ACM Research, Inc.

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 listen-only mode. After the speakers presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 101 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 101 again. Please be advised that today's conference is being recorded and I would like to hand the conference over to speakers today. Steve Palao, Managing Director of the Blue Shirt Group. Please go ahead.

Good day everyone. Thank you for joining us to discuss First Quarter 2024 results, which we released before the US market opened today. The release is available on our website as well as from Newswire Services. There is also a supplemental slide deck posted on the investor section of our website that we will reference during our prepared remarks. On the call with me today, our CEO, Dr. David Wong, our CFO, Mark McKechnie, and Lisa Feng, our 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 filings with the 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 this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized -in-loss short-term investment. For our GAAP results and reckless affiliations 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 turn the call over to David Wong, who will begin with slide three. David?

Thanks, Stephen. Hello, everyone, and welcome to ACM Research, the first quarter, 2024, earning conference call. Please tend to slide three. I'm pleased with our results. A solid start to the year for the first quarter. Revenue was $52.2 million, up 105%. Profitability was good, with a gross margin of .5% and operating margin of 26.2%. And we ended the quarter with just over $288 million of cash and time deposit. Sharement for the first quarter, well, $245 million, upper 175%. As expected, first quarter shipment were higher due to delivery of finished goods that were not shipped in the fourth quarter of last year. And we also had an execution from our production team during our Lunar New Year holiday period. I will now provide a detail on product. Please tend to slide four. Revenue from a single wafer cleaning, Tahoe and a semi-critical cleaning product grew 199% in Q1, and represented 72% of total revenue. ACM offer what we believe is an industrial most comprehensive cleaning portfolio. We support near 90% of all cleaning process steps for memory and logic devices. At the high end, we believe our flagship steps, Tahoe and the T-Ball single wafer cleaning product deliver a technical feature not available from any of our competitors. At the low end, our semi-critical tool, including AutoBench, have driven incremental growth for our cleaning category over the past two years. We have recently made the progress in SPM market, which we believe was resulting in sheer gain and growth in our cleaning business starting this year. Let me provide more detail. SPM stands for Sulfuric Acid Peroxide Mixing. This is the steps are normally used to clean wafer after photorecister removal process and post-CMP cleaning. We estimate the total available market for the PEM for 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 tool. Here now, we believe there has been only one major supplier of high temperature single wafer SPM tools. Our engineering team has recently made a greater technical progress with our high temperature tool. And we believe HCM can now participate as an alternative supplier. This is especially important as we believe our customer generally prefer one stop shop for all their SPM cleaning steps. With the high temperature SPM tool, we believe HCM now has a full product line to meet our customer requirements. Additionally, Tahoe has been qualified for production by multiple customers and is beginning a ramping phase with a substantial number of order plan for delivery in 2024. Enhancement have been made to its performance, allowing the tool to match particle removal 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 began volume delivery across the number of key customers. Finish up on cleaning, we also expect our bio-vulture cleaning tool to contribute meaningful revenue in 2024. And we're on track to complete evaluation of a supercritical CO2 dry cleaning tool this year for revenue in 2025. Revenue from ECT, furnace and other technology decline 3% in Q1 and represent 70% of a total revenue. As I mentioned last quarter, we've either 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 fluctuation. In fact, we shipped 3X more ECB tool in Q1 24 versus same peer last year. And we expect the revenue growth for this category for the full year. As noted in a prior course, we believe the furnace product cycle is perhaps a year and so behind ECB. We have a brand broader footprint of customer activities with a more than a handful of furnace tool currently under evaluation and multiple customers. We are optimistic this will result in qualification and the following order in the coming quarters. Revenue from advanced packaging, which is good ECB but including service spare parts grow .2% in Q1 and represent 11% of a total revenue. This category including a range of packaging tools such as a coder, developers, scrubber, tear stripper and the web actors and also service and spare parts. And we continue to explore new products and their technology to participate in the next generation of advanced packaging. We believe ACM is one of the only company that offer full threat of web tool, cover publishing tool and their cover plating tool for advanced packaging. In Q1 we deliver a ultra CV vacuum cleaning tool for a major customer to meet the flux removal requirements for chip lab and other advanced 3D packaging structures. Today we also introduce the drain wafer cleaning tool. This tool is a divine for post debounding wafer cleaning that enable nearly 100% recycle solvent and filtration. We have successfully complete the installation and the qualification of first tool with a key customer. Finish upon and product, we are making good progress with our track and the PCVD platform. We believe our proprietary technology, Parisian both tool for success for mainland China and also global customers. We are engaged with the multiple customer that we expect there's a venture grow progress in product development and evaluation this year with revenue in 2025 and the deal. Now move on to our customer, please turn to slide seven. 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 a firmness. And we have a solid evaluation pipeline for track and PCVD. Our sales and service team are now dreaming deeper adoption of our product across our customer base. Our growth is also being dreaming by new entrants. On the international front, we plan to deliver ultra-CB backside cleaning and a bio-edger 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 potential opportunity to penetrate their global manufacturer site. We recently hired additional seasonal marketing and sales professionals who bring established relationship with the key US semiconductor players. In Europe, we install our first core evaluation tool, the -C-SAP5 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 year. We think Korea, we see opportunity with SK HANIS, high bandwidth memory, HBM product. We see potential gain with our SAPs cleaning tool for high aspiration re-cleaning, as well as ultra-ECP for TSV applications. To support growth, we made a progress in our facility expanding in China and other regions. Please send those slide eight. In China, construction of our ring gun production on the center is nearly complete. We expect the initial production later this year. In Korea, we are making progress with the key customer. We believe a strong commitment to Korea can improve our relationship with the key Korean customers. Our resource in Korea can also provide another basis to support international customer in the US, Europe, and other parts of Asia. We recently hired a new leader to run our Korea operation, DG Kim. He is a long time veteran of SK HANIS. We are optimistic. His experience and relationship will help for adoption of technology and accelerator of 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 will now provide our outlook. Please turn to slide nine. We believe WFE spending in China will remain solid as the country continue 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 customer 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 our full year revenue growth for 2024 to outpace both the China and global WFE growth rate. Now let me turn the call over to our CFO Mark who will reveal detail of our first quarter results. Mark, please.

