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

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research First Quarter 2025 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. Now, I will turn the call over to Mr. Steven Pelayo, Managing Director of The Blueshirt Group. Steven, please go ahead.

Good day, everyone. Thank you for joining us to discuss first quarter 2025 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. 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. Certain of the financial results that we provide on this call will be on a non-GAAP basis, which includes stock-based compensation -- pardon me, 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 to Slide 13. Also, unless otherwise noted, the following figures refer to the first quarter of 2025 and comparisons are with the first quarter of 2024. I will now turn the call over to David Wang. David?

Thanks, Steven. Hello, everyone, and welcome to ACM Research First Quarter Earnings Conference Call. We have just completed another important quarter, not only in terms of our performance, but also in how we are advancing our position in this global semiconductor industry. Before I review the results, I would like to highlight a few recent developments and reflect the momentum we are building and the direction we are heading. We were pleased to see ACM Research recently appeared on the list of the top 20 global semiconductor equipment company for 2024 as published by a leading third-party market research firm. That recognition reflects the steady progress we have made over the year and the growing impact of our innovative products. In China, we estimate our market share in both wafer cleaning and plating reached more than 25%, which translates to more than 9% global for each product category. This speaks to the trust we have earned from leading customers and also the strength of our product portfolio. Our panel-level packaging tool received the 3D InCites Technology Enablement Award. As a reminder, panel-level packaging is the next-generation solutions for high-performance AI chip packaging. This award is yet another great validation of ACM commitment to delivering innovative and enabling technology to our customers. At the same time, we're all aware that global trade environment is shifting. With new tariffs and evolving policies, we are operating in a more complex and less predictable environment. In this new period, we think the strategy we set forth many years ago develop world-class tools, establish R&D and production in key countries where major semiconductor customers are located, and focused sales effort on the global market becomes even more important for our future success. ACM is a U.S. company with deep operations strength in Asia. We're in a unique position. We have built a successful business in Asia by delivering world-class tool. As a multi-product company, we're expanding our tool offering to better support our customer in Asia. We are now taking important step to expanding our business into global market. In the U.S., we are investing in Oregon facility, starting with the Class 100 clean room for wafer demo and R&D activities. And we are laying the groundwork for initial production capacity in our Oregon facility. We currently believe this is the best way to reduce tariff uncertainty for the U.S. customer, and it is also a good business to establish production close to the customer. We believe that ACM's position as the only U.S. company with a full top to bottom cleaning product line, combined with technology lab and the commitment to production in Oregon put us in a good position to take on the global market. Now, onto our business results. Please turn to Slide 3. For the first quarter of 2025, we delivered revenue of $172 million, up 13% year-over-year. Shipments were $157 million, down 36%. We know that shipment in Q1 of 2024 was especially strong due to customer demand. So this was another -- this was a tough comparison. We anticipate a return to year-over-year shipment growth in the second quarter. Gross margin was 48.2%, exceeding our targeted range of 42% to 48%. We ended the quarter with a net cash of $271 million, up from $259 million at the year-end 2024. Now I will provide detail on product. Please turn to Slide 4. Revenue from single-wafer cleaning, Tahoe and semi-critical cleaning tools grew 18% and represented 75% of the total revenue. Growth was led by strong demand for our SAPS and TEBO platform as well as continued momentum for Ultra ECP backside cleaning tool. In Q1, we qualified our high -temperature SPM tool with a leading logic customer in China and achieved customer acceptance for our backend bevel etch tool from a U.S. customer. Looking ahead, in Cleaning, we expect to see strong product cycle across high-temperature SPM, Tahoe and other cleaning segments. We believe our top to bottom cleaning portfolio put us in a strong position to continue gaining share both in China and expanding the global market. Revenue from ECP, Furnace & Other technology grew 7% and represented 16% of total revenue. We saw strong momentum in ECP tool for advanced packaging, and we are excited about their initial response to our new Ultra ECP ap-p tool. As mentioned before, ACM Ultra ECP ap-p panel level plating tool received the 2025 3D InCites Technology Enablement Award in the United States. We believe ACM is the first and only supplier to offer rotating horizontal plating approach for the panel-level packaging. The industry is now aggressively migrating from wafer-level packaging to panel-level packaging as one of the leading solutions for the next generation of AI chips. The reason is simple, you get a better utilization with a square panel versus a circular wafer. As a result, we are now experiencing a lot of interest from several major players in the industry. This product highlights ACM technologies leadership in both front-end processing and advanced packaging applications. We believe this will allow us to play a key role as global industry demand innovations to support even evolving semiconductor requirements for AI. We further -- our furnace product continued to gain traction. Our view is that market is increasingly demanding high-temperature annealing solution, particularly for power semiconductor IGBT devices. Our Ultra Fn vertical furnace tool is a proprietary quartz-based design that reach temperature of up to 1,250 degrees C without distorting the wafer surface. We believe no other supplier currently achieved this temperature level in a vertical platform, and this is yet another good example of ACM technology leadership. We expect revenue contribution from our furnace product line, including LPCVD, Oxidation, and ALD to accelerate meaningfully in 2025, expanding from a relatively small base in 2024. Revenue from Advanced Packaging, which excludes ECP, but including service and spare was down 10.5% and representing 9% of revenue. We are making good progress with the new Track and PECVD platforms. Both of these products come with ACM innovative and differentiated platform designed that allow for process flexibility and high throughput. We had a solid list of ongoing demonstration and evaluation for both Track and PECVD. For Track, we plan to deliver our 300 WPH in-line KrF beta tool in middle 2025. For our new platform, Track and PECVD, we expect some initial revenue contribution in 2025 with more in 2026 and beyond. To wrap up; for the product, we have been on a strong growth path for the past 5 years with new products, including Tahoe, SPM, and furnace in 2025, followed by our panel-level packaging tools, Track and PECVD in 2026 and beyond. We remain committed to a high-growth model for the next 5 years. As a reminder, our $3 billion long-term revenue target anticipate $1.5 billion from China and $1.5 billion from the global market. Next, let me provide an update on our production facility. First is Lingang. Please turn to Slide 8. Our state-of -the-art Lingang production and R&D Center is nearly completed. The site including 2 production buildings with the first now in production and a second available for future expansion. Each of the 2-production building can support up to $1.5 billion of the annual production capacity. Combined, we believe we can eventually support $3 billion of the production at Lingang. Next, our Oregon facility. Please turn to Slide 8 (sic) [ Slide 9 ]. As I mentioned before, we are investing in our U.S. footprint. Our Oregon facility is 40,000 square feet. We are building out a demo lab and a clean room and plan to add initial manufacturing to support our global customers. Now I will provide our outlook for the full year 2025. Please turn to Slide 10. We are maintaining our 2025 revenue outlook in the range of $850 million to $950 million. This implies a 15% year-over-year growth at the midpoint. In closing, our focus remains on delivering differentiated enabling technology that will solve our global customers' most critical process challenges. Now, let me turn the call over to the CFO, Mark, who will review details of our first quarter results. Mark, please?

