ACM Research Inc (ACMR) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by and welcome to the ACM Research Second Quarter 2018 Earnings conference call.

(Operator Instructions).

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. Ralph Fong, Director of The Blueshirt Group Asia.

Mr. Fong, please go ahead.

Thank you, Annie, and good morning, everyone.

Thank you for joining us on today's conference call to discuss the company's financial results for the second quarter 2018 and provide guidance for fiscal year 2018.

We released second quarter results earlier today, and they're available on the company's website as well as from Newswire Services.

On the call with me today are Dr. David Wang, President and Chief Executive Officer; Miss Lisa Feng, Chief Accounting Officer; and Mark McKechnie, Vice President of Finance.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties.

As such, the company's results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in the company's prospectus and other documents filed with the U.S. Securities and Exchange Commission.

ACM Research does not assume any obligation to update any forward-looking statement.

Please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars.

With that, let me now turn the call over to our CEO, David Wang.

David?

Thanks, Ralph, and thanks, everyone, for joining us on the call today.

First, I want to welcome Mark McKechnie, who recently joined ACM as the Vice President of Finance.

Mark has more than 25 years of experience in product management, public equity markets and corporate finance, and has worked for some other great companies such as Motorola, Intel, Bank of America Security and Evercore Partners.

He will lead ACM's financial planning and analysis, investor relations, strategy and the capital market efforts.

We are confident that Mark, together with Lisa Feng, our Chief Accounting Officer, will provide world-class financial leadership for ACM.

Mark is here with us on the call today.

I would like to have him say a few words.

Mark, please.

Thank you, David.

Good morning, everyone.

It's great to be here at Shanghai with the team.

I joined the company because of the tremendous opportunity in ACM's vision to become a major player in the semiconductor capital equipment industry.

Our Shanghai operations are situated in the middle of some of the most exciting global semiconductor activities and position us to participate in new investments in advanced fab capacity for years to come.

I'll be splitting my time between China and the U.S. I look forward to meeting and reconnecting with the investment community in the future.

I'll turn it back to David.

Thank you, Mark.

Our build momentum accelerated in the second quarter with record revenue, strong profitability, active customer engagements and a new product development.

During the quarter, we announced a significant order with a strategically important DRAM customer in China and we anticipate continued order strength for the remainder of the year.

We also completed the first phase of the capacity expansion at our new Shanghai facility and it is on track for initial production later this quarter.

I am pleased with our second quarter financial results.

Revenue more than doubled from the first quarter and grew 138% from last year.

Solid execution and a steady customer demand contributed to the upside of the quarter.

Profitability was strong with expanded gross margin and improved operating leverage delivering non-GAAP operating margin of approximately 12%.

And our cash balance remains solid.

We generated positive cash flow from operation and grew net cash by several million dollar from last quarter.

We are also making great progress with our customers.

During the quarter, we announced the first purchase order with a new and a strategically important DRAM customer with a production facility in China.

This extends our SAPS customer count to five major semiconductor manufacturers.

Our product supports multiple chemicals and is intended to be qualify for a large number of cleaning steps.

We expect to deliver the product this quarter with revenue upon customer acceptance in 2019.

This customer select ACM for its high performance, its technologic road map and, most importantly, the expected enhancement to their product yields.

We also received numerous order P.O.s for additional advanced packing tool during quarter.

Our pipeline continue improve.

We are actively supporting evaluation effort for new tool and additional product at virtually all of our existing customer.

And we continue to pursue opportunity with several new major IC manufacturer company.

We are getting positive feedback and we hope to announce one or more large new customer and additional new products by end of this year.

Stepping back, we have been monitoring recent events at the large semiconductor players.

We are happy to report that we have seen no change to spending plans at our customers, and demand remains strong.

Most of our customer are in early to middle stage of multi-year investment to grow capacity.

As such, our customer ramps are based more on hitting their yield targets rather than global semiconductor cycle.

At ACM, we are 100% focused on helping our fab customer to achieve their highest goals by providing them with a best-in-class cleaning tool to drive higher yields for their advanced geometry and architectures.

Even the tiniest of defect measured in nanometer can impact yields of these more advanced nodes.

Our first breakthrough advanced cleaning technology is SAPS.

This is our main product line and it drives majority of our current sales.

While the rest of the industry abandoned single wafer megasonic cleaning at a large wafer size and a small geometry, we embrace it and have delivered meaningful results.

Our SAPS technology applies uniform megasonic energy distribution across the entire wafer and provides the best particle remove efficiency.

SAPS benefits began with a 2-D wafer at 45-nano nodes with increased efficiency versus competition at 25-nano node and below.

We have demonstrated commercial success with more than 40 machines delivered to leading memory and large scale manufacturers.

