ACM Research, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ACM Research Second Quarter 2021 Earnings Conference Call. Currently, all participants are in a 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 today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Gary Dvorak, Managing Director of BlueShirt Group. Mr. Dvorak, please go ahead.

Thank you and good morning, everyone. Good evening in China. Thank you for joining us on today's call to discuss second quarter 2021 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 CDO, Dr. David Wong, our CFO, Mark McCagney, and Lisa Fong, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. 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 in this call will be on a non-GAAP basis, which excludes stock-based compensation, a loss relating to a 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 Dr. Kim Wong. We'll begin with slide three. David?

Thank you, Gary. Good day and welcome to today's call. We had another productive quarter with solid financial results. We delivered record revenue and shipment with good profitability. Second quarter results reflect ACM growing customer base, technology leadership, expanding product line, and increased production scale. Revenue grew to $54 million. upper 38% year-over-year. Sharements were 82 million, upper from 45 million in the second quarter of 2020. We deliver good balance of growth and profitability with a 40.5 growth margin and 10.4 operating margin. We are committed to drive profitable growth as we increase our investments. in R&D to drive innovation, further strengthen our existing product portfolio, and grow our addressable market with new products. On the bottom line, we reported $0.19 of net income per dilute share, compared to $0.29 in the same period last year. We ended the quarter with $70 million of cash. In addition, we hold the SMIC stock market share worth $31 million as of quarter end. I will now discuss the recent operational highlights on slide three. First, our Q2 revenue growth was a broad base, driving by current and new products and current and new customers. Our wet cleaning and other front-end process tools represent 85% of total sales in Q2. We had a good growth from our flagship SAP product with an incremental contribution from our semi-critical tools. Advanced packaging, other products, and the service and spell grow significantly to 15% of sales versus about 3% last year. The strong growth of this group was driven by advanced packaging tools, including WeatherEdger, Stripper, Developer, and culture and a big increase in our service and business. This first-generation semi-critical and advanced packaging tool accelerated our revenue growth and further strengthened our position as a leader supplier in the China semiconductor industry. The higher mixing of this product, however, partially dilutes our growth margin during this introduction stage. We enter this new market segment. to capture the strong demand from our China-based customer and to deepen the mold that insulates our flagship product from competitors. In cleaning, our newer semi-critical tool extends ACM's flagship steps, TiVo and Tahoe products to cover more than 80% of the total cleaning market opportunity. In advanced packaging, our newer ECP-AP product line extends our current portfolio with highly differentiated products. Put it all together, we remain committed to our 40-45% corporate gross margin target. As a part of our normal product management, we expect improvement in gross margin for our semi-critical and advanced packaging tool. This will come from typing feature content as we early model and build a range of options for customer evaluation. reduction in later generation models. We also expect a cost benefit from volume production. Meanwhile, gross margins for our flagship cleaning product remain consistent with the past period, which we expect to continue. ACM's strategy is to enter a market with advanced differential products, such as our flagship cleaning product, our ECP tools, advanced furnace tools, and other new innovative products. This product allows us to win major customers and provide us the profits to fund future product development. It also allows us to enter middle-range or lower-end products that may come with a lower margin in the early stage, but allows us to capture a much larger market opportunity as we scale the business. We remain committed to our gross margin target, which we believe we can achieve by balancing continuous innovation and high-end with the planned product management, cost, engineering, and production scale. Let's turn to slide five to discuss AACM's growing customer base. We have five major front-end customers in Foundry, 3G LAN, and DRAM. In 2021, we expect our home group and 1GC to remain our top two customers. We expect good growth from them this year. However, each may represent a lower percentage of total revenue as we expect to see significant growth from other customers. We also expect a contribution from SMIC, SK Hynix, and 6MT. Importantly, we recently received new orders for several tools from SMIC for the second half of the year. During the past 12-18 months, our team has done a great job of broadening ACM tool content at SMIC, including a full range of cleaning products and OECD tools. We are getting indication of higher demand from SMIC in 2022, but it is still early. SMIC demand is subject to further licensing progress by them with other U.S. equipment suppliers. We recently added a number of new China-based semiconductor customers who manufacture power, analog, CMOS image sensor, compound semiconductor, and other devices. This customer includes four of five Tier 2 players and a handful of new Tier 3 and other customers. Although each is relatively small, this group of new Tier 2 and Tier 3 customers as a whole could contribute 10% or more in 2021-17. As newer customers are investing in new capacity to support the growth of 5G, IoT, and EV technology. ACM has greater penetration with a range of tools, including SAS, Semi-Critical Cleaning, ECP, and Furnace products. Our third customer group is the advanced packaging and other processing customers. Top customers have included J-CAP, Tongfu, Mappers, and Waferworks. In Q1, we discussed the order from two advanced packaging houses, and we now expect to add more customers as we move through the year. Collectively, we expect significant growth from the group, driving by increased industrial focus. some advanced packaging, penetration of new customers, and a new product cycle for ACECP AP tools. Looking ahead, we believe that our current customer base represents a significant opportunity for ACM. Most of these customers are still in early or middle stage of the multi-year capacity expansions. We remain committed to further broadening our customer base. as we believe every major semiconductor manufacturer can benefit from our technology. Please turn to slide six. We delivered a total shipment of 82 million in the second quarter, a new record in the company's history. Shiman and Q2 were 28 million higher than revenue. The difference largely represents Shiman a first