe and semi critical cleaning tools grew 18% and represented 75% of the total revenue. Growth was led by strong demand for our SAPS and [indiscernible] platform as well as continued momentum for the Ultra C V backside cleaning tool. In Q1, we qualified our high temperature SPM tool with a leading logic customer in China and achieved customer acceptance for our back end bevel edge tool from our U.S. customer. Looking ahead in cleaning, we expect to see strong product cycle across high temperature SPM, Tahoe and other cleaning segments. We believe our top to bottom cleaning portfolio put us in a strong position to continue gaining share both in China and expanding to global market. Revenue for ECP, furnace and other technology grew 7% and represent 16% of total revenue. We saw strong momentum in ECP tool for advanced packaging and we are excited about their initial response to our new Ultra ECP ap-p tool. As mentioned before, ACM Ultra ECP ap-p panel level plating tool received the 2025 3D InCites Technology Enablement Award in the United States. We believe ACM is the first and only supplier to offer rotating horizontal plating approach for the panel level packaging. The industry is now aggressively migrating from wafer level packaging to panel level packaging as one of the leading solution for the next generation of AI chips. The reason is simple. You get a better utilization with a square panel versus a circular wafer. As a result, we now experienced a lot of interest from several major player in the industry. This product highlight ACM technology leadership in both front end processing and advanced packaging applications. We believe this will allow us to play a key role as global industry demand innovations to support even involving semiconductor requirements for AI. Our furnace product continue to gain traction. Our view is that market is increasingly demand high temperature annealing solution, particularly for power semiconductor IGBT devices. Our UltraFN vertical furnace tool is a proprietary quartz based design that reach temperature of up to 1250 degrees C without distorting the wafer surface. We believe no other supplier currently achieve this temperature level in a vertical platform, and this is yet another good example of ACM technology leadership. We expect our revenue contribution from our furnace product line, including LPCVD, oxidation and ALD to accelerator meaningfully in 2025, expanding from a relatively small base in 2024. Revenue from Advanced Packaging, which excludes ECP, but including service and the spell, was down 10.5% and representing 9% of revenue. We are making good progress with the new Track and PECVD platforms. Both of these products come with ACM innovative and differentiated platform, designed that allow for process flexibility and high throughput. We had a solid list of ongoing demonstration and evaluation for both Track and PECVD. For Track, we plan to deliver our 300WPH inline KrF beta tool in middle 2025. For our new platform, Track and PECVD, we expect some initial revenue contribution in 2025 with more in 2026 and beyond. To wrap up to the product, we have been on a strong growth path for the past five years with new products including Tahoe SPM and the furnace in 2025 followed by our panel level packaging tools, Track and PECVD in 2026 and beyond. We remain committed to a high growth model for the next five years. As a reminder, our $3 billion long-term revenue target anticipated $1.5 billion from China and $1.5 billion from the global markets. Next, let me provide update on our production facility. First is the Lingang. Please turn to Slide 8. Our state-of-art Lingang Production and R&D Center is nearly completed. The site including two production buildings with the first now in production and the second available for future expansion. Each of the two production buildings can support up to $1.5 billion of their annual production capacity. Combined, we believe we can eventually support $3 billion of the production at Lingang. Next, our Oregon facility, please turn to Slide 8. As I mentioned before, we are investing in our U.S. footprint. Our Oregon facility is 40,000 square feet. We are building out a demo lab and a clean room and plan to add initial manufacturing to support our global customers. Now, I will provide our outlook for the full-year 2025. Please turn to Slide 10. We are maintaining our 2025 revenue outlook in a range of $850 million to $950 million. This implies 15% year-over-year growth at the middle point. In closing, our focus remains on delivering differentiated enabling technology that will solve our global customers' most critical process challenges. Now let me turn the call over to their CFO, Mark, who 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 will refer to non-GAAP financial measures, which exclude 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, following figures refer to the first quarter of 2025 in comparisons are with the first quarter of 2024. I will now provide financial highlights. Revenue was $172.3 million, up 13.2%. Total shipments were $157 million versus $245 million in Q1 of 2024 and $264 million in Q4 of 2024. David noted shipments in the first quarter of 2024 were especially strong during customer demands, so this was a tough year-on-year compare. We also had some pull ins in the fourth quarter of last year, making for a tough quarter-on-quarter compare. For reference, combined total shipments for the fourth quarter of 2024 and the first quarter of 2025 still increased by 8.9% versus the prior year periods. We do anticipate a return to year-over-year shipment growth in the second quarter. Gross margin was 48.2% versus 52.5%. This exceeded our long-term business model target range of 42% to 48%. We do expect gross margin to vary from period to period and vary due to a variety of factors, including sales volume, product mix and currency impacts. Operating expenses were $47.5 million, up 18.4%. For 2025, we plan for R&D in the 13% to 14% of revenue range, sales and marketing in the 7% range and G&A in the 5% to 6% range. Operating income was $35.6 million down 10.6%. Operating margin was 20.7% versus 26.2%. Income tax expense was $2.2 million versus $4.4 million. For 2025, we expect our effective tax rate in the 10% to 15% range. Net income attributable to ACM Research was $31.3 million versus $34.6 million. Net income per diluted share was $0.46 versus $0.52. Our non-GAAP net income excluded $9.8 million in stock-based compensation expense for the first quarter. I'll now review selected balance sheet and cash flow items. Cash, cash equivalents, restricted cash and time deposits were $498.4 million at the end of the first quarter versus $441.9 million at the end of last year. Net cash, which excludes short-term and long-term debt was $271 million up from $259 million at the year-end 2024. Total inventory was $609.6 million versus $598.0 million at year-end 2024. This included raw materials and work in process of $310.8 million, finished goods inventory of $298.8 million. Finished goods inventory primarily consists of first tools under evaluation at our customer sites, along with finished goods located at ACM's facilities. Cash flow from operations was a positive $5.3 million versus a negative $9 million in the year ago quarter. Capital expenditures were $17.1 million versus $26.1 million in the year ago quarter. For the full-year 2025, we expect to spend about $70 million in capital expenditures. That concludes our prepared remarks. Let's open the call for any questions that you may have. Operator, please go ahead.