Thank you, David. Good day, everyone. Please turn to slide 11. Unless I note otherwise, I'll refer to non-GAAP financial measures which exclude stock-based compensation and unrealized gain or 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-way for 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 .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 volume, 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 -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 planned for R&D expenses in the 13 to 15% range, sales and marketing in the seven to 8% range and G&A in the five to 6% range. Operating income was 39.8 million for the first quarter, up from 10.9 million. Operating margin was .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 planned 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 for diluted share was 52 cents for the first quarter versus 15 cents. Our non-GAAP net income excludes 14.6 million or 22 cents 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. For the full year, we expect to spend about $100 million in capital expenditures. This primarily includes continued investments in our Linggang 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.

Thank you. And as a reminder, to ask a question, you need to press star one one on your telephone and wait for a name to be announced. And to withdraw your question, just press star one one again. Once again, please stand by. We'll compile the Q&A roster. One moment

for our first question. Our first question will come from the line

of Suji De Silva from Roth. You're now connected.

Hi, David. Hi, Mark. Congratulations on the progress here. Just a couple, hey guys, maybe some high-level questions. So outside of the core SAPs products, which of the new product categories is gonna help drive the highest growth in 24? Just to understand how you're diversifying the product categories.

Yeah, good. And obviously, as I mentioned here, the cleaning tool is continuing our major portion of the revenue. And we see that this, as I mentioned, is STM tool, which cover middle and low temperature by Tahoe and also single-waiper. And also we're making a breakthrough in a high-temperature STM tool. And that's also another driving factor. And plus also have our Bible Etcher and also continues our growing auto bench for number two, auto nodes. And then looking the real next year, when looking for probably our Supercritical CO2, we'll start contributing on our revenue too. So that's the one on the cleaning side. And then looking the ECEP, we'll continue to see that growth and both in the front end and also on the advanced packaging side. And we have a quite a good backlog in ECEP. And also we see the furnace we'll start contributing for our revenue too in this year and also continue next year. And we have basically all the LPCVD and the ALDs that evaluation and all this vacuum and NEO versus the MSFERBA and NEO continue getting the market. So that's the major driving force this year for our revenue contribution. Mark, anything you want to add on that?

