ACM Research, Inc. (NASDAQ:ACMR) Q4 2023 Earnings Call Transcript

ACM Research, Inc. (NASDAQ:ACMR) Q4 2023 Earnings Call Transcript February 28, 2024

ACM Research, Inc. beats earnings expectations. Reported EPS is $0.43, expectations were $0.1. ACMR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the ACM Research Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Steven Pelayo, Managing Director of The Blueshirt Group. Please go ahead.

Steven Pelayo: Great. Thank you. Good day, everyone. Thank you for joining us to discuss fourth quarter and fiscal year 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 is 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, our CFO of our operating subsidiary ACM Shanghai. Before we can 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 Risks 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 the call will be on a non-GAAP basis, 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 also on Slide 13 and 14.

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

David Wang: Thanks, Steven. Hello, everyone and welcome to ACM Research fourth quarter and the fiscal year 2023 earning conference call. Please turn to Slide 3. I’m pleased with our fourth quarter results, which conclude a strong year. For the fourth quarter 2023 we delivered $170 million in revenue, up 57%. For the year we delivered $558 million in revenue, up 43%. Profitability was good for both the fourth quarter and full year with operating margin of 21% and 22% respectively. We ended the year with just over $300 million of cash and time deposit. For shipments, the shipment for fourth quarter were $140 million, down 29% year-to-year. Shipments for the full year were $59.7 million, up 11%. On our third quarter call we know the delay of shipment to several customers due in part to adjustment in their fab buildouts.

While we don’t normally share our expectation for shipment, I will provide more color in this case. We view the low shipments for the fourth quarter to be a one quarter event. We expect to deliver nearly all of the delayed tool during year 2024. We expect the first quarter shipment to be much higher than the fourth quarter levels, even with a normal Chinese New Year shutdown, and we expect total shipments to grow faster than revenue for the full year 2024. Now I will discuss the key growth drivers both for the market and specific to the ACM. According to a third-party estimate, the overall Mainland China WFE market grow around 15%. If we exclude lithography tool, which is more than double in China in 2023, we believe the rest of the market growth for China WFE was close to 5%.

In any case, we attribute ACM higher growth rate of 43% to one, a leading product portfolio for the China market including auto batch clean and our ECP tool for the front end and packaging. Two, continual spending and market share gain at our current customer, three, broader participation with new customer in China and four, good execution by our production and service team. I will now provide detail on product. Please turn to Slide 4. Revenue from single wafer cleaning, Tahoe and semi-critical cleaning product grew 48% in 2023 and represent a 72% of total revenue. ACM offers what we believe in the industry’s most comprehensive cleaning portfolio. We support nearly 90% of our all cleaning process step for memory and logic devices. This coverage positions us as a key partner for both China mature nodes development and international markets.

At the high end, we believe our flagship SAPS Tahoe and TEBO single wafer cleaning products deliver technical feature not available from any of our competition. We entered into the 30 millimeter auto bench cleaning market several years ago is proving to be a significant winner for their mature node spending. We have delivered more than 70 auto bench tools today and note a very strong contribution in 2023 with good profitability. By our estimate, ACM become the largest China based supplier for auto bench in 2023. For Tahoe, we made a good progress during the year. Our engineering team modified technical feature to meet production requirements for the key customer. I’m pleased to report ACM has been qualified for mass production at several customers and we expect a strong ramp with good orders for delivery in the first half of 2024.

This is good for our customer and good for their environment as our proprietary Tahoe design significantly reduce the consumption of the sulfuric acid. We continue to innovate in our cleaning and look forward to additional market share gain in 2024 when ramp up several key new products, including our bevel etch cleaning tool, high temperature SPM single wafer cleaning tool and the semi-critical CO2 dry cleaning tool. Revenue from ECP furnace and other technology grew 33% in 2023 and representing a 19% of total revenue. We hit an important milestone for this category in 2023 with more than $100 million in revenue. ECP demonstrated strong performance. I want to note that our first tool achievement grow even higher than 33%. We are taking a good share for overall plating with a particular strong growth in front end process in 2023.

