ACM Research, Inc. (NASDAQ:ACMR) Q1 2023 Earnings Call Transcript

ACM Research, Inc. (NASDAQ:ACMR) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Thank you for standing by, and welcome to the ACM Research First Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. As a reminder today’s program is being recorded. And now I would like to introduce your host for today’s program, Gary Dvorchak, Managing Director of The Blueshirt Group. Please go ahead.

Gary Dvorchak: Thanks, Jonathan, and good morning, everyone. Thank you for joining us on today’s call to discuss first quarter 2023 results. We released results 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 portion 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 the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain or loss in trading securities. 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 look at Slide 12.

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

David Wang: Thanks, Gary. Hello, everyone, and welcome to ACM Research, first quarter 2023 earnings conference call. Please turn to Slide 3. For the first quarter, revenue was $74.3 million, up 76% from same quarter last year. Shipments were $89 million, up 33% from the same quarter last year. Gross margin was 53.8%, and non-GAAP operating margin was 14.7%. Our operations in the first quarter were impacted by the several factors, including the COVID policy, the Chinese New Year holiday, supply chain challenging related to U.S. restrictions and some delayed delivery to certain customers. We expect our business to improve in the second quarter, with expected acceleration in the third and fourth quarter. Starting with product, please turn to Slide 4.

We had a good growth from our cleaning tools and increased contribution from our ECP furnace and other technology with a continued strong product cycle from ECP products, which were more than one-third of our first quarter sales. Single-wafer cleaning, Tahoe and semi-critical cleaning grew 41%, driven by single-wafer cleaning tools and strong mature nodes demand in China. ACM has one of the broadest cleaning product portfolio in the industry, covering nearly 90% of all cleaning process steps. We recently introduced several important new cleaning tools, including the Bevel Etch tool and high-temperature SPM single-wafer cleaning tool, which is important for our international efforts. In Q1, we received the customer qualification of our single-wafer wet Bevel Etch tool.

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ECP and furnace and other technology grew 117%. Growth in this category was driven primarily by ECP product cycle with some contribution from furnace. Our higher temperature Anneal and LPCVD furnaces, including silicon nitride and poly have expanded to multiple customers and are in qualification. Advanced packaging, excluding ECP service and spare parts grow from our small base last year and represent about 15% of the sales. This category, including a range of packaging tools, including coater, developer, scrubber, PR Stripper and wet etcher and services spare parts. ACM is the only company that offers both a full set of web tools and advanced plating tools. We believe advanced packaging will continue — will become more important as the industry looks for packaging innovation such as 2.5D and 3D in the Appolo and fan out to drive higher performance.

Our product line is very well suited for the mature nodes and power devices investment we see in the near term for China. We see continued investment in 28, 45 nano and above nanometer in front-end fab capacity as China is committed to close the gap between its consumption and production of semiconductors. We also see the ramp-up of the EV production in China, as the driving of China-based investment in both power devices and other 28 and 45 nano devices. In this mature node expansion environment, we expect a solid growth from our cleaning tools, especially our auto bench, which is well suited for those applications. For each app and products, I feel great about both our PECVD and Track platforms. Similar to our cleaning, plating and furnace product line, our PECVD and Track platform have a proprietary technology that we believe were making them winner with a major customer, both in China and outside China.

We are in active discussion with our key customers. They are acceptive to our new approach and technologies, cost and the wafer throughput. Although, we do not expect revenue in 2023, we plan to deliver several evaluation tools to key customers this year. ACM has built a scale business in cleaning, and we have a strong product cycle from ECP, furnace and other technologies. With the Track and PECVD, we are moving from proof-of-concept during the last year to accept to active evaluation with the key customers. At this point, we now believe our differentiated technology can go head-to-head with any of the major players. Moving on to customer, please turn to Slide 5. I’m pleased with our position with the China-based customer and the progress we are making with the potential new customers in other markets.

In China, we believe ACM tools are now used by nearly all the semiconductor manufacturers. Our sales and service teams are working to expand the deployment of each of our major product line across our growing customer base. We continue to gain traction from second and third-tier semiconductor manufacturers, including power, analog, CMOS image sensor, compound semiconductors, MEMS and other devices. In the U.S., the evaluation of a key potential customer is progressing well, and we remain optimistic that this could lead to production orders. In Europe, we announced an order for our first evaluation tool from a top-tier customer in the first quarter. The tool is planned for delivery in the early Q4 this year, and we are beginning to build a local service team to support efforts.

To support our growth initiatives, we continue to add a facility in China and other regions. Please to Slide 6. I will start with an update on China. Construction of Lingang production and R&D center is on track for initial production in the second half of this year. We took ownership of our new headquarter for ACM Shanghai in Zhangjiang, this quarter and plan to move in later this year. This is an important addition for us that we believe will provide the stability for employees, help us attract new talent and allow us to invest in world-class earning center to speed up the development of our tools. Next, in Korea, we have a strong basis of more than 70 R&D engineers and more than 50,000 square feet of leased R&D, administrative and production facility.

