ACM Research, Inc. (NASDAQ:ACMR) Q1 2024 Earnings Call Transcript May 8, 2024
ACM Research, Inc. 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 First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question 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 speakers today, Steve Pelayo, Managing Director of The Blueshirt Group. Please go ahead.
Steven Pelayo: Good day, everyone. Thank you for joining us to discuss first quarter 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, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, our CFO of our operating subsidiary ACM Shanghai. Before 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 SEC. 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 to Slide 12.
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 the first quarter 2024 earnings conference call. Please turn to Slide 3. I’m pleased with our results, solid start to the year for the first quarter. Revenue was $152.2 million, up 105.0% profitability was good and gross margin of 52.5% and operating margin of 26.2%, and we ended the quarter with just over $288 million of cash and time deposits. Shipments for the first quarter were $245 million, up 175%. As expected, first quarter shipments were higher due to delivery of our finished goods that were not shipped in the fourth quarter of last year. And we also had an exclusion from our production team during the Lunar New Year holiday period. I will now provide the detail on products.
Please turn to Slide 4. Revenue from the single wafer cleaning Tahoe and a semi-critical cleaning product grow 199% in Q1 and represent 72% of the total revenue. ACM offers what we believe is the industry’s most comprehensive cleaning portfolio. We support nearly 90% of all cleaning process SAPS for memory and logic devices. 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 competitors. At the lower end, our semi critical tools including auto bench have trading incremental growth for our cleaning category over the past two years. We have recently made progress in SPM market which we believe was resulting sheer gain and growth in our cleaning business starting this year.
Let me provide more detail. SPM stands for sulfuric acid peroxide mixing. These SAPS are normally used to clean wafer after photoresist removal process and post CMP cleaning. We estimate the total available market for the SAM of our SPM tool is 25% to 30% of the total front-end cleaning market. Today, SPM has been a small contribution to our business. Our SPM tools including, Tahoe, low temperature single wafer SPM and now our high temperature single wafer SPM tools. Here now we believe there had been only one major supplier of high temperature single wafer SPM tools. Our engineering team has recently made their greater technical progress with our high temperature tool and we believe ACM can now participate as an alternative supplier. This is especially important as we believe our customers generally prefer One Stop Shop for all their SPM cleaning SAPS s.
With the high temperature SPM tool, we believe ACM now has a full product line to meet our customers’ requirements. Additionally, Tahoe has been qualified for production by multiple customers and is beginning a ramping space with a substantial number of orders planned for delivery in 2024. The enhancements have been made to this performance allowing the tool to match particularly more efficiency comparable to the single wafer process, while reducing sulfuric usage by 50% to 70%. We now expect a meaningful ramp of SPM tools this year as we begin volume delivery across the number of key customers. Finish up on cleaning, we also expect our bevel etcher cleaning tool to contribute meaningful revenue in 2024 and we are on track to complete evaluation of a single critical CO2 dry cleaning tool this year for revenue in 2025.
Revenue from ECP furnace and other technology declined 3% in Q1 and represent a 70% of the total revenue. As mentioned last quarter, we hit an important milestone for this category in 2023 with more than $100 million in revenue. The year-over-year revenue decline is primarily due to quarterly fluctuations. In fact, we shipped 3x more ECP tools in Q1 ‘24 versus the same period last year. And we expect the revenue growth for this category for the full year. As noted the in the prior calls, we believe the furnace product cycle is perhaps a year and so behind ECP. We have a brand – broader footprint of customer activities with more than a handful first tool currently under evaluation and multiple customers. We are optimistic this will be resulting qualification and follow-on orders in the coming quarters.
Revenue from advanced packaging which, exclude ECP, but including service and spare parts grew 53.2% in Q1 and represent 11% of the total revenue. This category including a range of packaging tools such as the coder, developer, scrubber, PR stripper and wet etchers and also service and spare parts. And we continue to explore new products and technology to participate in the next-generation of advanced packaging and we believe ACM is one of the only company that offer full set of wet tool, have a polishing tool and copper plating tool for advanced packaging. In Q1, we delivered our ULTRA C v Vacuum Cleaning Tool for major customers to me that the flux removal require requirement for chiplets and other advanced 3D packaging structures. Today we also introduced the Frame Wafer Cleaning Tool.
This tool is designed for post post-debonding wafer cleaning that enable nearly 100% recycle solvent and attrition [Ph]. We have a successfully completed the installation and the qualification of first tool with a key customer. Finishing up on product, we are making good progress with our Track and PECVD platform. We believe our advisory technology producing both tools for success for Mainland China and also global customers. We are engaged with multiple customers that we expect there is substantial growth progress in product development and evaluation this year with revenue in 2025 and beyond. Now move on to our customer, please turn to Slide 7. In China, we believe we have a leading position in cleaning. We have become a multiple product company with a competitive product in a market for plating and furnace.
And we have a solid evaluation pipeline for Track and PECVD. Ourselves and the service team are now driving deeper adoption of our products across our customer base. Our growth is also being driven by new entrants. On the international front, we plan to deliver ULTRA C v backside cleaning and a bevel etcher tool in the second quarter of 2024 to a large US manufacturer that qualify as the first SAP cleaning tool for revenue last year. This demonstrates a deepening relationship which we believe can lead to production orders across multiple product lines. Moreover, ACM brand and the reputation are gaining recognition among other US chip makers with new engagement and the potential opportunity to penetrate their global manufacturer sites. We recently hired additional seasonal marketing and sales professionals who bring establishing their relationship with key US semiconductor players.