For furnace, 2023 was a customer development year with many evaluations underway. We expect an even broader customer footprint and good revenue contribution in 2024. We also made a great progress with our furnace ARD product development. In summary, we expect another year of strong growth in this product category in 2024. Revenue for advanced packaging, which exclude ECP, but includes service and spare grew 31.5% in 2023 and represent 9% of total revenue. This category includes a range of packaging tools including coder, developer, squabbier, PR stripper and wet etch and service and spare parts. Last year we also introduced ULTRA C v Vacuum Cleaning Tools and we continue to explore new products and technology to participate in the next-generation of advanced packaging.

We believe ACM is only company in the world that offer a full set of wet tool, polishing and the plating for advanced packaging. We expect advanced packaging to become more important as industrial looks for packaging innovation such as 2.5D and 3D in the process and fan out. These are the critical for high performance computing application such as AI, which is seeing increasing demand globally. Finishing up on product, we made a good progress with our new Track and PECVD platform. We are engaged in active dialogue with our key customer and intend to release additional evaluation tools this year. As with our cleaning, plating and furnace product line, our Track and PECVD platform boasts the proprietary technology that position them as a successful choice for major customer globally, including both in and outside China.

We are making a good progress in the evaluation of our Track tool. We are confident that the proprietary architecture of our Track tool is well suited for the high throughput required in next-generation of lithography tools. We are engaged with multiple customers for PECVD tool. We’re expecting significant progress for PECVD product development and evaluation in 2024. Turning to Slide 5 for our product SAM. We estimate our product portfolio address a $16 billion market opportunity. Our business is now primarily driven by three major product groups, cleaning, plating and advanced packaging. We anticipate continued growth in this category and look to incremental revenue contribution from our newer products starting with the furnace in 2024 followed by Track and PECVD in 2025.

Please turn to Slide 6. We remain committed to our median-term $1 billion revenue target. We believe we can achieve this with a range of market share by product in the Mainland China alone. We have achieved scale with a differential product that have been proven in China market and we have put resource in place to address international markets. To be clear, long-term we see additional $1 billion plus opportunity from international markets. Moving on to the customer, please turn to Slide 7. In China, we are market leader in cleaning and cleaning tool with sales to nearly every semiconductor manufacturers. Our sales and service team are now achieving deeper adoption of our products across this customer base. Beyond established payer market growth is being driven by an influx of well-founded new entrants.

For 2023, we had three 10% customer. SMIC was our top customer at 18% of the sale, SiEn was our second largest at 15% and CXMT was our third at 13%. We had a stronger contribution from second and third tier semiconductor manufacturers including power, analog, CMOS, image sensor and current semiconductors and other devices and some new customers. Total second and third tier player represent about 30% of our 2023 sales. On the international front, I’m pleased to report that a large U.S. manufacturer qualified its first SAPS cleaning tool for revenue in the first quarter. We also plan to deliver ULTRA C v backside cleaning and a bevel etch tool to this customer in the second quarter of 2024. This demonstrates a deepen relationships which we believe can lead to production orders.

Furthermore, this enhanced ACM brand and position us to attract new opportunities with other major global customers. Beyond the U.S., we installed our first evaluation tool, ULTRA C SAPS V cleaning tool at a major Europe-based global semiconductor manufacturers in the fourth quarter. To support growth we made a progress on our facility expansion in China and other region. Please turn to Slide 8. In China, construction of our Lingang production and R&D Center is nearly complete. We expect initial production in middle 2024. In Korea, we are making progress with the key customer as noted in the prior call, we have increased and are committed to support our objectives to address global market. We now have more than 150 employee in Korea with their facility including sales administration, small scale production and the development lab with a clean room to support internal R&D and wafer demos for the customer evaluation.

And we are making initial plans to building a new factory on the land we purchased early last year. We believe a strong commitment to Korea will improving our relationship with our key Korean customer. Our resources in Korea are providing another basis to support international customers in the U.S., Europe and other parts of Asia. In the U.S., we leased a facility in Oregon last year to add to our service support and demonstration capability for R&D and customer activity in the U.S. and Europe. I will now provide outlook for the full year 2024. Please turn to Slide 9. In early January, we introduced our 2024 revenue outlook in a range of $650 million to $725 million. This implying 23% year-over-year growth at the midpoint. We are reevaluating this outlook today.

