ACM Research, Inc.

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research First Quarter 2025 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. Stephen Palayo, Managing Director of the Blue Shirt Group. Stephen, 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 investor section of our website that we will reference during our prepared remarks. On the call with me today are CEO David Wong, our CFO Mark McKechnie, and Lisa Fang, 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'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 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 Wong. David?

Thanks, Stephen. Hello, everyone, and welcome to ACM Research first quarter early conference call. We've just completed another important quarter, not only in terms of performance, but also in how we are advancing our position in this global semiconductor industry. Before I reveal the results, I would like to highlight a few recent developments and reflect the momentum we're building and the direction we're 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 printing reached more than 25%, which translates to more than 9% global for each product category. Let's speak to their trust. We have earned from leading customers and also strength our product portfolio. Our panel-level packaging tool received the 3D Insight Technology Enablement Award. As a reminder, panel-level packaging is a next-generation solution for high-performance AI chip packaging. This award is yet another great validation of ACM's commitment to delivering innovative and enabling technology to our customers. At the same time, we are all aware that the 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 focus 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 tools. As a multi-product company, we're expanding our tool, offering to better support our customers in Asia. We're now taking important steps to expanding our business into global market. In the U.S., we're investing in Oregon facility, starting with the class 100 clean room for wafer demo and R&D activities. And we're 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 US customer. And it is also a good business to establish production close to a customer. We believe that HCM position as the only US company with a full top-to-bottom Canadian 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 three. For the first quarter of 2025, we delivered a revenue of $172 million, up 13% over a year. shipment were 157 million, down 36%. We know that shipment in Q1 of 2024 was especially strong due to customer demand. So this was a tough comparison. We anticipate a return to year-over-year shipment growth in the second quarter. Growth margin was 48.2%, exceeding our targeted range of 42% to 48%. We ended the quarter with a net cash of $271 million, upper from $259 million at the year end, 2024. Now I will provide the detail on product. Please turn to slide four. Revenue from single wafer cleaning, pothole, and semi-critical cleaning tools grow 18% and represent 75% of the total revenue. Growth was led by a strong demand for our staff and table platform, as well as continual momentum for Ultra-CB backside cleaning tool. In Q1, we qualify our high temperature SPM tool with a leading logic customer in China and achieved customer acceptance for our backend bevel edge tool from a US 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 to global market. Revenue from ECP, furnace, and other technology grow 7% and represent 16% of total revenue. We saw strong momentum in ECP tool for advanced packaging, and we are excited about the initial response to a new Ultra-ECP APP tool. As I mentioned before, ACM Ultra-ECP APP panel level plating tool received the 2025 3D Insights 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 now experience a lot of interest from several major players in the industry. This product highlights ACM technology 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 involving semiconductor requirements for AI. We further Our furnace product continue to gain traction. Our view is that market is increasingly demand high temperature annealing solution, particularly for power semiconductor IGBT devices. Our UltraFN vertical furnace tool is a proprietary course-based design that reach temperature of up to 1,250 degrees C without distorting the wafer surface. We believe no other supplier currently achieve this temperature level in a vertical platform. This is yet another good example of ACM technology leadership. We expect a revenue contribution from our furnace product line, including LPCVD, oxidation, and ARD, to accelerate meaningfully in 2025, expanding from a relatively small base in 2024. Revenue from advanced packaging which is crude ECP but including service and the spell was down 10.5% and representing 9% of revenue. We're making a good progress with a new track and PCVD platforms. Both of these products come with ACM innovative and differentiated platform design that allow for process flexibility and high throughput. We had a solid list of ongoing demonstration and evaluation for both TRAC and PECVD. For TRAC, we plan to deliver our 300 WPH inline KRF beta tool in mid-2025. For our new platform, TRAC and PECVD, we expect some initial revenue contribution in 2025 with more in 2026 and beyond. To wrap up to the product, we have been on a strong growth path for the past five years. with new products, including Tahoe SPM and Furnace in 2025, followed by our panel-level packaging tools, Track and PCBD in 2026 and beyond. We remain committed to a high-growth model for the next five years. As a reminder, our $3 billion long-term revenue target anticipates $1.5 billion from China and $1.5 billion from the global market. Next. Let me provide update on our production facility. First is Lingang, please turn to slide eight. Our state of art Lingang production and R&D center is nearly completed. The site including two production building with the first now in production and the second available for future expansion. Each of the two 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 Linga. Next, our Oregon facility, please turn to slide eight. As I mentioned before, we are investing in our US 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 outlook for the full year 2025, persistent to slide 8, slide 10. We are maintaining our 2025 revenue outlook in a range of $850 million to $950 million. This implies 15% year-over-year growth at the middle point. In closing, our focus remains on delivering differentiated enabling technology. that solve our global customer's most critical process challenges. Now, let me turn the call over to the CFO, Mark, who will reveal detail of our first quarter results. Mark, please.

Thank you, David, and good day, everyone. Please turn to slide 11. Unless I don't 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. 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 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 of 18.4%. For 2025, we planned 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 ASM 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. We'll now review selected balance sheet and cash flow items. Cash, cash equivalents, restricted cash and time deposits for $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 to 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.

Thank you. At this time, we will conduct the question and answer session. To ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question is from Charles Shi with Needham and Company. Your line is now open.

Good evening. Maybe good morning, Mark, David. My first question, I do want to ask you guys about shipment figures. We understand, yeah, this is a very lumpy metric. You can't really look at it on a quarter-to-quarter basis. I think one quarter ago, management said for the four-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 three quarters. I did hear in the prepared remarks management is committed to Q2 shipment young year growth, but any thoughts on the full year shipment, especially compared with the last year's shipment? Thank you.

