ACM Research, Inc. (ACMR) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ACM Research Fiscal Fourth Quarter and Fiscal Year 2024 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. I will now turn the call to Mr. Steven Pelayo, Managing Director of the Blueshirt Group. Steven, please go ahead.

Great. Good day, everyone. Thank you for joining us to discuss the fourth quarter and fiscal year 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. 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, 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 remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. 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 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 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 Slides 14 and 15. Also, unless otherwise noted, the following figures refer to the fourth quarter and full year of 2024 and comparisons are with the fourth quarter and full year of 2023. With that, I'll now turn the call over to David Wang. David?

Thanks, Steven. Hello, everyone, and welcome to ACM Research Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. Before I review the results, I will address recent regulatory updates from the U.S. government. On December 2, the U.S. Department of Commerce added 140 companies to its entity list. Two of our subsidiaries, ACM Shanghai and ACM Korea, and other entities under their structure were added to the entity list. As we have noted, we are one of many that were added, and we are not notified of any specific wrongdoing. To be clear, ACM Research Inc., a U.S. company, we were founded in California in 1998. It is our subsidiary that was added to the entity list and not ACM Research Inc. Move on regarding the operation of ACM Shanghai in Mainland China. The new regulation will make it difficult, if not impossible, for ACM Shanghai to obtain components from the U.S. On that note, we have been working to localize our supply chain for some time. Events of the past few years, including the U.S. restriction of 2022 have made it even more important for ACM Shanghai to localize its supply chain. Thus, we have reduced our U.S.-sourced components to just a small subset. And with our status on Entity List, we are working quickly to complete the transition. The bottom line, we remain committed to supporting our customers and complying with all global regulations. We think the impact on our production is manageable, and we do not expect a significant interruption of our business. Regarding our global customers outside of Mainland China, the new Department of Commerce rule mainly restricted U.S. exports to ACM Shanghai and ACM Korea. They do not directly affect U.S. companies buying tools from us. We are, therefore, confident we can continue our effort to expand our business to global customers. Now on to our business results. Please turn to Slide 3. I'm pleased with our fourth quarter results, which capped with a strong year. For the fourth quarter of 2024, we delivered $223 million in revenue, up 31%. For the 2024 fiscal year, we delivered $782 million in revenue, up 40%. Gross margin was 49.8% for the fourth quarter and 50.4% for the full year. Operating profit increased 46% in the fourth quarter and 63% for the full year. We ended the year with $259 million of net cash and time deposits compared to the $212 million at the end of 2023. For shipments, shipments for the fourth quarter were $264 million, up 88%. Shipments for the full year were $973 million, up 63%. We believe the strong growth reflects ACM's expanding market presence and the momentum gained from the new product cycle. Now I will discuss the key growth drivers, both for the market and specific to ACM Research. Turn to Slide 4 for our product SAM. We now estimate our product portfolio to address the $18 billion global market opportunity. Our current business is primarily driven by 3 major product groups: cleaning, plating, and advanced packaging. We anticipate continued growth in this category and look to incremental revenue contribution from our new products, starting with the Tahoe, SPM furnace, followed by track and PECVD. Third-party sources estimate that global semiconductor WFE will grow by 4% in 2024 to $1.7 billion. Based on this global WFE, we now estimate that our products address a server in the available market or SAM of about $18 billion in total. For Mainland China WFE, industry analysts estimate the market grow by 12% to $38 billion. Our growth rate, 40% revenue, and 63% shipment were much higher than China's WFE growth. We attribute our strength to market share gain from the current product, new product cycle, and new customers. We also had a good execution from our production and service teams. Our success starts with our customers. Please turn to Slide 6. For 2024, we had 4 customers that individually account for 10% or more of our revenue. The Huahong Group was our top customer at 15% of the sales. SMSC was second at 14% and one TC and PXW were third and fourth at 12%. Now I will provide details on products. Please turn to Slide 7. Revenue from single-wafer cleaning, Tahoe, and semi-critical cleaning products grew 43% in 2024 and represented 74% of total revenue. Our growth was driven by a significant increase in the Ultra ECP backside cleaning tool and good growth from our SAS, TEBO tools. We also had a contribution from our Tahoe and TEBO etch tool. Looking ahead, in cleaning, we expect to see several significant product cycles, including high-temperature SPM, Tahoe, and other tools from continued growth in Mainland China. We offer a comprehensive top-to-bottom cleaning portfolio. We estimate the global total available market or TAM for cleaning is close to $6.5 billion, and our product supports more than 90% of all cleaning process steps. If we take $6.5 billion TAM and ACM's $579 million in cleaning revenue for 2024, it puts ACM's global market share of cleaning at about 9%. We believe that our complete portfolio of cleaning tools, including SAS, TEBO, Tahoe, semi-critical SDM, etcher, and others put us in a strong position to take more share in China and the global market. Revenue from ECP, furnace, and other technology grew 46% in 2024 and represented 90% of the total revenue. In the fourth quarter, the segment achieved a record quarterly revenue of more than $50 million, which will contribute to more than $150 million for the year. We continue to see momentum for our plating tool for both front-end and back-end applications. We are excited about the initial response to our new horizontal plating tool for panel-level packaging where we believe our unique approach is opening the door to makers to more global