We believe the China equipment market will grow in 2024. We expect our full year revenue growth for 2024 to outpace both China growth and global growth rates. Now let me turn the call over to our CFO, Mark who will review details about fourth quarter and full year results. Mark, please.

Mark McKechnie: Thank you, David. 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. Also, unless otherwise noted, the following figures refer to the fourth quarter of 2023. Comparisons are with the fourth quarter of 2022. I’ll now provide financial highlights for the fourth quarter and full year of 2023. Revenue was $170.3 million for the fourth quarter, up 56.9%. Revenue for single wafer cleaning Tahoe and semi-critical cleaning was $122.3 million, up 63.9%. For the full year 2023, this category grew by 48.0%.

Revenue for ECP furnace and other technologies was $32.1 million, up 59.0%. For the full year 2023, this category grew by 33.4%. Revenue for advanced packaging, excluding ECP services and spares was $15.9 million, up 15.8%. The full year 2023, this category grew by 31.5%. Full year 2023, revenue was $557.7 million, up 43.4%. Total shipments were $140 million for the fourth quarter, down 29%. For the full year 2023, shipments were $597 million, up 11%. Gross margin was 46.8% for the fourth quarter versus 49.7%. For the full year 2023 gross margin was 49.8% versus 47.4% in 2022. This exceeded our normal expected range of 40% to 45%. We do expect gross margin to vary from period to period due to a variety of factors such as sales volume, product mix, currency impacts.

Operating expenses were $43.6 million for the fourth quarter, up from $34.8 million. R&D was $28.8 million versus $17.0 million as we invest in our new product initiatives. Sales and marketing was $7.2 million versus $11.8 million. The decline in sales and marketing was primarily due to a significant reduction of costs related to promotional tools. G&A was $7.6 million versus $6 million. For the full year 2023, operating expenses were $154.4 million, up from $117.4 million. R&D was 15.1% of sales. Sales and marketing was 7.4% of sales and G&A was 5.2% of sales, all for 2023. For 2024, we are planning for R&D in the 16% range, sales and marketing in the 7% to 8% range and G&A in the 5.5% range. Operating income was $36.0 million for the fourth quarter, up from $19.2 million.

Operating margin was 21.2%, up from 17.7%. For the full year 2023, operating margin was 22.1% versus 17.2% 2022. For the fourth quarter, we recorded a realized gain of $0.5 million from the sale of short-term investments. Recall that realized gains are included in the non-GAAP earnings. Income tax expense for the fourth quarter was $8.1 million versus $2.7 million. For the full year 2023 income tax was $19.4 million versus $16.8 million in 2022. Net income attributable to ACM Research was $28.7 million for the fourth quarter, up from $12.6 million for the full year 2023. Net income attributable to ACM Research was $107.4 million versus $54.8 million in 2022. Net income per diluted share was $0.43 in the fourth quarter, up from $0.19. For the full year 2023 net income for diluted share was $1.63 versus $0.83.

I will now review selected balance sheet items. Cash, cash equivalents, restricted cash and time deposits were $304.5 million at year end versus $326.5 million at the end of the third quarter. Total inventory at year end was $545.4 million versus $507.4 million at the end of the third quarter. The mix was split between raw materials $235.1 million, work in process $81.4 million and finished goods inventory $228.9 million. Inventory also included finished goods at our own facilities. As David said, nearly all of that finished goods at our own facilities is expected to ship during the year 2024. Capital expenditures were $15 million in Q4 and $61.9 million for the full year. For 2024, we expect to spend about $80 million in capital expenditures.

This will be primarily to complete our investment in Lingang, and will also include remodeling the new headquarters for ACM Shanghai, and investments in Korea and the U.S. 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: [Operator Instructions] Our first question comes from the line of Suji Desilva with Roth MKM. Your line is now open.