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions]. Our first question is from Charles Shi with Needham & Company. Your line is now open.

Hi, good evening. Maybe good morning, Mark, David. My first question, I do want to ask you guys about shipment figures. We understand, yes, this is a very lumpy metric. You can't really look at it on a quarter-to-quarter basis. But I think one quarter ago, management said for the full-year shipment, you're expecting shipment growth over last year's level. Given the pulling effect from March into December last year, I found that it's probably pretty a high bar for you to get the full-year shipment growth, meaning you probably need to ship roughly speaking €270 million per quarter for the next three quarters. I did hear in the prepared remarks management has committed that to Q2 shipment year-on-year growth, but any thoughts on the full-year shipment, especially compared with the last year's shipment? Thank you.

Thank you. Sure. Thanks, Charles. And actually, the last year's shipment is really, I mean, extremely high, right? We increased compared to 2023, we increased more than 60%. And so that high number, that put a pressure in this year. But anyway, I answer your question directly. We're still expecting this year's shipment were over the last year's shipment and probably were not as high as the last year, right? So that's the answer to your question.

Charles, let me clarify that. So yes, shipments we expect to grow in 2025, but the growth rate of shipments, we're not necessarily saying that the growth rate of shipments will be higher than the growth rate of revenue for this year.

Got it. Okay, that's helpful color. Higher in shipment dollars compared with last year in terms of a growth percentage, feels like you are saying it's lower than last year, probably lower than this year's revenue growth, but still positive direction?

That's right.

Doable.

Thank you. Maybe a question on the tariffs. I know you probably don't have a lot of content imports from the U.S. But since China does put pretty high tariffs on the U.S. imports. Wondering if there's any impact on the profitability wise or anything that could cause some issues for you guys going forward?

Okay. You mean it for ACM, right? That's your point or for our customers?

ACM Shanghai. Yes?

Okay. Well, again, since this, whatever is the [Technical Difficulty] also right in our tool. And so now we're located third-parties, I mean, either in a third country, right, also including some made in China parts. And so we're I think this import from U.S. parts and all tariffs to China, I mean, not impact us. I said, we're going to spend more of our, I call it, buy more of our parts locally and also buy third-party countries' product, right? And so I think the impact for us, it's pretty minimized.

But maybe you're a customer, right?

That's different question.

Yes. Maybe the last question I have. In terms of 2026, I know it's way too early for you guys to really talk about '26. Any initial thoughts there in terms of your growth, in terms of the overall market growth? And any color would be helpful. Thank you.

At this point, I know it's early, but that's our job. We want to push you to keep us on it and more.

