ACM Research Q1 2024 Earnings Call Transcript

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May 8, 2024

There are 8 speakers on the call.

Operator

To the ACM Research First Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speakers today, Steve Pelayo, Managing Director of The Blueshirt Group.

Operator

Please go ahead.

Speaker 1

Good day, everyone. Thank you for joining us to discuss Q1 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.

Speaker 1

There is also a supplemental slide deck posted on the Investors section of our website that we will reference during our prepared remarks. On the call with me today are CEO, Doctor. David Wong 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.

Speaker 1

These forward looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ACM's filings with the SEC. Please do not place undue reliance on these forward looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward looking statements.

Speaker 1

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 of short term investment. For our GAAP results and reconciliations between GAAP and non GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website and to Slide 12. Let me turn the call over to David Wong, who will begin with Slide 3. David? Thanks, Stephen.

Speaker 1

Hello, everyone, and welcome to ACM Research,

Speaker 2

the Q1 2024 earnings conference call. Please turn to Slide 3. I'm pleased with our results. As Scott discussed for the year, for the Q1, revenue was $352,200,000 up 1 105%. Profitability was good with gross margin of 52.5 percent and operating margin of 26.2 percent.

Speaker 2

And we ended the quarter with just over $288,000,000 of cash and time deposit. Shipment for the Q1 were $245,000,000 up 175 percent. As expected, 1st quarter shipments were higher due to delivery of our finished goods that were not shipped in the Q4 of last year. And we also had execution from our production team during the Lunar New Year holiday period. I will now provide a detail on product.

Speaker 2

Please turn to Slide 4. Revenue from a single wafer cleaning, Tahoe and a semi critical cleaning product grow 199% in Q1 and represent 72% of total revenue. ACM offer what we believe is an industrial most comprehensive cleaning portfolio. We support near 90% of all cleaning process steps for memory and logic devices. At the high end, we believe our flagship sets, Tahoe and the TEBO single wafer cleaning product deliver the technical feature not available from any of our competitors.

Speaker 2

At the lower end, our semi critical tool, including AutoBench, have driven incremental growth for our cleaning category over the past 2 years. We have recently made the progress in SKM market, which we believe was resulting sheer gain and the growth in our cleaning business starting this year. Let me provide more detail. SPM stands for sulfuric acid peroxide mixing. These steps are normally used to clean wafer after photoresistory removal process and post CMP cleaning.

Speaker 2

We estimate the total available market for the TAM for SBM tool is 25% to 30% of the total front end cleaning market. Today, SPM has been a small contribution to our business. Our SPM tools, including Tahoe, low temperature single wafer, SPM and now our high temperature single wafer SPM tool. Until now, we believe there has been only one major supplier of high temperature single wafer SVM tools. Our engineering team has recently made a greater technical progress with our high temperature tool and we believe ACM can now participate as an alternative supplier.

Speaker 2

This is especially important as we believe our customer generally prefer one stop shop for all their SBM cleaning staff. With high temperature SBM tool, we believe ACM now has a full product line to meet our customer requirements. Additionally, Tahoe has been qualified for production by multiple customers and is beginning a ramping phase with a substantial number of order planned for delivery in 2024. Enhancement have been made to its performance, allowing the tool to match particle removal efficiency comparable to the single wafer process, while reducing sulfuric usage by 50% to 17%. We now expect a meaningful ramp of SPM tools this year as we began volume delivery across the number of key customers.

Speaker 2

Finish up on cleaning, we also expect our Bio Etcher cleaning tool to contribute meaningful revenue in 2024. And we're on track to complete evaluation of a supercritical CO2 dry cleaning tool this year for revenue in 2025. Revenue from ECT, furnace and other technology declined 3% in Q1 and represent 70% of total revenue. As I mentioned last quarter, we hit an important milestone for this category in 2023 with more than $100,000,000 in revenue. The year over year revenue decline is primarily due to quarterly fluctuation.