Suji Desilva: Yes. Hi, David. Hi, Mark. Congratulations on the progress. Great job there. Can you talk about the international customer? Sounds like you’re making progress there. Just trying to gauge the pace of that. As you guided 2024 full year, do you have some contribution from international customer in that assumption? Or would that be upside? And is it potential first half timing or is it most likely back end loaded second half?

David Wang: Okay. Thanks, Suji. Okay. I think this tool we ship a year ago, right then through our service process engineer hardworking and then we have our first tool gather acceptance. So this will be getting to the production, their mass production. And also I want to see that this specific SAPS megasonic tool really address the customer needs. And we can see — get a good convenient performance and also much less particle consumption. So that’s really customer like the tool. And we believe this definitely — first full qualification will lead it to their additional order for the same customer. So meanwhile, and as mentioned also we have a second different tool, which is backside and also wafer cleaning. It was ordered by the same customer and was shipped them in the second quarter of this year.

So oversee that is this a key customer in the U.S. and we want this to be another example and also encouraging other big players and adapt our differential technology. So we’ll say that will be their good outcome. And also there’s, of course, international, I call the revenue contribution to our year 2024 forecast. We can see that too.

Mark McKechnie: Yes, Suji, I just add for 2024. I mean, a lot of things go into our forecast. We don’t have a — 2024 will be a building year for us for the for the international and we’d expect some additional contribution, you know, whether we get an order that ships for one or several tools that ships this year or next year will depend on how big it can be for us.

Suji Desilva: Okay. And then my second question is, can you just explain again the shipments and what the delays, what the dynamic was there? I maybe didn’t catch that on the prepared remarks.

David Wang: Yes, I think in the Q3 we also call or mention about the delay and it’s because of our customer they’re building a plan. And there are certain, I call the plan delay or the installation not enough, either resource or floor plan not fast enough. But anyway, there’s continuing investment going on. So those portion of the delay, as I said, will be definitely delivered in 2024. And that’s also added to our shipment. Those two has been built already. It’s going to also save the cash we spend last year already. So we’ll see that happen. And I would say that also the total shipment we expect in 2024, and there will be quite an increase, we believe even will increase rate higher than their quarter revenue increase, right, in compared to 2023. So that’s another I consider a great year for us in 2024.

Suji Desilva: Okay, that sounds like good momentum. And my last question is around the overall demand environment. I’m trying to understand in China whether the memory market is stabilized and capacity is increasing again across NAND and DRAM. And maybe is someone like CXMT actually progressing to DRAM production versus development effort?

David Wang: Yes, I mean, you can see that CXMT is our third customer in the year 2023, right? So we’re expecting this memory business to continue to grow. And again, other — memory in China is still multi-year expansion. And so we see that as good market for us and also we see that continue to grow.

Suji Desilva: All right. Thanks, guys. Congrats again.

Mark McKechnie: Yes. Thanks, Suji.

David Wang: Thank you.

Operator: One moment for our next question, please. Our next question comes from the line of Charlie Chan with Morgan Stanley. Your line is now open.

Charlie Chan: Thanks for taking my questions. David, Mark, happy Chinese New Year. And Gong Xi Fa Cai and congrats for a very solid 2023 results. So my first question is actually on the full year guidance, because I had the impression that your ACM Shanghai entity, they have a pre-numerary 2024 outlook. Revenue growth more than 30%. I remember you was like 37% Y-on-Y growth. So I calculated your midpoint suggesting the ACMR is growing like 23% Y-on-Y. So what was the discrepancy between your ACM Shanghai entity versus the parent company?

David Wang: Yes. Well, there’s a slight difference. I got revenue recognition rule and we’re using either Chinese GAAP versus U.S. GAAP. So that’s the primary reason show the difference of both, I call the forecast. In general, see that is U.S. GAAP will be first tool take a long time evaluation and after that you can recognize repeat order just on the shipment, right? But in China, GAAP is no matter is new or is a repeat order. You have to really install and basically. you know, kind of initial acceptance by their customer then you can recon revenue. So that slight difference show, I call the revenue difference. In other words, probably you can say China is a forecast mean that is we have a lot of probably new tool and the new customer, right? That will be their quickly can be recognized revenue versus the U.S. recognition rule. So that’s the difference we see there.