ACM Research, Inc. (NASDAQ:ACMR) Q3 2023 Earnings Call Transcript

ACM Research, Inc. (NASDAQ:ACMR) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Good day and thank you for standing by. Welcome to the ACM Research Third Quarter 2023 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. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Gary Dvorchak. Please go ahead.

Gary Dvorchak: Thank you, operator and good day everyone. Thank you for joining us to discuss third quarter 2023 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’s 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, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, the 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. Certainly, the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized 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 Slide 12.

With that, let me now turn the call over to David Wang, who will begin with Slide 3. David, go ahead.

David Wang: Thanks, Gary. Hello, everyone. And welcome to ACM Research third quarter 2023 earnings conference call. Please turn to Slide 3. For the third quarter, revenue was $168.6 million, up 26% from the same quarter last year. Shipment were a record $213 million upward 31%. Gross margin was 52.9% and operating margin was 26%. For the first nine months, we grow revenue by 38%. This is in light of our decline in global WFE spending. We attribute our outer performance to market share gain, and the penetration of new products and new customers and general healthy market for mature nodes in China. Let me touch on each of these, beginning with the mature nodes investment in China. China’s domestic and mature nodes, WFE investment remains solid.

We believe due to China’s goal to reduce the gap between its domestic and mature nodes capacity and end market consumption of semiconductor chips. We see a continued investment in 28 nm, 45 nm, and power devices for EV market. The ramp of EV production in China is a driver for capacity investment in power devices and other trading edge devices. This creates a tailwind for us and we believe we are still in the early stage of China’s semiconductor capacity expansion plan, which we believe will continue to be a growth driver for us. As China identifies effort to boost its domestic or semiconductor capability, we believe we are well positioned to benefit and further increase our market share due to our strong market position, differentiated technology, and multi-product portfolio.

Moving to products, please turn to Slide 4. Single wafer cleaning, Tahoe and semi-critical cleaning grow 33% in Q3 and 42% year-to-date. In the last few years, we introduced and began ramping our semi-critical product line including auto bench and then last year we introduced advanced and the high temperature SPM tools. In Q2, we introduced our super critical CO2 dry and cleaning tool. This quarter, we introduced our ULTRA C v Vacuum Cleaning Tool to meet the flux removal requirements for chiplets and other advanced 3D packaging structures. We have already received a purchase order for the new tool from our major Chinese manufacturer which we expect to be delivered in the first quarter of 2024. ACM has one of their broadest cleaning product portfolio in industry, covering early 90% of all cleaning process steps in both memory and logic devices applications.

We believe this product portfolio would play a key role among material nodes development in China. and advanced nodes in our international effort going forward. ECP, Furnace & Other technology grew 4% in Q3 and 24% year-to-date. Growth in this category was driven primarily by ECP products, cycle with some contribution from furnace. Our high temperature anneal and LPCVD furnace, including silicon nitride and body are in production at key customers. And ALD furnace is under evaluation on a multiple customer sites. Advanced packaging excluding ECP, but including service and spare grew 12% in Q3 and 40% year-to-date. This category includes a range of packaging tools, including coder, developer, squabber, PR stripper and web and service spare parts.

ACM is only customers that offer both a full set of wet tool and advanced plating tool. We believe that advanced packaging will become more important as industry looks for packaging innovations, such as 2.5D and 3D in the process and fan out to drive higher performance for new applications such as AI and GBT. Finishing up on product, we continue to make a good progress on self-effort with our new track and PECVD platforms. We are in active discussion with our key customer, and we plan to deliver more evaluation tools this year. Similar to our cleaning, plating, and furnace product line, our Track and PECVD platforms, however proprietary technology that we believe will make them win with the major customer, both in China and outside China. I’m pleased to report good progress with our Track tool evaluation at the customer site.