Yeah, no, thanks David and thanks Tsuji. Yeah, I think one of the things we wanted to stress on this call is within cleaning, even though we've been doing cleaning for a while, we have a few pretty strong products like those underneath that, that can drive additional growth. And then when we start looking internationally, it's hard to say how our mix is gonna play out between products as we go on late this year and into 2025, because it seems like a lot of our new customers might be starting with cleaning as well. So I'll leave it at that Tsuji.

Okay, great. Yeah, no, my second question was gonna be similar on the geographic diversification. Maybe I can hone in on the US customer and perhaps you can give a sense of what some of the next milestones or steps are as you seem to be making good progress there.

Yeah, as I mentioned, we're continuing marketing expanding our customer base in the US. And we have our one key customer, we're gonna ship in our second tool, second type of tool with a bevel and backside and to this key customer. Meanwhile, we're also talking this kind of multiple customer US and both for their front end and also for their packaging side. So we see their big potential and their growth in the US market. And meanwhile, we also access market in Singapore and also European, right? Our first tool has been delivered to the one key European customer. And we think there'll be in the qualification phase now. We're expecting this first tool where we're talking their secondary repeat order. I think that's it, right? Hey, Mark, anything you wanna add?

Yeah, yeah, so no thanks. International, I think when we talked about our guidance, when we first presented it last quarter, we got out of the light about how much would contribute from international. This year is still a build year. We're hopeful that we can get, following the qualification of the US customer, we're hoping that we can get some orders here soon. We're not certain how much will fall into this year versus next and that's always been the plan. And even for the European, so we probably expect some contribution, but really this is a build year and any significant orders would probably be for shipments next year. Okay, thanks David, thanks Mark, I'll pass it along.

Thank you. Thank you, one moment for our next question. Our next question will come from line of Christian Schwab from Craig Halem, your line is open.

Hey, great, thanks for taking my question. I just have one follow up to the earlier conversation. Now that you're seeing broadening potential success in the international market, it seems that on a bigger picture multi-year area, I know you've outlined a billion dollars in sales in China and the market outside of China for your products is materially greater. In a multi-year outlook, do you have increased conviction now that this business can be much bigger than a billion?

Yeah, actually in our layout, we're pretty confident we're gonna reach even billion dollar market by only China market. And obviously at the same time, we're penetrating or they're exploring international market with our differential technology. So we see that trend, you know, continue accelerating. So as I said, we're looking at the key customer US and their, you know, their property, their manufacturing in Singapore. And also we're looking at with the Taiwan customer too. And plus recent, right, we hired our key, you know, I call key top manager in the Korean operation and which you know, DGT, he is real veteran of SK Hynix. And so we're really put effort and marketing and sell our product in a global. So we're saying obviously their international revenue and their contribution will get into our total growth. As I said, in the long term, we want to have of their revenue come from China and half of them from other China. So that's a goal still in our, you know, it's to continue our goal here.

Fantastic, no other questions, thanks.

Thank

you.

Thank you, Christian.

Thank you, one moment for our next question. And as a reminder, that's star 101 for questions. Our next question, a confidant of Ross Cole from Needham. Elan is open.

Great, thank you guys for taking my question on behalf of Charles Shee today. So shipments in the first quarter were pretty high. I know you don't typically guide shipments, but do you have any thoughts on the rest of the year? Or do you expect the Q1 shipment

level to sustain through a similar level or possibly go higher or lower in the next three quarters?

Yeah, okay, let me answer maybe Mark can follow. Obviously, you know, first quarter shipment higher is partially contributed by our delayed shipment Q4 of last year, right? So that's why part of reason plus also our manufacturing was a difficult job in the lunar new year. So we'll say probably Q2 was slightly lower than Q1, but also continue to see that grow in Q2 and Q3 and Q4. So Mark, anything you wanna comment?

Yeah, no thanks and Ross, I appreciate the question. Yeah, so we certainly expect shipments to grow to be higher than our revenue growth for the year. I mean, it's a pretty solid shipment year. But yeah, as David noted, Q2, they probably normalized a bit relative that inventory piece, but we'd

expect it to kind of shift back up in Q3 and Q4.