Thank you, David, and 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. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Also, unless otherwise noted, following figures refer to the first quarter of 2025 and comparisons are with the first quarter of 2024. I will now provide financial highlights. Revenue was $172.3 million, up 13.2%. Total shipments were $157 million versus $245 million in Q1 of 2024 and $264 million in Q4 of 2024. As David noted, shipments in the first quarter of 2024 were especially strong during customer demands, so this was a tough year-on-year compare. We also had some pull-ins in from the fourth quarter of last year, making for a tough quarter-on-quarter compare. For reference, combined total shipments for the fourth quarter of 2024 and the first quarter of 2025 still increased by 8.9% versus the prior year periods. We do anticipate a return to year-over-year shipment growth in the second quarter. Gross margin was 48.2% versus 52.5%. This exceeded our long-term business model target range of 42% to 48%. We do expect gross margin to vary from period to period due to a variety of factors, including sales, volume, product mix and currency impacts. Operating expenses were $47.5 million, up 18.4%. For 2025, we plan for R&D in the 13% to 14% of revenue range, sales and marketing in the 7% range and G&A in the 5% to 6% range. Operating income was $35.6 million, down 10.6%. Operating margin was 20.7% versus 26.2%. Income tax expense was $2.2 million versus $4.4 million. For 2025, we expect our effective tax rate in the 10% to 15% range. Net income attributable to ACM Research was $31.3 million versus $34.6 million. Net income per diluted share was $0.46 versus $0.52. Our non-GAAP net income excluded $9.8 million in stock-based compensation expense for the first quarter. I'll now review selected balance sheet and cash flow items. Cash, cash equivalents, restricted cash and time deposits were $498.4 million at the end of the first quarter versus $441.9 million at the end of last year. Net cash, which excludes short-term and long-term debt was $271 million, up from $259 million at the year-end 2024. Total inventory was $609.6 million versus $598.0 million at year-end 2024. This included raw materials and work-in-process of $310.8 million, finished goods inventory of $298.8 million. Finished goods inventory primarily consists of first tools under evaluation at our customer sites, along with finished goods located at ACM's facilities. Cash flow from operations was a positive $5.3 million versus a negative $9 million in the year ago quarter. Capital expenditures were $17.1 million versus $26.1 million in the year ago quarter. For the full year 2025, we expect to spend about $70 million in capital expenditures. That concludes our prepared remarks. Let's open the call for any questions that you may have. Operator, please go ahead.