We believe our Track tool with a new proprietary architecture design will meet the requirements of a higher throughput of the next generation lithography tool. Moving on to customer, please turn to Slide 5. We continue to make progress on customers both inside China and internationally. In China, we believe ACM tool are now used by near all the semiconductor manufacturers. With our sales and the service team are working to expand the deployment of each of our major product line across our growing customer base. In addition to our current customers, we are also seeing a good number of full-funded new entrants. Our team has done a good job of getting traction for our products with these customers. These are the new customers. This will be reflecting our shipment this year until customer acceptance at a later date.

In the U.S., we announced this morning a purchase order for another product from a large U.S. manufacturer, the Ultra C b backside cleaning and bevel etch tool. This tool combined backside cleaning and a bevel etch function. The tool is expected to be shipped to their U.S. facility in the second quarter of 2024. And as this customer’s ongoing evaluation of two steps cleaning tools, we believe this demonstrates a deepening relationship, which we hope will result in demand for additional ACM tools. Furthermore, we believe this will enhance ACM’s brand and positions us to attract new opportunities with other major global customers. In Europe, early this year, we announced our order for our first evaluation tool, Ultra C cleaning tool from our major European-based global semiconductor manufacturer.

We delivered the tool about four weeks ago and our team have already started installation process. To support our growth initiatives, we continue to make progress on our facility expansion in China and other regions. Please turn to Slide 6. In China, construction of Lingang production and R&D center is nearly complete and is expected to begin initial production early 2024. In Korea, as noted in the prior calls, we have increased our commitment to support our objective to address global market. We now have more than 150 employees in Korea with the three facilities including sales and administration, development labs, small-scale production, and cleaning rooms to support the wafer test for customer evaluation. And we are making plans to build a new factory on the land.

We purchased earlier this year. We believe a strong commitment to Korea will improve our relationships with our key Korean customers. Our resource in Korea will also offer another base for supporting international customers in U.S., Europe, and other parts of Asia. In the U.S., we leased a facility in Oregon earlier this year to add to our service support and their demonstration capability for R&D and customer activity in the region. As a reminder, for 2023, we expect to spend about $75 million CapEx. This includes continued investment in our Lingang facility, remodeling for a new headquarter for ACM Shanghai, and our investment in Korea and U.S. I will now provide our outlook for the full-year 2023. Please turn to slide 9. We are updating our 2023 revenue outlook to be in a range of $520 million to $540 million versus our prior range of $515 million to $585 million.

The range of outlook reflects among other things, management’s current assessment of the continued impact from international trade policy together with the various expected spending scenario of key customer, supply chain constraint, and the timing of acceptance for first tools under evaluation in the field. Now, let me turn the call over to our CFO, Mark who will review details of our third quarter results. Mark, please.

Mark McKechnie: Thank you, David. Good day, everyone. Please turn to Slide 10. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized 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 third quarter of 2023 comparisons are with the third quarter of 2022. I’ll now provide financial highlights for the third quarter. Revenue was $168.6 million up 26.1%. Total shipments were $213 million up 31%. Revenue for single-wafer cleaning, Tahoe and semi-critical cleaning was $132.4 million up 32.8%. For the first nine months of 2023, this category grew by 42.0% versus the prior year period.

Revenue for ECP, furnace and other technologies was $25.5 million up 4.0%. For the first nine months of 2023, this category grew by 24.4% versus the prior year period. Revenue for advanced packaging excluding ECP, services and spares was $10.6 million, up 12.4%. For the first nine months of 2023, this category grew by 40.2% versus the prior year period. Gross margin was 52.9% up from 49.4%. This exceeded our normal expected range of 40% to 45%. The increase in gross margin was primarily due to a favorable product mix, improved gross margins for specific product lines and a favorable impact from fluctuations in the renminbi to U.S. dollar exchange rate. We expect gross margins to continue to vary from period-to-period due to a variety of factors, such as sales volume, product mix, and currency impacts.

Operating expenses were $45.3 million up from $32.6 million. The increase was due to higher R&D, sales and marketing and G&A cost in support of new customer and new product activities and a boost in the post-COVID travel activities. Operating income was $43.8 million, up from $33.5 million. Operating margin was 26.0% up from 25.1%. We recorded a realized gain of $0.7 million from the sale of short-term investments for the quarter. Recall that realized gains are included in non-GAAP earnings. Income tax expense was $0.7 million, down from $10.5 million. This was driven by one-time items for the third quarter, but we still expect the full-year tax rate to be in the 20% range. Recall that as a result of a change in Section 174 of the U.S. Internal Revenue Code.

