ACM Research, Inc.

Good day ladies and gentlemen. Thank you for standing by and welcome to the ACM research fourth quarter and fiscal year 2020 earnings conference call. At this time all participants are in listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder we are recording this call. If you have any objections you may disconnect at this time. Now I will turn the call over to Mr. Gary Delachok, Managing Director of the Blue Shirt Group. Mr. Delachok, please go ahead. Good morning, everyone. Thank you for joining us on today's call to discuss fourth quarter 2020 results. We released results after the U.S. market closed yesterday. 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'll reference during our prepared remarks. On the call with me today are our CEO, Dr. David Long, our CFO, Mark McCagney, and Lisa Fung, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. 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 of different materials. Those risks are described under risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place under 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 revision to these forward-looking statements. Certain of the financial results we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation, a loss relating to the change in fair value of a financial liability, and an unrealized gain 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. With that, let me now turn the call over to David Wong, who will begin with slide three.

David?

Thanks, Gary. Good morning, and I welcome everyone to today's call. 2020 was a very productive year for ACM We faced several challenges, such as the COVID-19 pandemic and trade tensions. We overcame these challenges through hard work and good execution and positive tailwind in China's semiconductor industry. We focused on what we could control. We managed our supply chain. We executed our customer delivers. We expanded capacity. We introduced new products. and we made a great progress with new customers. We also moved forward with our long-term facility plan in Mingdao and completed the deposit for employee housing development. Before getting into detail, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners, and shareholders for their continued support and confidence in ACM research. For the full year, we had a record revenue of $156.6 million, upper 46%, and a record shipments of $182 million, upper 58%. Non-GAAP operating margin was 17.3%, and we entered the year with $71.7 million in cash and additional $28.2 million from all holdings of SMSA stock market shares. Our success started with our customer, who's pinned to the slide here. We have five major front-end customers. Of course, 3D Man, Foundry, and D-Lens, as well as several back-end wafer packaging and assembly customers. Our new customer manufacturer, Power & Analog Devices, They choose ATM technology to optimize their own production capability. We help them achieve the operational excellence needed to compete in today's global semiconductor market. Let me discuss our key customers. I will start with the Shanghai Huali and Huagong Semiconductor, also known as the Huali-Huagong Group. They are leading in advance, founded in China, and our top customer in 2020 at 37% of the total sales. They are a great customer and neighbor with production near our Shanghai headquarters. Shanghai Huali is in the middle of a multi-year capacity expansion, making good progress in the 2018 number. Hualong Semiconductor is adding capacity that is a treating edge node for application. Their major product, a CRS, and power devices. And capacity will be more than 80K per month by end of this year, after from 30K per month at the end of last year. We participate in both projects. We have several first demo systems at Huali for some of our newer product offerings. Next, 1PC. 1PC is the second largest customer. contributing to 27% of the total sales in 2020. We are working closely to support 1TC's 3D mass production run in Wuhan. Public reports say that 1TC scaled its production capacity to 50,000 wafers per month in 2020, and they're expanding to add another 25 to 50K in 2021, and convert from 64 layers to 128 layers. We believe we are YMTC's largest single-vapor water community supplier. AECM tools are being deployed in a significant number of community cells, so we continue to expect strong demand from YMTC as it scares the production capacity in Wuhan and other major facilities in Wuhan. AECM's further largest customer was SMIC, the largest foundry in China. It is 12% of the sales in 2020, upper from single digits in 2019. While ASEAN Shanghai has the flexibility to deliver SMIC, our business level also depends on other U.S. suppliers to get their license to ship their own tool to SMIC. We are well positioned with a range of the tool SMIC, but are factoring in just a small from SMIC in our 2021 outlook. Now let's touch on our other significant customers. I will begin with SK Hynix, the number two global DRAM supplier. SK Hynix was ACM's first major customer, a strong testament to our truly fast cleaning technology and ability to improve production yields. We started with just a few production steps at SK Hynix. Now our tools are used in more than 20 steps as they progress to more advanced modes. SK Hynix was less than 10% of our sales in 2020, down from about 20% in 2019, as expected due to pause in the DLN cycle. SK Hynix implemented several technology upgrades in 2020, and we expect them to return as a 10% customer for 2021 and beyond through technology upgrades and capacity additions. Next, 6MT. A non-China-based entrant to the DRAM industry, we delivered our first SaaS 5 tool to them in the late 2019 and recommend revenue in Q4 of 2020 upon acceptance. They select us for compelling value population, proving ability to improve yields, and a solid technology roadmap. 