Sure. Thanks, Charles. Actually, the last year's shipment is extremely high, right? Compared to 2023, we're increasing more than 60%. That high number, that put a pressure this year. Anyway, I answer your question directly. We're still expecting this year's shipment over the last year's shipment. And they're probably, you know, not as high as the last year, right? So that's the, you know, answer to your question.

Charles, let me clarify that. So, yeah, shipments we expect to grow in 2025, but the growth rate of shipments, we're not necessarily saying 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, Collier. Higher in shipment dollars compared with last year in terms of a growth percentage feels like you're saying it's lower than last year, probably lower than this year's revenue growth, but still positive direction. That's right. Feels well. Yeah. Feels well. Thank you. Thank you. 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 customers?

ACM Shanghai, yeah.

Yes, yes. Okay. Well, again, you know, since this, you know, whatever is a pair for PLUS also, right, in our tool. And so now we're located third parties, I mean, either a third country, right, also including some made in China parts. And so we're, you know, I think this import from U.S. parts, or tariffs to China, I mean, not impact us. I said, you know, we're going to spend more of our, I call it buy more of our parts locally and also buy, you know, third parties' countries' products, right? And so I think the impact for us is pretty minimized. But maybe you're a customer, right? Those are different questions.

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

Sure, sure. And actually, you know, as we stay there, you know, maybe a couple quarter again, before is a You know China growth of the WFE market in the last five years pretty good, right? And so we think of 2025 getting into the plateau right this kind of plateau stage Yeah, I mean this moment is too early to say 26 Even some people say this year down, you know, maybe 20 percent or 10 percent, right? However, we look into our revenue our customer talking to us. They continue expanding and And so in our revenue, look at, you know, I mean, our shipment, look at all their PO, we are field two, Q2, Q3, and still something we need to field Q4. But also to see some, you know, shipment coming to Q1 of next year. So our growth strategy is, even say China W market is flattened, or is, you know, plateau, and we still continue to gain market share, and because of our cleaning, copper plating, and also new product, like a furnace, I just mentioned we have this ultra high-temperature neoplastic come out. A lot of potential ITBT application in China, they demand high-temperature neophoners. 1,250 degree, it's really chomping, I call it, the temperature we can do also without the distorting of the surface structure. That can be the continued innovation product driving our growth. Further, I want to say our panel product we mentioned today, It's another bigger, I call, growing for international market, and also we see some domestic market too. Plus, we have further other firms in the development, and they are PECVD and the TRAC. Especially TRAC, we gather probably middle of this year, we're shipping our beta tool, CAF line, 300 WPH to the one of the customer. So I want to say our continued momentum to have a PCVD and track and first join our revenue stream. So we're still very high confidence. We're still growing and this market, you know, in our market share in China. So we still have a high confidence as we execution of business strategy, qualify our new product. I'm still looking at next five year high growth.

Maybe can I squeeze in one more since you mentioned about good number of attractions on the new products? Yeah, please, Charlie. Charles, yeah. Yeah, yeah. So there, you know, at Semicon China, there has been a lot more product announcements from your peers in China. And it appears to me that the domestic Chinese semi-cap companies looks like they're coming after each other's market. And there's a 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? Thank you.

OK, 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 It was for the memory or for the logic. We have a very strong position in cleaning. Plus, same thing, copper plating. We cover almost all the copper plating product. Diamazine and TSV, the box packaging, this 3-5 compound semiconductor, and also panel-level packaging. We have a very strong position for those portions. More important, I want to say that is ACM has real innovation technology. and the local Chinese customer, they really demand the advanced technology product. They're not only, you say, by pricing. In other sense, we're not too much worried about the local peer competing the price with us. As I said again, this is a real technology game, or technology winning game, not only by pricing. We feel our innovation product, IP protection, and can avoid anybody copy our tool in China. 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. We have nothing to say. Now, actually, in the last 20 years, we're really innovation and IP protections. We have very strong competence. No any peer in China can copy our tool. We have very strong full printer technology. That's how strong. The next thing you talk about consolidation, I think it's going to happen. This market happened in the US, in Japan, and probably Europe. As the industry moving forward, a lot of small company probably have to be merged with the big guy. We see that happen and we love to see that happen. ACM was still very strong in the market. And this moment, I said, we have a lot of organic growth with our new product. We can innovation the product we're doing ourselves. So probably we're not trying to combine or merge other company growth business. This moment, most important, we're focused on our own technology development. Our product portfolio has a lot of revenue for us to gain a market share. So that's maybe our position. Mark, anything you want to add on that?

Yeah, no, I think, Charles, you brought up a good point, and it's something that we consider a lot. When you think about consolidation, you know, big picture, we have pretty aggressive revenue targets, obviously. You know, we talked about a billion and a half 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's a $30 or $40 billion WFE, you know, the top 10 players are going to be, you know, three to $4 billion a piece. Um, you know, we feel pretty confident we can grow to those levels organically, I think is the point that David's, uh, David and the team are really focused on doing. So it's, it's a, we, we don't disagree. We're seeing some of the, uh, the, the, uh, additional entrants and folks going after kind of, um, you know, trying to get in there with a couple of products, but, You know, we have a big services team, great footprint across all of our customer base. But at the end of the day, we have 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.

Thank you, Jeff. I appreciate the answers.

Yep. Thanks, Charles. Thank you.

Thank you. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from Kieran Halding with Surge Equity Research. Your line is now open. Hello, Kieran.

We cannot hear your voice.

Yeah.

Did you email your speaker?

Yeah.

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, Aubrey. Thank you, operator, and thank you all for participating to today's call and for your support. Before we close, Stephen is going to mention our upcoming investor relations events. Steve, please.

Thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On June 25th, 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.