ACM Research Inc (ACMR) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the ACM Research First Quarter 2019 Earnings Conference Call.

(Operator Instructions) As a reminder, we are recording today's call.

(Operator Instructions)

I will now turn the call over to Mr. Gary Dvorchak, Managing Director of The Blueshirt Group Asia.

Mr. Dvorchak, please go ahead.

Good morning, everyone.

Thank you for joining us on today's call to discuss financial performance for the first quarter 2019.

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 at the Investor portion of our website that we will reference during our prepared remarks.

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

Before we continue, please turn to Slide 2. 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.

The ACM is not obliged to update you on any revisions to these forward-looking statements.

Certain other financial results that we provide on this call will be on a non-GAAP basis, which exclude stock-based compensation.

You should refer to our press release for our GAAP results and reconciliations between GAAP and non-GAAP amount.

With that, let me now turn the call over to our CEO, David Wang, who will begin with Slide 3. David?

Thanks, Gary, and I welcome, everyone, to today's call.

We are off to a greater start to 2019.

In this momentum continuing in the first quarter, we delivered a solid revenue growth, expanded profitability, and we introduced key new electrical plating or ECP products.

First quarter results demonstrate the competitive strength of our technical expertise, product differentiation and the production scale.

Revenue doubled from the same period last year, solid operating leverage drove gross margin of 43.1% and operating margin of 14.6%.

We ended the quarter with more than $27 million of cash.

Total shipments, which include tools deliver another year recognized as revenue were $14 million, up 40% year-over-year.

In addition to startling financial results, we made a good operational progress in the quarter.

Orders were quite strong, and we completed all plan tool delivers.

At SEMICON China trade show in March, we launched 2 products with unique ACM electroplating technology, which I will talk more about in a moment.

Now I will highlight 3 operation achievements from the first quarter, please turn to Slide 4. First, we delivered our first Ultra-C Tahoe evaluation tool to a important strategic customer, testing is on plan, and we are on track for customer acceptance later in the year.

Because of the environment and the cost benefits, we are now seeing tremendous interest in Ultra-C Tahoe from 3 other major customers as well as several new prospects.

Tahoe is the excellent example of our focus on differentiated, patent-protected product offerings.

By using 1/10 of the sulfuric acid typically used by competing single-wafer cleaning tools, Tahoe meets the environmental requirements of more than fabs around the world.

Reduce the use of sulfuric acid also delivers tremendous cost savings.

We estimate that Tahoe can help customers saving around $10 million a year for typical 100,000 wafer per month DRAM fab.

Feedback on the Tahoe is quite positive.

We believe Tahoe will eventually become a mainstream product that will solve the challenges faced by customers, while post-CMP clean and post-action clean were moved to advanced nodes.

Second, we introduced 2 electroplating products at SEMICON China in March.

These are shown on Slide 5. The first product is the Ultra ECP AP, AP stands for advanced packaging.

AP is a back-end assembly tool used for bumping or applying copper, tin, nickel to wafers at die level before packaging.

The Ultra ECP AP deliver more uniform metal layers in the notch area by incorporating our proprietary technologies.

This advanced technology solution delivered a better yield, greater operating efficiency and a higher throughput due to the fabrication process.

Furthermore, Ultra ECP AP also support a wide range of packaging solutions including Cu pillar, solder bump, redistribution layer, fan-out application, through-silicon via and gold bump.

We also introduced our Ultra ECP MAP, MAP stands for multi-anode partial plating.

This new tool is used in front-end wafer fabrication process and use our proprietary technology to deliver world-class electrochemical copper plating for copper interconnector applications.

The ECP MAP offers improved gap filling performance for plating on an ultrathin seed layer.

This is a mission-critical for advanced nodes at 14 nano, 12 nano and beyond.

We're excited about this new ECP tool.

They demonstrate our commitment to technology leadership by delivering innovative proprietary high-performance products beyond our single-wafer wet cleaning solutions.

We believe advanced plating market represent a great growth opportunity for us, and we are in great position to capitalize on it.

Market acceptance of the new plating tool is already promising.

In Q1, we received a repeat purchase order for 2 Ultra ECP AP tools from one of our major packaging customers, and a first tool purchase order for Ultra ECP MAP from a key foundry customer.

We delivered one of the tools in the first quarter and we expect to deliver the other 2 tools in the coming months.

Beyond this new electroplating solution, our engineering team remains productive and is working on additional new products as we show on Slide 6. Innovation through research is our strength.

We are turning upon our investment in R&D in order to further lengthen our competitive reliability.

So stay tuned for more exciting news of our product announcements from us in the quarters ahead.

Third, our new Shanghai factory is remaining as planned, as shown on Slide 7. It can accommodate for majority of a new production in Q1.

For comparison in Q4, the new factory handled 40% of production.

Based on this ramp, we expect the new factory will be made to full support demand in Q2 and beyond.

We intend to shift substantially all our production to the new factory over the course of 2019.

Our original factory will be used for small tools and advanced development activities.

Going forward, we believe our expanded capacity and our ability to scale production will support our efforts to win new large customers.

Our new factory shows our commitment to scale capacity, which will help us achieve our goal of becoming a major player in industry.

Before I turn the call over to Lisa, I want to say a few words about the broad industry.