Speaker 2

In fact, we shipped 3x more ECB tool in Q1 2024 versus same period last year, and we expect the revenue growth for this category for the full year. As noted in the prior course, we believe their furnace product cycle is perhaps a year and so behind ECV. We have a brand broader footprint of customer activities with more than a handful first tool currently under evaluation and multiple customers. We are optimistic this will result in qualification and follow on orders in the coming quarters. Revenue from advanced packaging, which exclude ECP, but including service spare parts, grow 53.2% in Q1 and represent 11% of total revenue.

Speaker 2

This category including a range of packaging tools such as coater, developer, scrubber, tile stripper and web etchers and also service and spare parts. And we continue to explore new products and their technology to participate in the next generation of advanced packaging. We believe ACM is one of the only company that offer full threat of wet cloth, cover polishing tool and the cover plating tool for advanced packaging. In Q1, we delivered Ultra CV vacuum cleaning tool to a major customer to meet the flux removal requirement for chip lab and other advanced three d packaging structures. Today, we also introduced the drain wafer cleaning tool.

Speaker 2

This tool is a design for post debonding wafer cleaning that enable nearly 100% recycle solvent and filtration. We have successfully complete the installation and the qualification of our first tool with a key customer. Finished upon end product, we are making good progress with our TRAC and PECVD platform. We believe our advisory technology position both tool for success for Mainland China and also global customers. We are engaged with multiple customers that we expect substantial growth progress in product development and evaluation this year with revenue in 2025 and beyond.

Speaker 2

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 the market for plating and furnace. And we have a solid evaluation pipeline for TRAC and PECVD.

Speaker 2

Our sales and service team are now dreaming deeper adoption of our product across our customer base. Our growth is also being driven by new entrants. On the international front, we plan to deliver UltraCB backside cleaning and the valve edge tool in the Q2 of 2024 to a large U. S. Manufacturer that qualified as the 1st SAP cleaning tool for revenue last year.

Speaker 2

This demonstrates a deepening relationship, which we believe can lead to production orders across multiple product lines. Moreover, ASTM brand and reputation are gaining recognition among other U. S. Chipmakers with new engagement and potential opportunity to penetrate their global manufacturer site. We recently hired additional seasonal marketing and sales professionals who bring established relationship with the key U.

Speaker 2

S. Semiconductor players. In Europe, we installed our 1st core evaluation tool, the Ultra C SAB5 cleaning tool at a major global semiconductor manufacturer in the Q4 last year. The initial feedback has been positive and we are optimistic that the volume production order possible by middle of the year. We think Korea, we see opportunity with SK Hynix high bandwidth memory HBM product.

Speaker 2

We see potential gain with our SAPS cleaning tool for high aspiration vehicle cleaning as well as Ultra ECP for Tier 3 applications. To support growth, we made a progress in our facility expanding in China and other regions. Please turn to Slide 8. In China, construction of our Mingan production R and D center is nearly complete. We expect the initial production later this year.

Speaker 2

In Korea, we are making progress with the key customer. We believe our strong commitment to Korea can improve our relationship with the key Korean customers. Our resource in Korea can also provide another basis to supporting international customer in the U. S, Europe and other parts of Asia. We recently hired a new leader to run our Korea operation, DG Kim.

Speaker 2

He is a long time veteran of SK Hynix. We are optimistic his experience and relationship will help for adoption of 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 and D and customer activity in the U. S. And Europe.

Speaker 2

I will now provide our outlook. Please turn to Slide 9. We believe WFE spending in China will remain solid as the country continue on its goal to match its production capacity with end market consumption. We are focused on any market share in China, new product introduction and expanding our business to new customer in the USA, Korea, Europe and other Asia markets. We are reaffirmed our 2024 revenue outlook to be in the range of $650,000,000 to $725,000,000 This implies 23 year over year growth at the middle point.

Speaker 2

We expect our full year revenue growth for 2024 to outpace both the China and global WFE grossing rate. Now let me turn the call over to our CFO, Mark, who will review detail of our Q1 results. Mark, please.

Speaker 3

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 exclude stock based compensation and unrealized gain or loss on short term investments. Reconciliation of these non GAAP measures comparable to GAAP measures is included in our earnings release. Unless otherwise noted, the following figures refer to the Q1 of 2024 and comparisons are with the Q1 of 2023.