Our customer have reported yield improvement ranging from 2% to more than 5% while using our patent SAPS technology in multiple cleaning process steps.

Our TEBO platform extending ACM cleaning expertise to the next level with advanced feature to (inaudible) remove unwanted particle in 3-D structure, known as a FinFET, without damage.

We delivered our first commercial TEBO platform to HLMC in July of last year.

We're also in detailed discussion with all of our remaining customer and several additional major semiconductor player, who are considering TEBO for a range of their advanced cleaning requirements.

Our proximity to large customer in China and the rest of Asia put us in a great position to anticipate the newest technical manufacturing and even environmental requirements at some of the most advanced fabs on the planet.

We estimate that our SAPS and TEBO platform address approximately 1/3 of the $3 billion to $4 billion semiconductor wafer cleaning market.

At the request of our customer, we have began additional R&D projects, a new cleaning product to expand our market beyond 1/3 already served.

We believe this new product will contribute to our revenue as early as 2019 and we're looking forward to providing update on our progress.

Before I turn it over to Lisa, I want to provide some detail on our production capacity.

I am happy to report we have completed the first phase of our capacity expansion project in a new leased building about 20 minutes driving from our Shanghai, China headquarter.

We have invested USD1.5 million over the past 2 quarter for (inaudible) the new space, which now has a total of 50,000 square feet of available floor space.

This represent capacity to supporting incremental 250 millions of annual production when fully loaded.

We expect to begin initial production in the current quarter with a steady ramping the quarter ahead.

In addition to our original factory in Zhangjiang Hi-Tech Park, we now have a total of 86,000 square feet of floor space, which could support more than 350 million of annual production.

I will now turn the call over to Lisa to discuss our financial results.

Thank you, David, and good day, everyone.

First, let me walk you through the details of second quarter results.

All figures I'd cite will refer to Quarter 2 2018.

All comparisons are within the same period last year unless I state otherwise.

They are all non-GAAP financial results.

Our non-GAAP financial excluding stock-based compensation, please refer to the press release for our GAAP results.

Revenue was $20.9 million, up 138% year-over-year.

The significant revenue growth was driven by a high number of tools delivered and the better selling price.

Non-GAAP gross margin was 41.8%, up from 39.4% a year ago, and down from both normal level of 52.6% in the March quarter.

The year-on-year improvement was driven by high equipment sales.

This quarter result was within our normal range of 40% to 45%.

We expect gross margin to vary on a quarterly basis due to the either product mix, manufacturer utilization or both.

Non-GAAP operating expenses were $6.2 million, up from $3.1 million in the same period last year, and up from $4.9 million last quarter.

The increase was due to higher R&D spending coupled with the more spending on customer support.

Total operating expenses grew less than revenue, in line with our disciplined spending plan.

Non-GAAP operating expenses as a percentage of our revenue decreased to 30% from 36% in the second quarter of 2017.

Non-GAAP operating income was $2.5 million compared to $0.3 million in the same period last year and a $0.3 million last quarter.

Other income was approximately $1 million for the quarter.

This line item represents realized gains and losses in our working capital due to currency fluctuations during the quarter.

This was higher than normal due to the approximate 5% decline of the Chinese renminbi versus the dollar during the quarter.

This contributed about $0.05 to our reported non-GAAP EPS number of $0.19.

Non-GAAP net income was $3.4 million compared to the net loss of $0.1 million last year and the net loss of $0.6 million last quarter.

Stock-based compensation was $0.2 million in the quarter.

Moving to the balance sheet highlights, we ended the quarter with approximately $17 million in cash, up a little more than $2 million from last quarter.

We added inventory in the quarter to support our production ramp planned for Quarter 3 and Quarter 4. And we ended the quarter with approximately $10 million in short-term borrowings, which virtually unchanged from last quarter.

I would now turn the call back to David to discuss our business outlook for 2018.

Thank you, Lisa.

We are pleased with our second quarter results.

During the quarter, we received additional orders adding to our visibility for 2018 and beyond.

We are very excited about our business prospectus, interest levels from existing and new potential customer and our ability to ramp production to support strong demand for our product.

As a result, for 2018 we have raised our full year revenue guidance to $70 million, an increase of $5 million versus our previous guidance.

This revised guidance represents more than 90% growth over last year and reflects strong demand from our existing customers in China and in Korea.

We expect the remaining revenue for the year to be split about equally between Q3 and Q4.

For Q3 and Q4, we also expect to ship a significant volume of the dem-to-sell units to both new and existing customers.

As previously discussed, we view this as a positive development (inaudible) for customer evaluation, we would expect this shipment to be recognized as revenue upon customer acceptance in 2019 therefore provide us with longer-term visibility.