tool awaiting customer acceptance. We view this as a positive indicator as it reflects demand for new products and from new customers. This level of assurance is a testament to HCM's production team at our ChinaSouth factory. We are scaling capacity to meet strong customer demand in a generally tidy supply chain environment. Our in-house high-performance factory and the strengths of our manufacturing team are helping us manage the near-term supply chain Let's give us confidence in our ability to navigate the environment entering the second half of this year. We plan to begin production in the second building of our China Star factory in the third quarter of this year. We have increased our capacity plans and now target a run rate exceeding Q4 of this year that represents more than 500 million of annualized production capacity. upper from 350 million at the beginning of this year. We expect to further increase production capacity in 2022. Our long-term plan is to build a production and R&D center in the Ninggang region of Shanghai. The 1 million square feet of floor space will enable us to increase our annual production capacity to 1.5 billion U.S. dollars. We completed additional architecture and design work in the second quarter with initial production now in the beginning of 2023. Please turn to slide seven. We continue to invest in new products to broaden our offering. Today, I'm pleased to announce Bevel Etcher, extension to our weather product line. This product using a wet etch method to remove dielectric metal and organic material films, as well as contaminants on the wafer edge. AACM's edge approach minimizes the impact of edge contamination for later process steps, and thus, improving manufacturer yield. The beveled edge product leverages AACM's web processing expertise to deliver performance benefits compared to joint approaches. less chemical, and support a broader range of device type and process steps, including 3D math, DRAM, and advanced logic process. We expect to ship our first tool for high-volume manufacturing to China-based logic manufacturers this quarter. Additionally, with ACM-proprietary technology, this new BevelEdge product can achieve more accurate and efficient waveflow centering alignment This will enable a precise bevel edge and will enhance product yields and wafer throughput. In addition, we are currently developing advanced technology to deepen our leading market position in cleaning, which we will add more products to our portfolio in 2022. We remain bullish on our ECB product line. In front-end smaller geometry, require advanced plating solution. Meanwhile, back-end and advanced packaging are becoming more important as the industrial looks for packaging innovation to drive higher performance as the industrial moves beyond Moore's Law. Our ECT product line indicates ECT map, a front-end tool for damaging copper interconnection. The ECT TSV for through-sitting a via also for front-end, and ECP AP for advanced packaging, we believe the total global market for ECP will triple from $5 million last year to up to $1.5 billion in the coming years. Although we did not in the second quarter, we delivered three first tools to three customers. We expect to deliver a higher volume of ECP tools in the second quarter second half this year, with a good revenue contribution from repeat shipment in Q3 and Q4. We also continue to see strong interest for our Ultra FN Furnace joint process tool portfolio. We deliver several first tools, including doped and non-doped poly LPCBD in the first half and expect to deliver additional units as we progress through the year. We remain on track to add a high-temperature oxidation annealing to our furnace product line in the third quarter of 2021. Building on that, the next major development in our furnace roadmap is a batch atomic layer deposition, or ARD process. We view this as the most challenging and promising product for advanced manufacturers. We expect the furnace product cycle to become more meaningful in the 2022 timeframe. We are making significant R&D investments in two major new product categories to achieve our goal of doubling our total addressable market from $5 billion today to more than $10 billion. We continue to bring in top engineering retainers to support these programs. and are confident our team will deliver products and move forward with customer evaluations on the first product line in the first half of next year and the second product line in the second half of 2022. I'm happy to report we made good progress with potential U.S. and Taiwan-based customers since our last call. Despite the COVID-related travel restrictions, our team is heavily engaged in business development. We are confident that we can secure orders from at least one new major first-tier global semiconductor manufacturers in 2021. Before I provide our updated 2021 outlook, let's discuss the status of the stock market IPO of ACM Shanghai. We continue to make good progress. On June 10, 2021, the Shanghai Stock Exchange Commission submitted ACM Shanghai's application for registration with FAMOG ITO for China Security Regulatory Commission, CSRC. Moving on, step closer towards our goal. We are hopeful that the CSRC approves and complete our registration soon. When we receive CSRC approval, we estimate that the insurance process will take another one to two months. Keep in mind that the timing is subject to numerous factors outside ACM Shanghai's control. We are confident that eventual stock market listing combined with our non-stock listing can provide a strong foundation to accelerate our mission to become a major global player in semiconductor equipment industry. Now let's move to our 2020 outlook on slide eight. Our guidance reflects optimism about our growth opportunity for 2021. Based on our strong results through the second quarter and improved visibility for demand and our supply chain through year-end, we have reached our look for the full year. We now expect the revenue to be between $225 million and $240 million. upper from the private range of $205 million to $230 million. The revised revenue range represents 48% annual growth at midpoint. Our updated outlook for 2021 is based on several key assumptions. First, the global COVID-19 situation continues to improve. Second, the stability in U.S.-China trade policy. Third, a range of spending scenario for the production ramp of key customers. Fourth, variance in the trajectory of the DRAM recovery. And finally, a range of timing of customer acceptance of first tool. Our results and outlook demonstrate a successful execution of our strategy. Our strong growth is supporting additional R&D spending on new products. We're building our global sales and marketing resource to penetrate the new customer in new regions. And we are scaling production capacity to support our long-term growth plan. Our mission to become a major equipment supplier for the global semiconductor industry remains on track. To conclude, 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 ECM research. I will now turn the call over to Mark to discuss the financial results in more detail. Mark, please.