Speaker 3

I will now provide financial highlights for the Q1 of 2024. Revenue was $152,200,000 for the Q1, up 105%. Revenue for single wafer cleaning, Tahoe and semi critical cleaning was $109,500,000 up 199%. Revenue for ECP, furnace and other technologies was $25,800,000 down 3%. As David noted, we anticipate good growth for the full year 2024 in this category.

Speaker 3

Revenue for Advanced Packaging excluding ECP services and spares was $16,900,000 up 53.2%. Total shipments were $245,000,000 for the Q1, 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.

Speaker 3

We do continue to expect gross margin to vary from period to period due to a variety of factors such as sales volume, product mix and currency impacts. Operating expenses were $40,100,000 for the Q1, up from $29,200,000 R and D was $19,400,000 versus $13,300,000 The year over year increase reflects additional personnel and other expenses to support our product development pipeline. The decline versus Q4 'twenty three was primarily due to reduced spending on internal R and D development tools. Sales and marketing was 11.1 $1,000,000 versus $8,900,000 and G and A was $9,500,000 versus $6,900,000 For 2024, we plan for R and D expenses in the 13% to 15% range, sales and marketing in the 7% to 8% range and G and A in the 5% to 6% range. Operating income was $39,800,000 for the Q1, up from $10,900,000 Operating margin was 26.2%, up from 14.7%.

Speaker 3

We recorded a realized gain of $300,000 for the Q1 from the sale of short term investments. Recall that realized gains are included in non GAAP earnings. Income tax expense was $4,400,000 for the Q1 versus 2,900,000 dollars For the full year, we plan for effective tax rate on non GAAP pretax income in the 15% to 20% range. Net income attributable to ACM Research was $34,600,000 for the Q1, up from 9,900,000 dollars Net income per diluted share was $0.52 for the Q1 versus $0.15 Our non GAAP net income excludes $14,600,000 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 Q3 of last year in addition to our normal ACM research grants.

Speaker 3

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 $288,300,000 versus $304,500,000 at the end of the last quarter. Total inventory was $581,100,000 versus $545,400,000 at the end of last quarter.

Speaker 3

This includes raw materials and work in progress, which totals $318,200,000 and finished goods inventory of $262,900,000 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 25,400,000 dollars For the full year, we expect to spend about $100,000,000 in capital expenditures. This primarily includes continued investments in our Lingdong facilities, remodeling for our new headquarters for ACM Shanghai and our investments in Korea and the U. S. And some fixed asset expenditures.

Speaker 3

That concludes our prepared remarks. Now let's open the call for any questions that you may have. Operator, please go ahead.

Operator

Thank you. Our first question will come from the line of Suji Desilva from ROTH. You're now connected.

Speaker 4

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

Speaker 3

Hi, David.

Speaker 2

Just a couple.

Speaker 4

Hey, guys. So 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 2024? Just to understand how you're diversifying the product categories.

Speaker 2

Yes. Good. And obviously, as I mentioned here, cleaning tool has continued our major portion of the revenue. And we see that there this, as I mentioned, is SPM tool, which cover middle and lower temperature by Tahoe and also single wafer. And also, we're making a breakthrough in a high temperature SPM tool, and that's obviously also another driving factor.

Speaker 2

And plus, also, however, this our bio edger and also continues to grow our auto bench for the mature nodes. And then looking at real next year and looking for probably our solar PVCo CO2, we'll start contributing on our revenue too. So that's the one on the Canadian side. And then looking there, ECP, we'll continue to see that grow and both in the front end and also on the long package side. And we have quite a good backlog in ECP.

Speaker 2

And also, we see the furnace was contributing for revenue too in this year and also continue next year. And we have basically order LPCVD and ALD start evaluation and all this vacuum anneal versus edemasverber anneal continue getting to market. So that's the major driving force this year for our revenue contribution. Mark, anything you want to add on that?

Speaker 3

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

Speaker 3

So I'll leave it at that Suji.

