ACMR - NASDAQ

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'd like to turn the call over to Steven Pelayo, Managing Director of the Blueshirt Group. Stephen, please go ahead.

Good day, everyone. Thank you for joining us to discuss third 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, 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 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 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 financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and unrealized gains and losses on short-term investments. For our GAAP results and reconciliation between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website and on Slide 13. Also, unless otherwise noted, the following figures refer to the third quarter of 2025 and comparisons are with the third quarter of 2024. With that, I will now turn the call over to David Wang. David?

Thanks, Steven. Hello, everyone, and welcome to ACM's third quarter earnings conference call. I'm very pleased to report another strong quarter for ACM. Revenue grew 32% year-over-year to a new quarterly record, reflecting broader demand across our innovation product portfolio. Across industry, AI and data center investment are accelerating semiconductor and wafer fab equipment spending. AI is also demanding new innovations, many of which have yet to be developed. We believe these trends are driving the market toward us. ASM strategy remains focused on building a multiproduct portfolio of world-class tools that expand our service market and play a critical role in enabling the next generation of chip making. Our differentiated technology continue to raise the performance bar across both front-end and advanced packaging applications. For example, in advanced packaging, we are seeing strong global customer engagement in our proprietary horizontal plating technology for panel-level packaging, and we plan to ship our first system in the fourth quarter. In cleaning, our high-temperature SPM platform is reaching industry-leading performance as our proprietary nodule design achieving performance at 19 nanoparticle sites down to single-digit particle counts. We believe this will lead to higher product yield for our customers. Further, with no need to clean out chamber, the tool requires significantly lower maintenance. This is truly world-class tool, and our team has a road map to even lower particle size down to 70 nano, 50 nano and 30 nano to support the next few generation technology nodes. In Track, we shipped our first KrF high-throughput Track platform this quarter, further broadening our reach into lithography adjacent applications, which demonstrate ACM's ability to grow into new product categories. Together with innovations such as nitrogen bubbling, cleaning and etchers and high-temperature furnace discussed last quarter, this advancement reflects ACM commitment to continuous innovation and the tangible performance improvement we have delivered to customers. In September, our ACM Shanghai subsidiary completed its second capital raising on STAR Market, raising net proceeds approximately $623 million. ACM has the technology, the customers, the capacity and global reach and now additional capital to pursue our mission to become a key supplier to major global semiconductor producers. These funds strengthen our balance sheet and will be used for additional investment in our Lingang mini-line and to expand our global production capacity. We also plan to accelerate our R&D investment. This will advance our existing cleaning and electroplating tool for next-generation process. It will also speed up the development for our new product categories, including furnace, PECVD, Track and panel-level packaging tools. And we're also investing in new products that we have not announced yet. ACM is committed to world-class product for both China and global customers. Our tools enable next-generation devices architecture and help solve our customer complex process challenging across front and back-end applications. We have a world-class technology and a strong IP position. Customers around the world come to us for our technology rather for low price. We believe this is the right combination to grow our business and maintain our gross margin targets. We feel that ACM is now an inflection point in which innovation will win the game and drive a significant shift in the market share. Now on to our business results. Please turn to Slide 3. For the third quarter of 2025, we delivered revenue of $269 million, up 32% year-over-year. Shipments were $263 million, up 1% year-over-year. Gross margin was 42.1%. This was at the low end of our target due in part to product mix, inventory provision and other adjustments. There's no change to our target model range of 42% to 48%. We ended the quarter with net cash, USD 811 million versus $206 million last quarter and $259 million at the year-end of 2024. Now I will provide detail on product. Please turn to Slide 4. Revenue from single-wafer cleaning, Tahoe and semi-critical cleaning tool grew 13% and represent 68% of total revenue. We believe our top bottom cleaning portfolio is world-class and put us in a strong position to gain additional share both in China to expand to global markets. The 13% year-over-year growth was mainly from our traditional cleaning product. The contribution from our newer cleaning line, including single-wafer SPM, Tahoe and semi-critical CO2 is still fairly small. We expect this new platform, especially SPM to contribute more revenue in 2026 and beyond. We estimate an incremental opportunity of more than $1 billion for those new cleaning products from the Mainland China market alone. We remain confident in our target for 60% market share in China market, and we expect higher growth rates for cleaning next year and beyond. Revenue from ECP, furnace and other technology grew 73% and represent 22% of total revenue. We had a record revenue quarter for ECP front-end tool, which represent about 60% of the mix for this group. This group, including our MAP, MAP+, ECP 3D and ECP G3 product, all of which grew from last year, ECP back-end tools were about 40% of the mix for the quarter. Revenue from furnace was small for the quarter and year-to-date. That said, we are making good technical progress across a range of customers and multiple product offering. This including our ultra-high temperature new furnace, which operates at more than 1,250 degrees C, our LPCVD oxidation and ALD for both thermal and plasma. We continue to focus on qualification at the key customers, and we anticipate incremental revenue contribution from furnace in 2026. And as I noted earlier, we are seeing very strong interest in our panel level plating tool for advanced packaging from both China and global customers. We will ship our first panel level packaging tool in Q4. Revenue for advanced packaging, which excludes ECP, but including service and spell was up 231% and represent 10% of revenue. About 2/3 of this group for this quarter is small tools for advanced packaging. This including coder, developer, etcher, steeper and wafer-level packaging tool that run around $50,000 to $1 million