Sure. And actually, as we stayed there maybe a couple of quarters again before is China growth of the WFE market in the last five years is pretty good, right? And so we think of 2025 getting into the plateau, right, this kind of plateau stage. Yes, I mean, this moment, it's too early to say '26. Even some people say this year down maybe 20% or 10%, right? However, we look into our revenue, our customer talking to us, they continue expanding. And so now our revenue look at I mean, our shipment look at their all their BO [ph], we are feel through Q2, Q3 and still something we need to feel Q4. But also to see some shipment will come into Q1 of next year. So our growth strategy is even say China W market is flattened or is plateau and we'll still continue to gain market share, because of cleaning, copper plating and also new product like a furnace. I just mentioned we have this ultra-high temperature NEO process come out. A lot of potential ITBT application in China that demand high temperature NEO furnace, right, 1250 degree, it's really jumping, I call it temperature we can do also without the distorting of the surface structure. So that's going to be the continued innovation product driving our growth. Further, I want to say our panel product we mentioned today is another bigger, I call growing for international market and also we see some domestic market too. And plus, we have for the other furnace in the development and there are PECVD and the track, especially track, we gather probably middle of this year, we're shipping our beta tool KAF line 300 WTH, right, to the one with the customer. So I want to say our continued momentum to have a PECVD and track and first join our revenue stream. So we're still very high confidence. We're still growing in this market in our market share in China. So we still have a high confidence as we execution our business strategy, qualify our new product and still looking at next five year high growth.

Thanks, David. Maybe can I squeeze in one more since you mentioned about good number of tractions on the new products?

Yes, please, Charlie. Charles, yes.

Yes. So there at semicon China, there has been a lot more product announcements from your peers in China. And it appears to me the domestic Chinese semi-cap companies are looks like they're coming after each other's market and there's a kind of heightened domestic competition there. And we definitely are hearing rumors that there seems to be a likely consolidation for the Chinese semiconductor sector coming up. So wonder if you have any thoughts there and where does ACM Shanghai stand in terms of domestic competition and potential consolidation with your peers? Thank you.

Okay. Well, let's talk about competition first, right? I think ACM today, we got a full product, right, cleaning tool, top to bottom. Basically, we can supply almost 90%, 95% of the process application. It was for the memory or for the logic. So we're very strong precision cleaning, right? Plus, same thing copper plating, we cover almost all their copper plating products, right, damascene and TSV, the box packaging, this Aqua three, five compound semiconductor and also panel level packaging. So I have very strong position for those portion. And more important I want to see that is ACM has real innovation technology, right? And the local Chinese customer, they really demand the advanced technology product. They're not only, you say, by pricing, okay. So in other sense, we're not too much worried about the local peer competing the price with us. As I said again, right, this is a real technology game, or technology winning game, not only by pricing. And so we feel our innovation product, our IP protection and can avoid anybody copy our tool in China. And that's really our strong position because our tool never copy anybody's tool. If we start copying anybody else, then they can copy us, right? We have nothing to say. But now actually in the last 20 years, we're really innovation and IP production. We have very strong confidence. No any peers in China can copy our tool. We have very strong footprint technology. So that's our strong. Next thing, you talk about consolidation. Yes, I think it's going to happen, right? This market happened in the U.S., in Japan and probably in Europe. As the industrial moving forward, a lot of small companies probably have to be merged with the big guy. And so I mean, we see that happen and we love to see that happen. And so ACM was still very strong in the market. And at this moment, I said, we have a lot of organic growth with our new product. We can envision the product we're doing ourselves. So probably we're not trying to combine or merge other company growth in this. This moment, most important, we're focused on our own technology development. Our portfolio has a lot of revenue for us to gain the market share. So that's maybe our position. Mark, anything you want to add on that?

Yes. No, I think, Charles, you brought up a good point and it's something that we consider a lot. When you think about consolidation, big picture, we have pretty aggressive revenue targets, obviously. We talked about $1.5 billion in China, and that's assuming very low market share for some of our newer platforms. If you kind of step back and think about, okay, there will be some consolidation, say China is a $30 billion or $40 billion WFE, the top 10 players are going to be $3 billion to $4 billion a piece. We feel pretty confident we can grow to those levels organically, I think is the point that David and the team are really focused on doing. So it's -- we don't disagree. We're seeing some of the additional entrants and folks going after kind of trying to get in there with a couple of products. But we have a big services team, great footprint across all of our customer base. But at the end of the day, we have really strong IP that we think is important to continue to drive our business in China and then it's going to help open the doors globally.

Yes. Thank you, gentlemen. Appreciate the answers.

Yes. Thanks, Charles.

Thanks, Charles.

Thank you. [Operator Instructions]. Our next question comes from [indiscernible] with Surge Equity Research. Your line is now open.

Hello?

Hello, Kiran [ph]?

We cannot hear your voice. Did you email your speaker?

All right. Thank you. Seeing no more questions in the queue at this time, I will turn the call back to David Wang for closing remarks.

Okay. Thank you, operator, and thank you all that are participating to today's call and for your support. Before we close, Steven is going to mention our upcoming Investor Relations event. Steve, please.