[Operator Instructions] Our first question is from Charles Shi with Needham & Company.

My first question, I do want to ask you guys about shipment figures. We understand, yes, this is a very lumpy metric. You can't really look at it on a quarter-to-quarter basis. But I think 1 quarter ago, management said for the full year shipment, you're expecting shipment growth over last year's level. Given the pulling effect from March into December last year, I found that it's probably pretty a high bar for you to get the full year shipment growth, meaning you probably need to ship roughly speaking, $270 million per quarter for the next 3 quarters. I did hear in the prepared remarks; management is committed to Q2 shipment year-on-year growth. But any thoughts on the full year shipment, especially compared with the last year's shipment?

Sure. Charles, and actually the last year shipment is really, I mean, extremely high, right? We increased -- compared to 2023, we increased more than 60%. And so that high number, that put the pressure this year. But anyway, I answer your question directly, we're still expecting this year's shipment go over the last year's shipment and probably were not as high as last year, right? So that's the answer to your question.

Charles, let me clarify that. So yes, shipments, we expect to grow in 2025, but the growth rate of shipments, we're not necessarily saying that the growth rate of shipments will be higher than the growth rate of revenue for this year.

Got it. Got it. Got it. Okay. That's helpful color. Higher in shipment dollars compared with last year in terms of a gross percentage, fells like you are you're saying it's lower than last year, probably lower than this year's revenue growth, but still positive direction.

That's right.

Still growing. Yes, still growing.

Maybe a question on the tariffs. I know you probably don't have a lot of content imports from the U.S. But since China does put pretty high tariffs on the U.S. imports, wonder if there's any impact on the profitability-wise or anything that could cause some issues for you guys going forward?

Okay. You mean it for ACM, right? That's your point or for our...

ACM Shanghai. Yes. Yes.

Okay. Well, again, since this -- whatever is [indiscernible] right, in our tool. And so now we're located third parties, I mean, either in a third country, right. Also including some made in China parts. And so we're -- I think this import from U.S. parts or tariffs to China, I mean, not impact us. I said we're going to spend more of our, I call it, buy more of our parts locally and also buy third-party countries products, right? And so I think the impact for us is pretty minimized. But might impact our customer, right. That's a different question.

Yes, yes, yes. Maybe the last question I have. In terms of 2026, I know it's way too early for you guys to really talk about '26. Any initial thoughts there in terms of your growth, in terms of the overall market growth? And any color would be helpful. At this point, I know it's early, but that's our job. We want to push you to give us a little more.

Sure, sure, Charles. And actually, as we stated maybe a couple of quarters again before is China growth of the WFE market in the last 5 years is pretty good, right? And so we think 2025 getting into the plateau, right, this kind of plateau stage. I mean, at this moment, it's too early to say '26. Even some people say this year, down maybe 20% or 10%, right? However, we look into our revenue, our customers talking to us, they continue spending and -- so our revenue look at -- I mean, our shipment, look at all order, PO, we are filled through Q2, Q3 and still something we need to fill Q4, but also to see some shipment will come in Q1 of next year. So, our growth strategy is, even say, China market is flattened or is a plateau, and we'll still continuing to gain market share, and because of our cleaning, copper plating and also new product like furnace. I just mentioned we have this ultra-high-temperature [indiscernible] come out, a lot of potential IGBT application in China that demand high-temperature neo furnace, right, 1,250 degree, it's a really jumping call it temperature we can do also without the distorting of the surface structure. So that's going to be the continuous innovation product driving our growth. Further, I want to say our panel products that we mentioned today is another bigger, I call growing for international market. And also, we see some domestic market, too. And plus, we have further -- other furnace in the development and they are PECVD and the Track, especially Track, we got probably middle of this year, we're shipping our beta tool KrF line 300 WPH, right, to one of the customer. So, I want to say our continued momentum to have a PECVD and Track and furnace join our revenue stream. So we're still very high confidence. We're still growing and this market -- our market share in China. So we still have a high confidence as we execute our business strategy, qualify our new product, I'm still looking at the next 5 years, high growth.