each. We had a good contribution this quarter from a handful of different customers. Although we include plating product for advanced packaging in the ECP group and the combination is very powerful, it appear -- it provides ACM with valuable insight into the challenges of next-generation packaging as AI drives industry towards 2.5D and 3D integration, stacking die with through silicon via TSV and integrated memory and logic in a single packaging. We also shipped advanced packaging tool in Q3 to 2 new customers in the U.S., and we expect the installation and then true acceptance in the next couple of quarters. We are making good progress with our new Track and PECVD platforms. I already mentioned the shipment of our first KrF Track tool. We believe our high throughput design position this platform to compete effectively with the incremental supplier. Our proprietary PECVD platform with 3 trucks per chamber gives the flexibility to support a wide range of processes with the same hardware. We feel good about our positioning as the team continues to work through the technical detail with a few tools in our Lingang mini-lab running wafer test and the EVA tools planned to ship in the near term. To close on product, ACM's culture of innovation continue to deliver industrial-leading performance across the broader portfolio. Customer engagement is deepening as the chip makers look for partner that can enable their next-generation processes. Please turn to Slide 6. global WFE demand continues to be fueled by investment in AI and data center infrastructure, particularly in advanced logic and memory, while China market, in our view, remains stable. Last quarter, we increased our long-term revenue target to $4 billion, supported by an estimated USD 2.5 billion contribution from China and $1.5 billion from global markets. Next, let me provide an update on our production facility. First is Lingang. Please turn to Slide 8. Our new Lingang production and R&D center is now fully up and running. The site's first building is already in volume production, while the secondary providing additional room for future expansion. Together, the 2 building can support up to $3 billion in annual output, positioning ACM to meet growing customer demand and support our long-term growth plans. We plan to allocate part of the proceeds from ACM Shanghai's second capital raising to expand our mini-line at Lingang to strengthen our process development capability and enable on-site customer evaluation on the fab-like condition. This will accelerate product validation, shorten development cycle and enhance collaboration with the key customer as we're expanding our portfolio of next-generation tools. Turning to our Oregon site. Please turn to Slide 9. This facility will allow customers to test wafer locally on ACM tool and will serve as our initial base for production and technology development in the United States. Our global customers are encouraging by our commitment, which we believe will help them to choose ACM as a key supplier to scale production. Now I will provide our outlook for the full year 2025. Please turn to Slide 10. We have narrowed our 2025 revenue outlook to a range of USD 875 million to $925 million versus prior range of $850 million to $950 million. This implies 15% year-over-year growth at the midpoint. We made a greater progress with several major product lines this year, including single-wafer SPM, Tahoe panel-level plating, furnace, Track, PECVD. We believe this new product providing a solid foundation for multiple major new product cycle for the continued growth in the coming years. Now let me turn the call over to our CFO, Mark, who will review details of our third 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. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Unless otherwise noted, the following figures refer to the third quarter of 2025 and comparisons are with the third quarter of 2024. I'll now provide financial highlights. Revenue was $269.2 million, up 32%. Total shipments were $263.1 million, up 28% sequentially and up 0.7% year-over-year. Gross margin was 42.1% versus 51.6%. This is the low end of our target model. Adding color to David's earlier remarks, we attribute this to 2 key factors. First, product mix. Our Q3 sales included a high number of smaller front-end tools, which had forced margins, and that contributed about 200 basis points of the headwind to the gross margin. Second, we had a higher level of inventory provisions and other adjustments, which hit our COGS for the quarter contributed about 300 basis points negative impact. I want to reiterate, there is no change to our target model of 42% to 48%. ACM is fully committed to developing world-class tools that enable our customers to scale production of leading-edge semiconductor devices. We believe this creates a healthy pricing environment for our tools, which combined with an efficient cost structure results in good profitability. Operating expenses were $76.9 million, up 56.3%. R&D was 14% of sales, sales and marketing was 7.7% of sales and G&A was 6.9% of sales. For 2025, we continue to plan for R&D in the 14% to 16% range, sales and marketing in the 8% range and G&A in the 6% range. Operating income was $36.5 million, down 34.9%. Operating margin was 13.6% versus 27.5%. Income tax expense was $2.9 million versus $4 million. For 2025, we now expect our effective tax range in the 7% to 8% range. Net income attributable to ACM Research was $24.8 million versus $42.4 million. Net income per diluted share was $0.36 versus $0.63. Our non-GAAP net income excluded $7.6 million in stock-based compensation expense for the third quarter and $18.7 million in unrealized gain on short-term investments. I remind the analysts that as a result of the second capital raise of $632 million net by our subsidiary, ACM, our ACM's ownership in ACM Shanghai is now 74.6% versus 81.1% at the end of last quarter. I will now review selected balance sheet and cash flow items. Cash and cash equivalents, restricted cash and time deposits were $1.1 billion at the end of the third quarter versus $483.9 million at the end of the second quarter. Net cash, which excludes the short-term and long-term debt was $811 million or about $12 per share versus $205.8 million at the end of the second quarter. Total inventory net was $676.4 million versus $648.3 million at the end of the second quarter. Raw materials were $326.2 million, up $40.6 million quarter-over-quarter. We made additional strategic purchases to support production plans and to mitigate any potential supply chain risk. Work in progress was $59.5 million, down $1.2 million quarter-on-quarter. Finished goods inventory was $290.7 million, down $11.3 million quarter-over-quarter. 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 used by operations was $4.6 million for the third quarter and $44.4 million year-to-date. Capital expenditures were $43.2 million. For the full year, we expect to spend about $60 million to $70 million in capital expenditures. That concludes our prepared remarks. Let's open the call for any questions that you may have. Operator, please open up the call for questions.