During Q3-Q4, we expect slight higher expenses in our (inaudible) model to support delivery and installation of this dem-to-sell products.

Now, let's open the call for any questions that you may have for us.

Operator, please go ahead.

(Operator Instructions).

We have our first question coming from the line of Sujeeva Desilva of Roth Capital.

Congratulations on raising the guidance and strong results here.

So in terms of the new product you're talking about, David, can you talk about the timing of the availability of that new product?

And is it a SAPS or TEBO variant or a new category?

And how much of the $3 billion to $4 billion TAM opens up to you as that new product comes online?

Okay.

Well Sujeeva, this is a new product.

We actually have been kind of developing and putting IP for the last 2 years.

So as time progress, we're going to announce that for detail, but give you some simply guidance.

This is address the new market and obviously this product together coupling with our SAPS and TEBO, but now they're addressing more than 1/3 of the market.

And also, this product will providing better performance and with much saving cost ownership and especially consumable and also this is also not a 'me too'; it's real or patent technology and we're expecting will be another boost for revenue in 2019 and '20.

Okay.

So we'll look for more detail there as it comes.

And then you talked about, I think, ASP uplift helping the quarter.

Can you talk about the drivers of ASP uplift and if that's a sustainable trend?

Is it 12-chamber versus 8-chamber?

Or what's driving that?

Any color there would be helpful.

Okay.

Actually, in the Q2 we have some new product, which is our 12 SAPS V, that come out.

And we ship for some new SAPS V 12-chamber tool to our customer.

And that's the actually probably first time where I should say multiple tool shipped to the customer.

And those tools are in the customer installation.

And also that will open new markets and also meet the customer requirements for increased efficiency and also reduce the (inaudible) printer.

So far, we're happy with the product and also we're expecting more customer will transition from 8-chamber to 12-chamber especially for memory customer.

So we have put a very high-up expectation for the new product with high efficiency.

Okay, great.

And then my last question really is on the diversification of demand from China versus Korea.

I think you expect to see relatively equal demand strength from both geographies in the remainder of the year.

Is that correct?

Is that what I heard?

Yes.

Actually, you can look at that as this year revenue we have almost equal divided in customer, and we have (inaudible) and Hynix.

They all have good number of the order for us.

And also we see the other, even coming next year, the expansion plan and we're very happy to our future their expansion, and also where propelled and also forecast.

That would be generating more of a revenue higher than this year and next year for us.

And actually I can see that as our one major customer (inaudible) their CEO [Sammy Ya], he publish the new 3-D architecture in the convention center in Silicon Valley today, afternoon, probably 3 o'clock.

So that real (inaudible) their technology and also expecting it going well and also get more of their order to us.

Yes.

Hey, Sujeeva.

It's Mark kind of kicking in.

I think I know what you're asking as well.

For the year, we've got 4 major customers.

We expect business to be broken kind of equally between those 4. So we're not really talking about a bigger mix one way or another to Korea versus China.

That's very helpful, Mark.

Welcome aboard and good luck in the new job there, Mark.

Our next question is from the line of Mark Miller of Benchmark Company.

Congratulations on your results.

First profits are always looking good for the year.

Can you tell me what the backlog was at the end of the quarter?

Yes.

Hey, Mark.

Mark McKechnie here.

So yes, we're not going to report backlog on a quarterly basis, but we will say that orders were pretty solid for the quarter.

We announced the big DRAM customer.

And when we look at Q3 and Q4, we're pretty much fully booked for Q3 and we've got pretty solid bookings for Q4 as well.

We do need some additional orders to turn into revenue in Q4, but we've got those pretty well identified.

So was your book-to-bill above 1 for the quarter?

Our orders were strong in the quarter.

We're not going to be in the habit of reporting book-to-bill.

But yes, just suffice to say we had some pretty strong orders in the quarter.

Just want to make sure --

Yes.

And one thing to add is some order we got so far is new product to new customer so we're not recognize revenue probably coming this year.

It will be next year.

So that's something we're adding more shipments this year than we are revenue recognized this year.

These people you told you delivered last year.

Did you say you're expecting that to be revenue in 2019?

The 2, actually we shipped the first one as commercial P.O. That has been recognized revenue already.

And that P.O. 2 has been running in production, and at this moment obviously we're working with additional P.O. with exist customer and a new customer.

So that's where on the process right now.

Hopefully we can announce some news this year.

What was your cash flow from operations?

$3 million positive from operations.

Right.

$3 million.

Okay.

Our next question is from the line Of Christian Schwab of Craig-Hallum.

Great quarter.

So as we look at the opportunity with our DRAM customer, is there any way to quantify the number of tools or revenue opportunity over the next year or 2 from that?