Speaker 4

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

Speaker 2

Yes. As I mentioned, we're continuing marketing spending our customer base in the U. S. And wherever our one key customer is shipping our second tool, second type of tool with a bevel and backside and to this the key customer. Meanwhile, we're also talking, discussing multiple customer in U.

Speaker 2

S. And both for their front end and also for their packaging side. So we see their big potential and their growth in the U. S. Market.

Speaker 2

And meanwhile, we also access the market in the Singapore and also European, right? Our first tool has been delivered to the one key European customer, and we think there will be in the qualification phase now. We're expecting this first tool will result in their second repeat order. I think that's it, right? Mark, anything you want to add?

Speaker 3

Yes. So no, thanks. International, I think when we talked about our guidance when we first presented it last quarter, we got out of still out about how much would contribute from international. This year is still a build year. We're hopeful that we can get following the qualification of the U.

Speaker 3

S. Customer, we're hoping that we can get some orders here soon. We're not certain how much will fall into this year versus next and that's always been the plan. But so and even for the European, so we probably expect some contribution, but really this would be a build year and any significant orders would probably be for shipments next year.

Operator

Okay. Our next question will come from the line of Christian Schwab from Craig Hallum. Your line is open.

Speaker 5

Hey, great. Thanks for taking my question.

Speaker 2

I just have one follow-up to

Speaker 5

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 $1,000,000,000 in sales in China and the market outside of China for your products is materially greater. On a multiyear outlook, do you have increased conviction now that this business can be much bigger than $1,000,000,000

Speaker 2

Yes. Actually, in our layout, we're pretty confident we're going to reach even $1,000,000,000 market, but only China market. And obviously, at the same time, we're penetrate or they're exploring international market with our differential technology. So we see that trend continue accelerating. So as I said, we're looking to their key customer U.

Speaker 2

S. And their probably their manufacturing in Singapore. And also, we're looking at with the Taiwan customer too. And plus recent, right, we hire our key I call it key top manager in the Korean operation, which is DG team, he is a real veteran of SK Hynix. And so we're really put effort and marketing and sell our product in the global.

Speaker 2

So we're obviously, their international revenue and the contribution will get into our total growth. As I said, in the long term, we want to have of our revenue come from China and half of them from outside China. So that's a goal still in our it's to continue our goal here.

Speaker 5

Fantastic. No other questions. Thanks.

Speaker 2

Thank you.

Speaker 3

Thanks, Christian.

Operator

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

Speaker 5

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

Speaker 4

or lower in the next three quarters?

Speaker 2

Yes. Okay. Let me answer. Maybe Mark can follow. Obviously, Q1 shipment higher is partially contributed by our delayed shipment in Q4 of last year, right?

Speaker 2

So that's why part of the reason, plus also our manufacturing did a good job in the Lunar New Year. So we'll say probably Q2 was slightly lower than Q1, but also continue to see that grow in Q2 and Q3 and Q4. So Mark, anything you want to comment?

Speaker 3

Yes. No, thanks. And Ross, I appreciate the question. Yes, so we still we certainly expect shipments to be higher than our revenue growth for the year. I mean, it's a pretty solid shipment year.

Speaker 3

But yes, David noted, Q2, they probably normalized a bit relative to that inventory piece, but we'd expect it to kind of shift back up in Q3 and Q4.

Speaker 6

Great. Thank you.

Speaker 4

That was my only question.

Speaker 3

Great. Thanks Ross.

Operator

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.

Speaker 6

Hi, David, Mark. Thanks for taking my question and also congrats for very good results, execution, etcetera. So I'm not sure, but I feel like this time around you are more open to talk about Hynix, HBM 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 a conference project wins are in the recurring order, may I come from that?

Speaker 2

Yes. Actually, Hynix is one of our key customer, right? And they also is a real long term customer too. Then we're now adding more of our obviously our flagship SAPS, mexonic cleaning can offer much uniform megasonic energy contribution. So therefore, you can always clean every via of the wafer, which is very important for TSV and the process.

Speaker 2

And second one, real copper plating, right? It's really in the either packaging, 3 d, 2.5, 3 d and also in the TSV. So we're engaging with the customer and we think our potential product and definitely can be their potential choice for them to take. So we're still in the process right now.