customers. In Q4, we announced that our thermal and plasma encounter ALD furnace tool has achieved product qualification at 2 Mainland China semiconductor customers. Chip makers are increasingly relying on their position of high-quality ultras in film with excellent step coverage. We believe ACM's proprietary ALD furnace design differentiated from the other suppliers and enables us to address challenges facing the advanced 3D structure manufacturing. Our furnace product cycle is also gaining traction with both memory and logic customers. Overall, we had 17 furnace customers in 2024, up from 9 at the end of 2023. We expect the revenue contribution from the furnace to accelerate in 2025 versus a small amount for 2024. Revenue from advanced packaging, which excludes ECP, but includes service and spare parts grew 3% in 2024 and represents 7% of revenue. This category includes a range of packaging tools, including a coater, developer, scrubber, sweeper, wet etcher, and also service and spare parts. We believe ACM is one of the only companies that offer a full set of web tools, cover bleeding tools, and polish tools for advanced packaging. We had a new notable development for this category in 2024, including orders for the 4 wafer-level packaging tools, which are on track to ship to the U.S.A. in the first half of 2025. And we announced 3 panel-level packaging tools, including a vacuum flux cleaning tool for chiplet, a horizontal bleating tool, and a bevel etch tool, which we see as essentially especially relevant for packaging of GPU and high-bandwidth memory HDF. We are making good progress with our new Track and TSCVD platform. Both of these products come with ACM's innovative and differentiated platform design and allow for process flexibility and high throughput. We have a solid list of ongoing demonstrations and evaluations for both Track and TCVD. For Track, we plan to deliver our 300-millimeter WTH in-line beta tool in the middle of 2025. We expect some initial revenue contribution in later 2025 with more in 2026 and beyond. Next, let me provide an update on our production facility. First, on Lingang. Please turn to Slide 8. In the first quarter of 2024, we had a grand opening ceremony for our Lingang production and R&D center. I'm pleased to report that we have begun initial operation and expect the site to play a key role in production development and efficient high-volume manufacturing. We expect most of our production to shift from our Tansa-leased facility to our company-owned Lingang facility by the end of Q2. We are proud of our 2,300 square meters plus 100 clean rooms, which we expect will accelerate our product development speed and in-house demonstration capability. Next, our Oregon facility. Please turn to Slide 9. In October 2024, we completed the purchase of our new 40,000-square-foot Oregon facility. It includes a 5,200-square-foot cleaning room, which will support advanced tool demonstration and R&D. The rest of the space will be for manufacturing for our global customers. We see this as a great opportunity to further expand our customer base in the U.S. Before I review our outlook, I want to share some thoughts regarding our ownership of ACM Shanghai's stock. We are very pleased by the success of the ACM Shanghai team, which has now become a key supplier to the Asia semiconductor industry. ACM Shanghai has also proven to be a great source of capital to us in the form of dividends. In 2023 and '24, as a major shareholder of ACM Shanghai, we received dividends net of tax of RMB 19.2 million and RMB 28.5 million, respectively, and we expect the dividend to continue. In fact, ACM Shanghai has formally announced its intention to pay a dividend of 25% to 30% of net earnings over the next 3 years, subject to normal shareholder approval. We are using dividends to accelerate our global business development. ACM Shanghai stock, which now trades at a $6.3 billion market cap on the Shanghai stock market is also a key strategic asset for us and our global shareholders. In fact, our 81.5% ownership is now worth about RMB 5.2 billion, which is more than 3x ACMR's current market cap of $1.5 billion. This gives us some unique advantages. In 2021, ACM Shanghai raised USD 575 million in IPO, enabling us to scale our business and expand our product portfolio. ACM Shanghai is now in the process of another raising up to USD 600 million to take the company to the next level. I will clarify a few points that might be helpful for the market to evaluate our options. Our 3-year lockup on our ACM Shanghai stock expired last quarter, and we now have additional flexibility to sell shares. We are very comfortable that ACM can sell some shares of ACM Shanghai stock and repatriate the cash back to the U.S. The timing of any sale, of course, would depend on pricing, market conditions and our own cash needs, and other factors. We believe the combination of ACM's world-class technology and customer support team and access to the substantial capital markets make us uniquely positioned to become a world-class global WFE supplier. Now I will provide our outlook for the full year 2025. Please turn to Slide 10. In early January, we introduced our 2025 revenue outlook in the range of $850 million to $950 million. This implies 15% year-over-year growth at the midpoint. We are reiterating this outlook today. I'm pleased to announce today that we have adjusted our gross margin target upwards. We now target a range of 42% to 48% versus the prior range of 40% to 45%. I'm proud of the strong growth our company has achieved since our founding in California in 1998 and the establishment of ACM Shanghai in 2005, we have built a globally competitive business. Our success has been built on innovation and differentiated technology, particularly in cleaning and electroplating, addressing the evolving needs of semiconductor manufacturing. From this foundation, we have expanded our market reach and gained international traction while building strong partnerships with key industrial players. In China, ACM is recognized as a leader in advanced wafer cleaning and front-end electroplating solutions and is preparing for a new product ramp in the furnace, track, and PECVD. Outside China, we are engaging with multiple customers with operations in the U.S., Europe, Korea, Taiwan, and Singapore. The global interest is a broader base across our entire product portfolio from the front-end wafer fab to the back-end advanced packaging, including our innovative cleaning and plating offering for next-generation panel-level packaging. Now let me turn the call over to the CFO, Mark, who will review the details of our fourth quarter results. Mark, please?