Okay.

Well great question, Chris.

And actually, this tool we plan to ship in the Q3 timeline, which is this coming quarter.

Then we expect our revenue will be recognize definitely about 5-6 months, right, over next year.

And also the tool we're building real multiple chemistry, more than normal chemistry.

The reason for that is they can go through a large number of the process qualification.

So as a new customer put into their production line, they verify their yield improve also process availability, we expect multiple order next year.

So it's exciting customer.

It's an important DRAM customer.

And also they are very excited or they're expecting our technology play different role in their current production line.

So actually, they are -- one of the key guy that told us they select ACM not because of just more player or just price cheaper.

They saw all the models, more companies (inaudible) excited.

More important, they're (inaudible) technology.

Say we didn't spend money effort with us therefore they improve their product yield.

So we're excited about their purchasing and we'll be (inaudible) and fully support them and qualify the process as soon as possible and generate future revenue and repeat order next year.

Is the opportunity on DRAM only as people moved to their next-generation node where they are struggling with yield and they've found that this tool really helps?

Or can this be a situation where once they understand the positive impacts that they can also add it to existing capacity as a yield improvement tool and the opportunity can be meaningfully larger?

Okay.

Yes.

I think obviously they're probably moving also consider the current generation.

Also they are probably also consider moving the next generation.

Since our tool, superior performance working another customer 25-nano, 22-nano, 20, even beyond 20, 18-nano.

So their technology is real proving as go to small geometry our tool will be address more of their particle concern, their yield loss concern.

So that's probably primary reason they want to get tool moving and found the superiority of this efficiency cleaning for us yield improve.

And especially they consider for future their technologies advance; when they're facing more challenging they go to small geometry.

So I think that both reasons they bought the tool.

Obviously only one tool right now.

As their product performance show up they are going to increase this for either for their current capacity and also pursue for their future generation.

Perfect.

And how many tools would you expect on the SAPS side would be needed for 50,000 wafer starts?

Wow.

Okay, good.

Put it this way, this moment our tool probably anywhere between about 10% to 15% of their process steps.

As you look in the 50,000 of wafer per month, the total tool needed about 100 tool.

So that's the --

100 tools?

Yes.

100 tool for the 50,000 per month for that capacity.

Total cleaning tool.

Total.

And they use up about 20% of their --

They use about let's say 10, 15-20 depend on technology they are driving.

So we're about 10% to 15% of market share.

Got it.

All right.

That's extremely, extremely helpful.

Is there any way to quantify the opportunity a year or 2 out with the TEBO tool and its capabilities in FinFET?

Okay.

That's a good question.

And you look at our previous experience, our SAPS technology carry into first customer in Hynix 2011.

They almost generated repeat order almost 2 year later, so 2013 there more larger volume (inaudible) come out.

So same thing with TEBO.

We need the customer to qualify different process step and also they are comfortable with their process stability and that's what takes time.

And we're expecting maybe one more order this year and maybe some order next year.

But you look in the real mass production like SAPS come out probably about 2020 time line.

So this 2-year time line expecting customer verify technology, try different process, check the tool stability, all kinds of (inaudible) to check out.

So for any new technology that get in the market and it needs time for customer to used to it, to test it.

So we're patient for that time to come.

But one thing I want to emphasize that is obviously patent wafer cleaning this moment nobody has a solution, nobody.

That is real driving to our application and the people only can rinsing some water or they can't use any strong chemistry because the strong chemistry can erode the wafer structure.

So we are okay with a very strong patent protection and we have time to play with the customer and get this technology mature for the market.

Okay.

And then my last question.

I think you've shared this in the past, but maybe I have it someplace else in my notes.

But can you just remind us the importance of yield and what kind of a 2% to 5% yield improvement actually means to your customer?

Great.

Great.

Actually, let's put it under 100,000 wafer per month capacity.

That's normal, I call it a big fab for their memory, economical size.

And 1% of the yield improve will gather around USD30 million to USD50 million per year profit.

That's 1%.

Anything, 5%, we have 5-times higher.

So customer is real care and pay attention to the yield signal because of the final profit loss or gain.

So that's why our customer, especially Hynix in the DRAM side, they very much like our technology and they like also they continue to play important role when they have advance a new generation technology.

So that's our, I call it, our economical factor right now.

Fabulous.

Congrats again on a great quarter and a great start to the year.

(Operator Instructions).

Okay.

I guess it's a wrap, huh?

Okay.

Thank you, operator.

And thank you all for participating on today's call and for your support.

We appreciate your interest and looking forward to reporting to you again next quarter on our progress.

Thank you all again.

This concludes the call.

You may now disconnect.