[Operator Instructions] Our first question comes from the line of Suji Desilva from ROTH Capital.

David and Mark, congrats on the progress here. Can you talk about the shipments and the growth there? Are there any factors, puts and takes in terms of what we should expect in terms of your visibility in the next 4 quarters?

Yes. shipment, we see there are some customers asking for delay for maybe the Q1 next year. And also the certain parts were shortage, right? We cannot fully complete the order as a manufacturer final testing. But those products probably will still get into the Q1 shipment, and we're still expecting next year's shipments still continue to grow.

These part shortages, David, how long do you expect that to persist? Is that a multi-quarter effect? Or is that short term?

It's not really. I think there are certain parts we're using right now and we kind of replaced some parts. We're kind of -- and they're looking for a new supplier. And those things has been qualified in their customer process. And so those parts qualify finish, then we can use more of the, I want to say, domestic made in China parts. So that's probably a portion of the fact there.

Yes, one other thing I'd add to the shipments for the quarter and even for the year, we talked about this before, but some of the newer products that we would be shipping that David talked about in his prepared remarks, some of those probably a little more fell indeed is going to fall into next year versus this year.

Okay. Helps Mark. And then my final question is on the panel tools. Can you talk about the opportunity as you ramp maybe into the HBM memory or AI memory opportunity, how much that can grow as a percent of revenues and how quickly that can ramp?

Well, okay. So panel packaging, right? Sujit?