Thank you, David. Good day, everyone. Please turn to Slide 11. Unless I noted otherwise, I'll refer to non-GAAP financial measures, which exclude stock-based compensation, unrealized gain, and 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 fourth quarter and full year of 2024, comparisons are with the fourth quarter and full year of 2023. I'll now provide financial highlights. Revenue was $223.5 million for the fourth quarter, up 31.2%. For the full year 2024, revenue was $782.1 million, up 40.2%. Revenue for single-wafer cleaning, Tahoe, and semi-critical cleaning was $155.2 million, up 26.9%. For the full year 2024, this category grew by 43.3% Revenue for ECP from packaging, furnace and other technologies was $51.7 million, up 60.9%. For the full year 2024, this category grew by 46.2% and revenue for advanced packaging, excluding ECP, services, and spares was $16.6 million, up 4.2%. For the full year 2024, this category grew by 3.3%. Total shipments were $264 million for the fourth quarter versus $140 million in Q4 of 2023. For the full year 2024, shipments were $973 million, up 63.1%. Gross margin was 49.8% for the fourth quarter versus 46.8%. For the full year 2024, the gross margin was 50.4% versus 49.8% in 2023. We have updated our long-term business model to a gross margin target range of 42% to 48% versus the prior range of 40% to 45%. We do expect our 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 $58.4 million for the fourth quarter, up 34%. For the full year 2024, operating expenses were $193.4 million, up 25.2%. Revenue grew faster than OpEx for the year, demonstrating the solid operating leverage in our model. We invested in research and development to expand our product line, and we invested in sales and marketing to reach new customers around the world. For 2025, we plan for research and development in the 12% to 13% range, sales and marketing in the 7% to 8% range, and G&A in the 5% to 6% range. Operating income was $52.8 million for the fourth quarter, up 46.4%. Operating margin increased to 23.6% from 21.2%. For the full year 2024, operating margin increased to 25.6% from 22.1%. Income tax expense was $17.3 million for the fourth quarter versus $8.1 million. For the full year 2024, income tax expense was $35 million versus $19.4 million in 2023. For 2025, we expect our effective tax rate in the 12% to 15% range. Net income attributable to ACM Research was $37.7 million for the fourth quarter versus $28.7 million. For the full year 2024, net income attributable to ACM Research was $152.2 million versus $107.4 million in 2023. Net income per diluted share was $0.56 for the fourth quarter versus $0.43. For the full year 2024, net income per diluted share was $2.26 versus $1.63. Our non-GAAP net income excluded $8.8 million in stock-based compensation expense for the fourth quarter and $49.6 million for the full year. For the full year 2025, we expect stock-based compensation to be in the $35 million range. I will now review the selected balance sheet and cash flow items. Cash, cash equivalents, restricted cash, and time deposits were $441.9 million at year-end versus $369.1 million at the end of the third quarter of 2024. Net cash, which excludes the short-term and long-term debt was $259.1 million versus $198.5 million at the end of the third quarter of 2024. Total inventory at year-end was $598.0 million versus $628.7 million at the end of the third quarter of 2024. This included raw materials and work in process, $304.9 million, and finished goods inventory of $293.1 million. Finished goods inventory primarily consists of the first tools under evaluation at our customer sites, together with finished goods located at ACM's facilities. Cash flow from operations was $88 million for the fourth quarter and $152 million for the full year 2024. Capital expenditures were $12.3 million for the fourth quarter, and $85.3 million for the full year 2024. For the full year 2025, we expect to spend about $65 million to $75 million in capital expenditures. That does conclude our prepared remarks. Now let's open up the call for any questions that you may have. Operator, please open up the floor for questions.