In Europe, we install our first ever evaluation tool, the ULTRA C SAPS V cleaning tool at a major global semiconductor manufacturer in the fourth quarter last year. The initial feedback has been positive and we are optimistic that the volume production order possible by middle of the year. We think Korea we see opportunity with SK Hynix, high bandwidth memory HDM product. We see potential gains with our SAPS cleaning tool for high aspirational vehicles as well as ultra ECP for TSV applications. To support growth, we made a progress in our facility expending in China and other regions. Please turn to Slide 8. In China, construction of our Lingang production R&D center is nearly complete. We expect the production later this year. In Korea, we are making progress with key customers, we believe a strong commitment to Korea can improve our relationship with key Korean customers.
Our resource in Korea can also provide another basis to supporting international customer in the US, Europe and other parts of Asia. We recently hired a new leader to run our Korea operations, David Kim. He is a long-time veteran of SK Hynix, we are optimistic his experience and relationship will help adoption our technology and accelerate our business in the region. We continue to invest in our Oregon site to add to our service, support and demonstration capability for R&D and customer activity in the US and Europe. I would now provide our outlook. Please turn to Slide 9. We believe WFE spending in China will remain solid as the country continues on its goal to match its production capacity with the end-market consumption. We are focused on gaining market share in China, new product introduction and expanding our business to new customers in the USA, Korea, Europe and other Asia markets.
We are reaffirming our 2024 revenue outlook to be in the range of $650 to $725 million. This implies ‘23 year-over-year growth at the middle point, we expect that our full year revenue growth for 2024 to outpace both the China and global WFE growing rates. Now let me turn the call over to our CFO Mark, will review details of our first quarter results? Mark please.
Mark McKechnie : Thank you, David, and good day, everyone. Please turn to Slide 11. Unless I note otherwise I’ll refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized gain and loss on short-term investments. Reconciliation of these non-GAAP measures comparable to GAAP measures is included in our earnings release. Unless otherwise noted, the following figures refer to the first quarter of 2024 and comparisons are with the first quarter of 2023. I will now provide financial highlights for the first quarter of 2024. Revenue was $152.2 million for the first quarter, up 105%. Revenue for single wafer cleaning Tahoe and semi-critical cleaning was $109.5 million, up 199%. Revenue for ECP, furnace and other technologies was $25.8 million, down 3%.
As David noted, we anticipate good growth for the full year 2024 in this category. Revenue for advanced packaging, excluding ECP services and spares was $16.9 million, up $53.2%. Total shipments were $245 million for the first quarter, up 175%. Gross margin was 52.5% versus 54%. This exceeded our normal expected range of 40% to 45%. For the full year, we now expect gross margins to fall in the upper end of our target range. We do continue to expect gross margin to vary from period-to-period due to a variety of factors such as sales volumes, product mix and currency impacts. Operating expenses were $40.1 million for the first quarter, up from $29.2 million. R&D was $19.4 million versus $13.3 million. The year-over-year increase reflects additional personnel and other expenses to support our product development pipeline, the decline versus Q4 ’23 was primarily due to reduced spending on internal R&D development tools.
Sales and marketing was $11.1 million versus $8.9 million and G&A was $9.5 million versus $6.9 million. For 2024, we plan for R&D expenses in the 13% to 15% range. Sales and marketing in the 7% to 8% percent range and G&A in the 5% to 6% range. Operating income was $39.8 million for the first quarter, up from $10.9 million. Operating margin was 26.2%, up from 14.7%. We recorded a realized gain of $0.3 million for the first quarter from the sale of short-term investments. Recall that realized gains are included in non-GAAP earnings. Income tax expense was $4.4 million for the first quarter versus $2.9 million. For the full year, we plan for an effective tax rate on non-GAAP pre-tax income in the 15% to 20% range. Net income attributable to ACM Research was $34.6 million for the first quarter, up from $9.9 million.
Net income per diluted share was 52 point – sorry net income per diluted share was $0.52 for the first quarter versus $0.15. Our non-GAAP net income excludes $14.6 million or $0.22 per share in stock-based compensation expense. This reflects a full quarter impact of the significant grant of ACM Shanghai shares made in the third quarter of last year, in addition to our normal ACM Research grants. This was the first major grant by our subsidiary since the 2021 star market IPO. Our management team considers the grant as a critical differentiator to attract new talent for new product development and to retain key employees. I will now review selected balance sheet items. Cash, cash equivalents, restricted cash and time deposits were $288.3 million versus $304.5 million at the end of the last quarter.
Total inventory was $581.1 million versus $545.4 million at the end of last quarter. This includes raw materials and work in progress which totals $318.2 million and finished goods inventory of $262.9 million. Finished goods inventory mainly includes first tools and evaluation tools at our customers and also includes finished goods at ACM’s facilities. Capital expenditures were $25.4 million. Or the full year, we expect to spend about $100 million in capital expenditures. This primarily includes continued investments in our Lingang facilities remodeling for our new headquarters for ACM Shanghai and our investments in Korea and the US and some fixed asset expenditures. 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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