Speaker 6

Okay. Okay. May I know those kind of key technology, right, can be used in advanced packaging, for example, COA or TSMC SOIC. So that's my understanding. I think it's not just that TSMC can provide the coax of 2.5D advanced packaging.

Speaker 6

I think Intel, even M core, I mean, have those advanced packaging stuff, right? So are you guys going to supply 2 or 2 those opportunities?

Speaker 2

Yes. Obviously, like you said, definitely our copper piping can use it for their other customer, right, for this advanced packaging process. And so we're approaching multiple other customer right now. And as in this market, obviously, only a few player, and we can be an alternative choice for them to take. Also, we do have some differential technology with differential outperformance with other guys.

Speaker 2

So we're very confident and we can get it in the market and for the outside China market.

Speaker 6

Okay. Yes, actually, my second question is about also international markets. I remember 4 years ago when I started to cover the stock, always I asked the question when we're going to get in TSMC, right? And 4 years later, I feel like TSMC is to be very, very important target. They continue to open a new fabs, not just U.

Speaker 6

S, but also Japan. And next will be Germany, including both mature nodes and a leading edge. So my question is that what do you need to do, right, to really when is the customer? Can you give us some color whether it's a technology or kind of production location or pricing, whatever? What was the issue right now?

Speaker 2

Yes. Well, I mean, obviously, like you said, TSMC is one of our key customer target, and we're working with them multiple year and we're still engaging with them by the way. And so we're in a still evaluating talking process right now, right? As I said, our cleaning also our copper plating definitely is one of the key product, right, differentiated with other players. So we have confidence, right?

Speaker 2

And anyway, probably I cannot tell you now what's going on, but we are fully engaged with TSMC. It's our potential target, obviously.

Speaker 6

Okay. Okay. Yes, that's all the questions I have. Thanks, Tim, for your time. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 7

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

Speaker 2

Okay. That's a good question. Actually, we see there a field class I mean, quite a bit of customer focus on their IGBT production line. And we see that as a continued growth because anyway IGBT production in China is still early stage, right? So we see their customers continue expanding and for this IGBT investment.

Speaker 2

And also, we do have a very good product in cleaning and also in the furnace, right, supporting this IGBT market.

Speaker 7

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

Speaker 3

Yes. Hey, Mark, I'll take that. So and it'll show up in our Q, but cash flow from operations was $9,600,000 We used about $9,600,000 Yes.

Speaker 7

Thank you.

Operator

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.

Speaker 1

Okay. Thank you, operator, and thank you all for participating in today's call and for your support. Before we close, let me just mention a couple of upcoming Investor Relations events. On May 29, we will present at Craig Hallum's 21st Annual Institutional Investor Conference in Minneapolis. From June 25 to 26, we will present at the 10th Annual ROTH London Conference at the Four Seasons Park Lane, London.

Speaker 1

Attendance at the conference is by invitation only. For interested investors, please contact your respective sales representatives to register and schedule 1 on 1 meeting with the management team. This concludes today's call and you may now disconnect.

Operator

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

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Key Takeaways

  • Revenue surged 105% year-on-year in Q1 with a 52.5% gross margin and 26.2% operating margin, leaving ACM with over $288 million in cash and time deposits.
  • Single-wafer and semi-critical cleaning grew 199% to represent 72% of total revenue, driven by the ramp of Tahoe and new high-temperature SPM tools that complete ACM’s front-end cleaning portfolio.
  • ECP, furnace and related equipment revenue was flat, but shipments of ECB tools tripled year-over-year and several LPCVD, ALD, PECVD and TRAC platforms are under evaluation for 2025 ramps.
  • Advanced packaging sales rose 53%, led by the introduction of vacuum wafer cleaning and drain-wafer cleaning tools with nearly 100% solvent recycling, alongside growth in Bio Etcher and AutoBench.
  • International expansion continues with Q2 US deliveries, European evaluations and a new Korea operation, as ACM targets half of future revenue from outside China and reaffirms 2024 guidance of $650 million–$725 million.
A.I. generated. May contain errors.
Earnings Conference Call
ACM Research Q1 2024
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