[Operator Instructions] Our first question comes from the line of Charles with Needham & Company.

So maybe the first question that you guys reiterated was the fiscal '25 revenue outlook. It's the same outlook you provided in January, at the low end, with 9% year-on-year growth at the high end, and 21% year-on-year growth. Can you provide a little bit of color on what goes into the assumptions of the low end versus the high end? And what are the scenarios? I think in the press release, you did mention that the various spending scenarios by your customers this year are baked into the range of the guidance. I want to get a little bit more color on that.

Okay, Charles. Actually, this prediction of the revenue is really based on last year, our shipments, which is some of them were record revenue this year. Obviously, we can see their customer PO customer and their expansion plan. Probably the moment I can say about Q2, Q3. And there's still some Q4, we cannot see that. So that's why really from the early time of the year, we give this low-end and high-end projection. So a couple of the detailed assumptions there. I cannot too much detail, but anyway, there's a range we put there. So maybe the time goes to the Q2, we're looking for Q4 and that moment may be more clear in Q4, we can readjust to our revenue projection. So that's a typical process we did every year.

And maybe a quick follow-up. It sounds like you're saying you have good visibility at least through the third quarter. This year, it's only like Q4 a little unclear at this point. Is that correct?

Yes. What you say is some Q3 we still maybe add more, right, at the moment still early of the year. But definitely we see the P of Q3. But Q4 was still, I said, not clear. So that we can say maybe the Q2 timeline or end of Q2, we can see that more clearly in the Q4 timeline.

Yes, Charles, and that's pretty normal visibility at this time of the year. We go through our year-end planning process and then come back early in the year and kind of test that. And of course, we took a look at it before we reported here on the quarter. So it's pretty standard visibility going into the year. As David noted, it's based on the POs that we have in hand. It's based on also kind of the forecast of POs that we still would probably get as we move through the year and then the timing of some of the customer acceptances from First Tools last year.