Great, thank you, that was my only question. Great, thanks Ross. Thank you, one moment for our next question.

Our next question will come from Charlie Chan from Morgan Stanley, line is open.

Hi, David, Mark, thanks for taking my question. And also congrats for very good results at Q2, et cetera. So I'm not sure, but I feel like this time around you are more open to talk about Hynix, HBN, business no matter cleaning or the

ECP

business opportunity. May I know if you have a significant breakthrough there? I remember you kind of have some demo tool there, but is that now a confirmed project winter in the recurring order, may I confirm that?

Yeah, actually, Hynix is one of our key customer, right? And they're also is a real long-term customer too. Then we're now adding more of a obviously flagship, that's megasonic cleaning can offer much uniform megasonical energy contribution. So therefore you can clean every via of the wafer, which is very important for TSV and the process. And second one real copper plating, right? It's really in there either packaging 3D, 2.5, 3D, and also in the TSV. So we're engaging with the customer and we think our potential product and definitely can be the potential choice for them to take. So we're still in the process right now.

Okay, okay. May I know those kind of key technology, right? Can be used in the advanced packaging, for example, COAS or TSV SOIC. So that's my understanding. I think it's not just a TSV can provide the COAS or 2.5D advanced packaging. I think Intel even the Encore, I mean, have those advanced packaging stuff, right? So are you guys going to supply tool to those opportunities?

Yeah, obviously, like you said, definitely our copper plating can use it for their other customer, right? For this advanced packaging process. And so we're approaching multiple other customers right now. And as in this market, obviously only a few player and we can get alternative choice for them to take. Also, we do have some differential technology with differential outperformance with other guys. So we're very confident and we can get it in the market. And they're outside China market.

Okay, yeah, actually my second question is about this also international markets. I remember four years ago when I started to cover the stock, always I asked this question, when we're going to get in TSMC, right? And four years later, I feel like TSMC must be very, very important target. They continue to open a new fabs, not just the US but also Japan. And next will be Germany, including both a mature nodes and a leading edge. So my question is that what do you need to do, right? To really win this customer? Yeah, can you give us some color, whether it's a technology or a production location or pricing, whatever? What was the issue right now?

Yeah, well, I mean, obviously, like you said, TSMC is one of our key customer target. And we're working with them multiple year and we're still engaged with them by the way. And so we're in a few evaluation talking process right now. As I said, our cleaning also our couple of printing definitely is one of the key product, right? Differentiate with the other players. So we're confident, right? And anyway, probably I cannot tell you now what's going on, but we're fully engaged with the TSMC is our potential target, obviously.

Okay, okay. Yeah, that's all the question I have. Thanks for your time. Thank you.

Thank you. Thank you.

One moment for our next question. And our next question comes from Mark

Miller from the Benchmark Company. Your line is open.

Congratulations on another upside report. Just was wondering if you're seeing any impacts such as pushouts from the slowing of EV demand in China?

Okay, that's a good question. Actually, we see there, you know, a few, I mean, quite a bit of customer, you know, on their IGBT production line. And we see that it's continue to grow because anyway, IGBT production in China is still early stage, right? So we see the customer continue expanding and for this IGBT investment. And also we do have a very good product in cleaning and also in the furnace, right? So supporting the IGBT market.

Just wondering how cash flow went during the quarter. Did you consume cash?

Yeah, hey Mark, I'll take that. So it'll show up in our queue, but cash flow from operations was 9.6. We used about $9.6 million, yep.

Thank you. Thank you. And I'm not showing any further questions in the queue. I'd like to turn the call back over to Steve. Steve, Frank, close in, please.

Okay, thank you, operator. And thank you all for participating in today's call and for your support. Before we close, let me just mention a couple of upcoming investor relations events. On May 29th, we will present at Craig Holland's 21st Annual Institutional Investor Conference in Minneapolis. From June 25th to 26th, we will present at the 10th Annual Rock 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 representatives to register and schedule -on-one meetings with the management team. This concludes today's call, and you may now disconnect.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day. Thank you.

Thank you and God bless. Have a good day, everyone. Bye. Have fun. Take care. . . . . . . . . . . . . . . . . . .

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