Yes.

Okay. Well, and the panel has been real hard, right, in this year, especially a major customer in Taiwan real promoting the panel business. We believe panel is a way to solving the large area AI chip, right, packaging with HBM together. So all the wafer level is a lot of, I call the area. So with the efficiency of the using the area. So panel packaging, one key is plating technology, right? I should say a lot of people in the copper plating for panel is a vertical style. And we are probably the first one to propose the horizontal and cover plating for the panel, which also we got the 3D Insight award, Innovation Technology award from USA. We believe we really have a good solution and they can play their panel uniformly and there will be a fill requirement of all this either 310x310 or 515x510. By the way, we're going to ship one of the panel plating tool in the fourth quarter. And also, we're engaging with multiple customers for the panel packaging business in Taiwan and U.S. and also in China -- Mainland China.

And our next question comes from the line of Charles Shi from Needham & Company.

A couple of questions here. The first one, a follow-up to Suji's question on shipment. So it sounds like it's more of a customer push out and partly due to parts shortage. And it sounds like the implied message seems like it's not a reflection of the end market demand. But I wonder, can you kind of quantify a little bit what's the expectation for Q4 shipment? And maybe on a full year basis as well, it looks like the shipment probably is going to be down this year. This is probably the first time in many years, your shipment is down on a full year basis.

David, do you want to take that? Or you want me to start on that?

Go ahead, Mark.

Yes. Charles, so I think your read is good. We're not really making a call on the end markets here. It's hard to say company-specific versus end market. But yes, in terms of our shipments, the Q4 will probably be down from Q3. So you could have -- the full year would be down year-on-year. And that is different than what we had expected. I think I would point out that shipments were pretty heavy last year, as we know. And some of the reasons that we talked about for the deferment of shipments, we should start seeing those pick back up in the first half of next year. I think David in his prepared remarks talked about an inflection point where we're still shipping a lot of our current products and a lot of newer products we expect to really start kicking in and contributing more next year, the SPM, the furnace and this panel level packaging product line.

Yes, actually, including we're probably shipping a few PECVD tool, and we see that will be definitely contributing revenue in the next year. So I think it's kind of -- we're in the time of inflection point, right, and the new product come out. And also, we're expecting some new cleaning tool come out too contributing on the -- our shipment and revenue, especially as I mentioned, this proprietary design and SPM special nozzle which a very excellent result, which is -- we think we'll continue to gain a lot of market share for SPM process.

Got it. I do have a question a little bit later around the innovation, some of the comments you made, David, around, I mean, also proprietary design, et cetera. Before that, maybe a question on the 300 bps impact from inventory write-down. Mark, it wasn't clear to me what's the reason for writing down, if my math is right, around $8 million-ish of the COGS of the inventory. And may I ask if the write-down is related to inventory you have at your own facility or this is about some of the write-down of the evaluation tools at your customer sites? And if the latter, what's the reason for that?

Yes. No, thanks for the question, Charles, on that. So inventory, you always have a pretty thorough process internally to kind of value the inventory on your books. And so a big piece of it is related to the aging of some of our raw materials. And it's interesting, we think that -- and so it's just kind of a formula you apply to the age profile of your raw materials. And on the other side, there were some finished goods that we took a write-down on. And these were -- I think these were mostly at our own internal. I see these were tools that I'm pretty sure were -- that we had internally. And so we're not really disclosing it internal versus end customers. Yes.

Great. So maybe my last question. I think you spoke -- we probably have discussed about this along the same line before, but you talked a lot about innovation, but develop better products than your global competitors win market share. But I think what I am hearing is the domestic customers are probably more looking for simply matching the global baseline, like matching what the global tools they already have given restrictions, given self-sufficiency, all kinds of reasons. At this point of time, like trying to do a lot of product innovation, do you think you may be missing out some near-term opportunities? I understand you said that you're going to win in the long term, but do you think that you're going to -- I mean, because your tool, even though it's performing better, maybe will perform differently from their global baseline, your customers' global baseline. Could you -- could that cost you some business in the near term?