6MT is in the early stage of its multi-year production plan. We are positioned to participate with Cephs, Cargo, Semi-Critical Cleaning Tools, ECT, and other tools when they scale up in 2021 and beyond. Finally, we have two new Emerald Power IC customers. we delivered multiple first tools in the third quarter, third and fourth quarter of 2020, and recognizing some revenues into it. The first tool, including our semi-critical tools, scrubber, thin wiper, backside cleaning tool, and auto wet bench, a step-through cleaning tool, and ultra-FM furnace tool for airway cleaning process. With this, we have penetrated two of the five key trading edge nodes and the CIS manufacturing chain. I'm happy to see we are very active with all of the remaining three players and expect to receive orders from them this year. We believe these customers alone represent a significant opportunity for HGM. Many of them are still in early or middle stage of multi-year capacity. expansion and are buying just a friction of our product. We think our current customer base alone can support solid growth for years to come as this customer add capacity, use our tool in additional production steps, and buy more ACM products. Innovation will enable us to capture more and more of a large market opportunity. Please turn to slide five. As emerging suppliers, we're focused on delivering advanced technology at competitive cost. We have a strong R&D team in Shanghai and Korea, and one of the largest service teams for SemiCap, including the employees in China. This puts a critical mass of cadence near some of the newest and largest semiconductor projects on the planet. We consider this a great opportunity. It is another stretch to call the next few years and land grab period to expand our product line and scale our business as new major semiconductor products build their, a producer build their business in China. We intend to gain market share by expanding our product line and winning new customer votes in China and around the world. We estimate our current product portfolio address about 5 billion US dollar of the global wafer equipment market. This includes DRAM, 3DNet, foundry, power devices, and analog applications. All community tools address about 2.5 billion, or 80% of a 3 billion plus total wafer community market. It started with our flagships, Slack, Keyboard, and Topo tools. Topo is our semi-critical community tools. Our new product adds another $2.5 billion, including $1.7 billion by our firmers, $20 million by our ECT, and more than $30 million by our stress-free polishing products, vapor manufacturing, and other advanced packaging process equipment, including coder, developer, wet etch, scrubber, and wet PR sweeper. In 2020, we spent 12% of sales, or about $18 million in R&D, after 55% from Tucson Managing Level. That spending enabled us to expand our offering beyond staff and people into the town hall, sending critical tools, ECT, and most recently, furnace products. Our ECT tools are off to a very good start. In 2020, we delivered a handful of our first tools to front-end and back-end packaging customers and had a greater revenue contribution for the year. Our key products, including ECP-AP for advanced packaging and ECD-MAP for balancing copper interconnections, ECP-TSV for through-sitting media for front-end, our secret force is the ability to provide uniform plating and ultra-thin failure for advanced packaging. We have developed a proprietary high-speed copper plating technology with the patent pending to significantly improve copper-pillar plating uniformity. To plate metal film in deep media or through depth larger than 20 microns at high speed and better uniformity, is a major challenge in the long 3D plating application today. Historically, copper plating for PILA at high plating rates yielded a mass transfer limitation that reduced separation rate and generated uneven top profile of the PILA. Our new high speed plating technology solved the mass transfer challenge while achieving a better PILA top profile and delivering the best height uniformity less than 3%, as well as the high throughput. This ECG IEP with high speed plating rate, together with our SAP copper polishing tool, will become major winning products in coming 3D advanced packages. We are also excited about our further opportunities in 2020. We've delivered two poster tools to two customers. and we plan to deliver several more in the first quarter this year. Furnace has been jointly developed by our Korean and Shanghai team. Both teams have worked seamlessly to solve their alpha and beta tool issues, and tuning process to meet customer requirements. We have made significant progress in the LPSAVD process, including HDL, sitting in I-train, and the high-vaccine alley of the process. Our teams continue to develop non-dosed and dozed oil and high-temperature oxidation process. Our next step is to develop batch atomic layer separation, ALD, process, which is the most challenging and promising product for advanced manufacturing nodes. We have successfully implemented our multiple product strategy and expanding our product portfolio from web products as LifeClinic, ECP, and SFP to try products as vertical farmers, which make our first entry to try products and more to come in the near future. For 