Yes. But on average, our manufacturing time is about 6 months right now, 5 to 6. So that will be the right part of their projection looking at the quarter.

The other question, I think usually before Chinese New Year, there's a little bit of, I would call, information black hole about the outlook for the new year. But now we are coming out of that especially in light of the recent export control by the U.S. and obviously, a few of your customers were added to the entity list. And it's getting a little bit hard to predict what would be the impact of export control because we did see YMTC, which was added in '22, it came back to your 10% customer list, but there is another customer on your 2024 10% customer list that got recently added. So maybe we can get a little bit of sense based on what you're seeing right now, the export control rules, do they have an impact, positive or negative on your customers' spending plan in 2025? And any sort of movement you're seeing at a little bit micro level, customer-to-customer level? If anything you can provide, that would be great.

Well, I mean, this is a very broad question. Real customers are different. And I want to say definitely some customers get an impact because of the list. And for some customers, we still see the expansion. So it's really hard to give you the general description. At this moment, we're also working with the customer to figure out how much impact. We're still in the process of accessing an evaluation of this kind of impact.

So maybe the last question. It looks like the plating furnace product line, you have 3 segments in your reporting that particular segment. has done pretty well and probably growing even faster than the wet-clean product line. I think you just mentioned plating, you become a leading supplier in China, especially for the front end. I was kind of curious like what do you see as the market share of plating especially in the front end versus packaging. Can you give a little bit of color on that front end versus the back end for plating and where the share is? And where do you think the trend is going for ACM?

Yes. I think our market share is about 30%, 30% to 35% and it's actually both in the front end and the back end. It's almost like the same. So we're still in 1/3, 35%, 30%, 35% of the market share in China.

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

Once again, congratulations on a very nice quarter. I was just wondering, a number of semi-equipment firms are projecting strong growth in their AP-related sales for 2025. What are you thinking about in terms of the AP sales you're expecting this year?

The advanced packaging. You're talking about advanced packaging.

I think we do see the advanced packaging growing. And obviously, all this kind of 2.5D and 3D in the puzzle is one thing. And there are certain other, I want to say, advanced packaging going on here. So we see that expansion basically. And I think this year probably will be better than last year in terms of advanced packaging.

Yes, Mark, one thing I'd point out, it's a little tricky because some of our ECP group includes both the front-end and the back-end packaging. And then our advanced packaging group is everything but the ECP. So at some point, we can give some more detail when that becomes a bigger percentage of our overall revenue. But at this point, it's hard to kind of see our back-end packaging group.

Also, I want to add to that is, Mark, is also the panel packaging to start to play. So we do have 3 products in the market. We see that will start contributing to our revenue in 2025, too. So that's another new field or new part of the technology we will welcome.

I was just wondering if you could give us some sort of estimate of how your sales breakdown related to, say, memory, logic, and electric vehicles. What percent of your sales are related to each of those 3 areas?

Yes, Mark, it's tough. We don't generally break that out. I think you can look at our 10% customers and kind of take a guess, right? So we've got 4 of them that were a little over 50% of our business. And so yes, we generally don't look at it by those end markets like that, and we haven't broken them out. We get that request though. So we could look into perhaps updating you on that in the future. But at this point, we don't have a detailed breakdown.

You said that 4 customers accounted for roughly or over 50% of your business. Is that correct?

I think that's right. Yes, it was over 52% for the 4 customers.

[Operator Instructions] And I see there are no further questions in the queue at this time. I will now turn it back to Mr. David Wang for any closing remarks.

Okay. Thank you, operator. Thank you all for participating in today's call and for your support. Before we close, Steven is going to mention our upcoming Investor Relations events. Steven, please?

Great. Thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On March 17, we will present at the 37th Annual ROTH Conference in Dana Point, California. Attendance at the conference is by invitation only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with the management team. With that, this concludes the call, and you may now disconnect. Take care.