Yes. Actually, we are winning a short time. In other words, I give this example, this high-temper SPM process, right? And with our special proprietary design, we can really control all the high-temperature SPM splash out of the chamber and also the vapor into that environment. So therefore, we control the environment very well. That's why I said our 19 nanoparticle down to a single-digit number, between less than 5. So we are better than even top-tier player today in the SPM process. Also, because of the control environment, we think about even 70 nano, 50 nano, even 30 nano, we can control better. So answer your question is, yes, there's a certain domestic player going there or there's other first tier -- I mean, tool vendor still set in China, but I said, we're in the best performance. And also, we think that either customer in China or outside China, they still desire the best performance, right? As go to small geometry, those 19-nano, 70-nanoparticle will matter the yield loss. So that's why we think that we really gain our market -- help us gain market share, both in China and also outside China. We still strongly believe our innovation product has been heavily patent in China also in global semiconductor country area. We have confidence, nobody will copy our proprietary technology or patented technology. So that's why we have the confidence to maintain our -- continue to increase our market share, maintain our gross margin. And I still think AI driving a lot of innovation and the customer desire new technology. Those customers maybe prefer more technology other than low price, right? So that's really, I think, a strong point. And also, I want to say a lot of our existing products cannot meet customer future requirements. So that's another reason we have confidence on our tool.

[Operator Instructions] Our next question comes from the line of Mark Miller from The Benchmark Company.

I was just wondering if you can give us some color on what you expect for MOCVD next year and also give us an update on what's going on with SK Hynix.

Okay. Well, actually, maybe, Miller -- Mark, I want to make sure this -- we're not going to make MOCVD, we'll make a PECVD. Okay. So anyway, PECVD has been big -- a lot of market size. We developed the PECVD almost from 5 years ago, right? And we're choosing, again, innovation approach. And we're differentiated from a major player in the PECVD, 2 big players now. And for example, like a chamber has 3 trucks, right? Other people have 4 or either 2. So we believe 3 truck in 1 chamber can do their -- almost all the process. And therefore, customer buying platform, we can do almost every PECVD process, right? And for other reasons, we also have a lot of control chamber, power supply, or other differentiation come here. So we believe our PECVD will be -- we're shipping probably 2 this quarter or continue shipping more next quarter. And we'll see that the PECVD is getting into the market and also expecting those PECVD will be generator revenue next year. And also, we have a really high expectation and those PECVD not only service in China, we're expecting to go Korea and also the global market.

If you can comment, please, on Hynix and any developments there?

Hynix is our customer, right? It's a long, long customer, and we're engaged with a multi tool, cleaning, obviously, and also other products. We're still thinking Hynix is real innovator, leading customer, and we'll continue to engage with them on multiproduct right now. And as I said again, a lot of new stuff were developed right now, and they are very interested, right? And because they're also leading all the HBM everything, right, even the DRAM field. So they are designed more of advanced technology. Also, we have a Korean team and the Shanghai team together. So it's working very well. And a lot of our technology actually was invented and developed in Korea, too. So that's really fitting their requirement locally manufactured, locally R&D. So we still see a lot of potential we can provide good technology to our customer in Korea.

So is your panel packaging tool is that of interest to Hynix?

Yes, not only packaging, right? Also, you talk about front end too. right? And in all level of the engagement and including -- we talk about our furnace, PECVD, Track and other even product in development.

What about your cleaning tools? Have you been able to penetrate Hynix with the cleaning tools, Tahoe and SAPS?

Well, we have a SAAPS tool has been sold many tool, right, in Hynix already. And now obviously, we have new cleaning tool engaged with them. And one is our probably end bubbling tool and which really take care probably more than 5 layer of 3D NAND and all this one of the major applications, we think will be contributing to their customers in the future 3D NAND technology.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Steven Pelayo for any further remarks.

Great. Thank you. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On November 19, we'll present at the 14th Annual ROTH Technology Conference in New York City. On December 3, we will present at the UBS Global Technology and AI Conference in Scottsdale, Arizona. On December 16, we will present at the 14th Annual New York City Summit in New York City. And then on January 15, we will join the 28th Annual Needham Growth Conference virtually for our presentation and one-on-one meetings. Attendance at the conferences are by invitation only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with management. This concludes the call. You may now disconnect. Take care.