2021, to prepare for new opportunities ahead, we plan to accelerate our R&D to about 14% of our sales. Our goal is to double the total market address by our products from $5 billion today to more than $10 billion. Where it is too early to offer details, I can see that our team has begun work on several new major products that can get us close to the $10 billion addressable market goal in the next couple of years. Next, I will comment on our efforts to win major first tier of new customers. Our investments in our global sales team are making steady progress. We hired a US VP of sales in April of 2020, as well as several other key hires. During the year, we delivered our very first tool in the U.S. to the lab of the equipment player that needed battery cleaning for its own process. Thanks to the great execution of the service team, the customer formally accepted the tool and rebooked the revenue in Q4. The team is actively building a sales pipeline line with regular engagements such as advanced technology discussions in the U.S. and Taiwan players. We are confident that with CESS, Kibo, Tahoe, and high-speed carbon-plating UCB-AP, as well as SRT, we can secure one or more major first-tier customers in 2021. To fulfill our growth ambitions, where we will need a capacity. Let me upgrade our progress. Please turn to slide six. Our original facility in Shanghai remains the headquarter in Shanghai. It includes our R&D, SG&A, and prototyping and production of new products. We started production at our second factory in China during September of 2018. and added a second floor for production in Q3 2020. We now have a $303 million of annual revenue capacity as it turns out. If needed, we can further expand to more than $5 million of revenue capacity by leasing additional space. Our new minimum facility will include production and R&D with a planned 1 million square feet of floor space. we will have the ability to increase our production capacity to 1.5 billion. During 2020, we purchased 50-year land rights in Lingdong. We expect additional architectural and design work in the first half of 2021, with initial production expected in later 2022. Centuries of Lingdong operations in low-cost employee offices were not common in the U.S. It is a standard of practice for large companies in China, particularly in Shanghai. We offer housing to attract and retain key and experienced employees. We train many of our key engineers and managers for more than a decade. We need to keep in these key employees to secure our future growth and technology development. During 2020, we deposited $40 million towards the purchasing of the 162 housing units. We paid for these over half of the month from ACM Shanghai's cash balance. We financed the other half with a 10-year loan facility. Before I provide our 2021 outlook, let's discuss the status of the stock market IPO of ACM Shanghai. Progress is steady, but slow than expected. soon after ACM Shanghai application was approved by the Shanghai Stock Exchange Commission or at the VC on September 30, 2020, event in the US caused a delay in IPO. It is stated that the short-term report issued on October 8, 2020, followed by a cross-action lawsuit filed on December 21, 2020. We have previously described our disagreement with the short seller report, and we therefore believe there's no substance to the lawsuit, which is largely based on the short seller report. The SSE team, which is not familiar with this kind of a report and a lawsuit, want to better understand the U.S. legal process. As we have also previously described, we responded with a point-by-point verification report to the short seller report. and that of the report was accepted by SEC on December 11, 2020, and released publicly in both China and the US. Before our registration application could be filed with the China Security Regulatory Commission or CFRC, however, the civil suit was filed and we learned that SEC would again require additional information. Our team is now in the process of providing a secondary response report to SSEC to explain the cross-action lawsuit. We are confident that we will go over this hurdle and complete our ideal. But SSEC does not provide us with a timetable for its review and will enable us to predict the precise timing. Now let's move to our 2021 outlook on slide seven. Our guidance reflects optimism about our growth prospects for 2021. We call that we offer preliminary guidance in early January, which is unchanged. We expect the revenue to be in the range of $205 million, $203 million. We present 39% annual growth at middle point. 2021 is based on several key assumptions. First, the global COVID-19 situation improves in the coming months. Second, U.S.-China trade policy is stabilized. Third, a range of spending scenarios for the production and vending of key customers. Fourth, variance in the trajectory of demand recovery. And finally, a range of outcomes for the timing of customer acceptance of the first tool. Our results and our look demonstrate a successful execution of our strategy. Our strong growth is providing the capability to accelerate our R&D spending in new products. We are building our global sales and marketing resource to penetrate new customers in new regions. And we are scaling production capacity to support our long-term growth plan. We are increasing operation spending to take advantage of the growth opportunity ahead. Our mission remains to become a major instrument supplier to the global semiconductor industry. I will now send a call over to Mark to discuss the financial results in more detail.