Our effective tax rate for the full-year remains elevated. Net income attributable to ACM Research was $37.6 million, up from $28.2 million. Net income per diluted share was $0.57, up from $0.42. I’ll now review selected balance sheet items. Cash, cash equivalents, restricted cash and time deposits were $326.5 million versus $376.1 million at the end of the second quarter. Total inventory was $507.4 million versus $471.1 million at the end of the second quarter, and it was split between raw materials, $202.0 million, work in process $83.4 million, finished goods inventory at $223 million. Capital expenditures were $26.2 million for the quarter. Year-to-date capital expenditures were $49.5 million. That concludes our prepared remarks. Now let’s open the call for any questions that you may have.

Operator, please go ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions]. We will take our first question. Your first question comes from the line of Charles Shi from Needham & Company. Please go ahead. Your line is open.

Charles Shi: Hi, good evening, Dave and Mark. Congrats on the strong Q3 results. I have a first question on shipment. The shipment figure you posted for Q3 looks like you’re making a new record here. But just to really want to understand what you see in terms of shipment going into Q4, do you largely see the number going to be flat Q-on-Q or for Q4, or what’s the dynamics behind the very strong shipment figures? Thanks. That’s my first question.

David Wang: Yes. Okay. I think the shipment is really number indicated wherever you get a new customer and also ever our product is going to spread out and with the cleaning, cover plating, and also our latest new product furnace. And so I think that’s the reason driving the shipment. And also we think Q4 shipment continue in our timeline. And I would say obviously there’s certain components, right? And also — there are also some maybe customer, their production line, and maybe some I call the pulsing may impact our shipment. But anyway, we think the whole year and our shipment will be still a very good number for supporting our growth. Hey Mark, anything do you want to add on the shipment?

Mark McKechnie: Yes, no, thanks David. Yes, I mean shipments, I think as David noted, it’s repeat ship revenue and it’s also the first tool. So yes, we’re certainly pleased with the shipments in the quarter. We don’t guide specifically by quarter on shipments, but we’re not anticipating a big increase sequentially in Q4.

Charles Shi: Thanks. So David, I just want to have a follow-up, because I think I heard you mentioned certain customers may be passing, which may have an impact on shipment. Did I hear correct? Is that the Q3 comment or Q4 comment? Thanks.

David Wang: Yes, well, I just say, I call it a quarter, right? And looking the whole year, right? We do see some, I mean customer, their production line is not ready. And they do have a face to deliver. So that’s something we can feel there for sale not ready. And that costs our shipment delay, right?

Charles Shi: Okay. So I just want to make sure, so it’s not anything related to export controls, et cetera?

David Wang: No, actually this moment our product, we follow all other — I call it expert control rule there, whatever we receive the order, all to follow their, all their, I call it restriction. And they also follow the rule, right? Also U.S. and that we also, components that action. So anyway, so far we do not have any, because of our expert control, we cannot ship.

Charles Shi: Got it, thanks. Maybe a second question from me. Congrats on shipping, receiving a PO from the other, from the U.S. semiconductor manufacturer for another set of evaluation, I believe. Wondering, can you remind us, what was the first evaluation that you shipped to this customer? What application was that for? What was the status of that the first evaluation? Thanks.

David Wang: Great, actually we do have a two, all right we see border we deliver last year actually we made a quite a progress, even this is our first ship with this new customer and we make a lot of progress and we’re making their product and the customer happy with our performance and obviously, we’re looking for future, maybe order and because of how to, it does offer measure requirement especially using mech cleaning, they offer a much better cleaning efficiency and also diluted chemistry, they can see the consumption chemical. Well, we’re looking for this bigger contribution for their process.

Charles Shi: Yes, any expected timeline for the culture of the first evaluation since you already shipped the second? Thanks.