ASM Korea co-developed our furnace Track and PECVD products, together with our Shanghai R&D team. As I’ve noted in previous calls, we have increased our commitment to Korea. We believe a strong commitment to Korea will improve our relationship. We are also adding resource in the U.S. to support ongoing evaluation and additional sales activities. In the first quarter, we leased a facility in Oregon to add to our service support and demonstration capability for R&D and customer activities in the region. As noted on the call last quarter, for 2023 we expect to spend about $100 million CapEx. This including continued investment in our Lingang facility, remodeling for our new headquarter for ACM Shanghai and our investment in Korea and the U.S. Following this important investment, we believe our major spending projects will be completed for the next several years.

I will now provide our outlook for the full year 2023, please turn to Slide 9. Reaffirm our 2023 revenue outlook to be in the range of 515 to [Technical Difficulty] first tool on the evaluation in the field. Now let me turn the call over to our CFO, Mark, who will review details for our first quarter results. Mark, please?

Mark McKechnie: Thank you, David. Good day, everyone. Please turn to Slide 10. Unless I note otherwise, I’d refer to non-GAAP financial measures, which excludes stock-based compensation, unrealized loss on trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Recall that our operations last year, in the first quarter of 2022, were impacted by the Shanghai COVID restrictions. As David noted, our operations in the first quarter of 2023 were impacted by China’s relaxed COVID policy, the Chinese New Year holiday, supply chain challenges related to the U.S. restrictions and some delayed deliveries to certain customers. I will now provide financial highlights for the first quarter.

Revenue was $74.3 million versus $42.2 million in the first quarter of last year. Total shipments were $89 million, up 33%. Revenue for single-wafer cleaning tools and semi-critical cleaning was $36.6 million, up 41% from $26 million in the first quarter of last year. Revenue for ECP furnace and other technologies was $26.6 million, up 117% from $12.2 million in the first quarter of last year. Revenue for advanced packaging, excluding ECP services and spares was $11 million, up 183% from $3.9 million. Gross margin was 54%, up from 46.9% in the prior year period. This exceeded our normal expected range of 40% to 45%. The high gross margin was primarily due to a favorable product mix with a particularly strong mix of our higher-margin products and a lighter mix of our lower-margin products for the quarter.

We expect gross margin 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 $29.2 million versus $27.7 million in the year ago period. The increase was due primarily to higher sales and marketing and G&A costs, partly offset by lower R&D costs. Operating income was $10.9 million, representing 14.7% operating margin versus an operating loss of $7.9 million in the year ago period. We recorded a realized gain of $4 million from the sale of a portion of ACM Shanghai shares of SMIC for the quarter. Recall that the realized gains are included in non-GAAP earnings. Net income tax expense was $2.9 million compared to an income tax benefit of $4 million in the year ago period.

As a result of the change in Section 174 of the U.S. Internal Revenue Code of 1986, as amended that became effective in January 1, 2022, our effective tax rate has increased primarily due to the new requirement to capitalize and amortize previously deductible R&D expenses. Net income attributable to ACM Research was $9.9 million versus a net loss of $0.6 million in the year ago period. Net income per diluted share was $0.15 compared to a net loss per diluted share of $0.01 in Q1 of 2022. I will now review selected balance sheet items. Cash, cash equivalents, restricted cash and time deposits were $381.7 million at the end of the first quarter versus $420.9 million at the end of the last quarter. Total inventory was $473.3 million at the end of the first quarter, up from $393.2 million at the end of last quarter.

This includes finished goods inventory of $195.7 million, work in process of $74.4 million in raw material $203.2 million. Capital expenditures for the first quarter were about $15 million, which includes spending on our Lingang facilities, normal maintenance spending. And as David mentioned, the purchase of land in South Korea. That concludes our prepared remarks. Let’s open the call for any questions that you may have. Operator, please go ahead.

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Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of Quinn Bolton from Needham & Company.

Operator: One moment for our next question. And our next question comes from the line of Suji Desilva from ROTH Capital.

Operator: [Operator Instructions] And our next question comes from the line of Charlie Chan from Morgan Stanley.

Operator: And our next question comes from the line of Christian Schwab from Craig-Hallum.

Operator: Our next question comes from the line of Mark Miller from Benchmark.

Operator: [Operator Instructions] Our next question comes from the line of Donnie Teng from Nomura.

Operator: And our next question is a follow-up question from Mark Miller from Benchmark.

Operator: This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to David Wang for any further remarks.

David Wang: Okay. Thank you, operator, and thank you all for your participation on today’s call and for your support. Before we close, Gary is going to mention our upcoming investor relations events. Gary, please?

Gary Dvorchak: Thanks, Dave. So on May 31, we’ll present at the 20th Annual Craig-Hallum Institutional Investor Conference in Minneapolis. Attendance at the conference is invitation-only for clients of Craig-Hallum. So please contact them to register and request one-on-one meetings with us. So this concludes the call. You may all now disconnect.

Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.