Maybe can I squeeze in one more since you mentioned about good number of tractions on the new products.

Yes, please, Charles. Yes.

Yes. Yes. Yes. So, there -- at SEMICON China, there has been a lot more product announcements from your peers in China. And it appears to me the domestic Chinese semi cap companies are -- looks like they're coming after each other's market. And there's kind of heightened domestic competition there. And we definitely are hearing rumors that there seems to be a likely consolidation for the Chinese semi equipment sector coming up. So, wonder if you have any thoughts there and where does ACM Shanghai stand in terms of domestic competition and potential consolidation with your peers?

Okay. Well, let's talk about competition first, right? I think ACM today, we got a full product, right, cleaning tool and top to bottom. Basically, we can supply almost 90%, 95% process application, for the memory or for the logic. So, we have a very strong position in cleaning, right? Plus same thing in copper plating, we cover almost all the copper plating products, like damascene and TSV, advanced packaging, this I've got III-V compound semiconductors and also panel level packaging. So we have a very strong position for those portions. And more important, I want to say that is ACM has real innovation technology, right? And the local Chinese customer, they really demand the advanced technology product. They're not only say, by pricing, okay? So, in other sense, we're not too much worried about the local peer competing the price with us. As I said again, right, this is a real technology game or technology winning game, not only by pricing. And so, we feel our innovation product, IP protection can avoid anybody copying our tool in China. And that's really our strong position because our tool never copy anybody's tool. If we start copying anybody else, then they can copy us, right? We have nothing to say. But now actually, in the last 20 years, we're really innovation and IP protection. We have a very strong confidence. No any peer in China can copy our tool. We have very strong footprint in our technology. So that's how strong. The next thing you talk about consolidation. Yes, I think it's going to happen, right? This market happening in the U.S., in Japan and probably in Europe. As the industry moving forward, a lot of small companies probably have to be merged with the big guy. And so, I mean, we see that happen, and we love to see that happen. And so -- ACM was still very strong in the market. And this moment, I said that we have a lot of organic growth with our new product. We can innovate in the product we're doing ourselves. So, probably we're not trying to combine or merge other company to grow business. At this moment, most important, we're focused on our own technology development. Our portfolio has a lot of revenue for us to gain the market share. So that's maybe our position. And Mark, anything you want to add on that?

Yes. No, I think, Charles, you brought up a good point. And it's something that we consider a lot. When you think about consolidation, big picture, we have pretty aggressive revenue targets, obviously. We talked about $1.5 billion in China. And that's assuming very low market share for some of our newer platforms. If you kind of step back and think about, okay, there will be some consolidation, say China is a $30 billion or $40 billion WFE. The top 10 players are going to be $3 billion to $4 billion a piece. We feel pretty confident we can grow to those levels organically, I think, is the point that David and the team are really focused on doing. So it's -- we don't disagree. We're seeing some of the additional entrants and folks going after kind of trying to get in there with a couple of products. But we have a big services team, great footprint across all of our customer base. But at the end of the day we have a really strong IP that we think is important to continue to drive our business in China, and then it's going to help open the doors globally.

[Operator Instructions] Our next question comes from Kieran Haldane with Surge Equity Research.

We cannot hear your voice.

Yes.

Maybe you're on speaker.

All right. Thank you. Seeing no more questions in the queue at this time I will turn the call back to David Wang for closing remarks.

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

Thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On June 25, we will present at the 15th Annual ROTH London Conference at the Four Seasons Park Lane, London. 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. This concludes the call, and you may now disconnect. Take care.