We are monitoring the spending trends in the industry just like everyone else.

While semi industry capital spending is volatile, we are optimistic about another year of solid growth in 2019 based on orders from our customers.

We have orders and affirm forecast tied to specific products at several of our top customers.

Most of our customers are in early to middle stage of multiyear investment to expand capacity.

The ramping are based on the internal production plan, so are less impacted by cycle.

For example, 1 PC is using our tool for how to improve yield in 3D NAND production line and is being ramped.

Another example is (inaudible), which is in their middle of a planned multiyear capacity expansion.

At SK Hynix, we actively fulfill order as we speak.

Furthermore, we believe we can dampen the effect of the cycle by delivering new products and adding new customers.

At our stage today, we have plenty of room to grow in our over 3 billion addressable market.

To conclude, we are in an excellent position to participate in build-out of next-generation fab for years to come.

We have a technology leadership, proximity to large customer in Asia and production capacity.

We have a deal with a solid foundation with a strategic semiconductor customer who are deploying our tools at scale in some of their most advanced production line.

And we expect to win new customer around the world as industrial progress to more advanced node and 3-dimensional manufacturers.

Let me now turn the call over to Lisa who will discuss financial results in more detail.

Thank you, David, and good day, everyone.

I'll review financial highlights and then turn it back to David to discuss our outlook.

All figures are the first quarter and all comparisons against the same period last year, unless I state otherwise.

As a reminder, the non-GAAP financial results I'm discussing, excluding stock-based compensation for a reconciliation of the non-GAAP financial results to the most directly comparable GAAP financial results, please see last night's earnings release.

You will find it posted in the Investor Relations section of our website.

The reconciliations are also including as exhibit to the current report on Form 8-K that we filed with the SEC yesterday.

Please go to Slide 8 where we will start with revenue.

Revenue was $20.5 million, up 110%.

Growth was driven by solid demand for our single-wafer cleaning equipment and our back-end tools, and we had customer acceptance at first tools that have shipped in prior periods.

Total shipments were $14 million compared to the $10 million in the year ago quarter and the $32 million last quarter.

Total shipments including tools shipped and recognized as revenue in quarter.

[Flat] shipments pending customer acceptance, we expect a significant increase in shipments in the second quarter based on solid demand for the repeated and the first tool deliveries.

Gross margin was 43.1%, which was with our normal expectation of 40% to 45%.

This compares to 52.6% a year ago and the 49.6% in the December quarter.

Gross margin was elevated in the prior year period due to our high concentration of certain SAPS II tools, which commanded higher margins.

We expect the gross margin to continue to vary on a quarterly basis due to product mix and manufacturing utilization.

GAAP operating expenses were $6.6 million, down 6% from the same period last year.

Non-GAAP operating expenses were $5.9 million, up from $4.9 million in the same period last year and down from $7.1 million last quarter.

Growth in the operating expenses was driven primarily by R&D as we increase investment in new product development.

GAAP operating income was $2.3 million compared to our operating loss of $1.9 million in the first quarter of 2018.

Our GAAP operating margin was 11% compared to negative [19.5%] in the same quarter last year and the 13% the last quarter.

Non-GAAP operating income was $3 million versus $0.3 million a year ago.

The result being a non-GAAP operating margin of 14.6% compared to 2.8% in the same quarter last year and 15.5% last quarter.

Other expenses was $261,000 due to the foreign exchange impact on our working capital of the stronger R&D versus the dollar.

GAAP net income attributable to ACM Research was $1.9 million compared to the net loss of $2.8 million last year and the net income of $2.3 million last quarter.

Non-GAAP net income was $2.6 million compared to a non-GAAP net loss of $0.6 million last year and the non-GAAP net income of $2.9 million last quarter.

Stock-based compensation was approximately $0.7 million.

GAAP net income per diluted share was $0.10 compared to our $0.18 loss in the year ago period.

Non-GAAP net income per diluted share was $0.14 compared to a $0.04 loss in the year ago period.

Now I will review the balance sheet.

We ended the quarter 1 with $27.4 million in cash with the essentially flat quarter-over-quarter.

We ended the quarter with $12.8 million in the short-term borrowings, outperformed $9.4 million last quarter.

Now let me discuss the inventory.

We ended the quarter with $42.3 million of inventory.

As expected, finished goods decreased to $13 million compared to $6.5 million in the fourth quarter.

The decrease was due to customer acceptances exceeding the first 2 shipments during the quarter.

Cash flow from operations was negative $3 million, the net -- the cash outflow was due primarily to the increased inventory intended to fulfill strong quarter 2 demand.

We also used cash to dues payable.

We expect a positive cash flow from operation in quarter 2 and for the full year.

Capital expenditures were $100,000.

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

Thank you, Lisa.

Please go to Slide 9. We are pleased with our results.

We are monitoring trends in the broader semiconductor market but are optimistic as we are receiving strong orders and production forecasts from our customers.

We are excited by our business prospects and remain committed to gaining share with new products, new customers and more production staffs.

We are maintaining our guidance for the full year.

For 2019, we'll continue to expect a revenue of $100 million, up 34%, which reflects strong demand from our existing customers.

Importantly, visibility for the full year improved due to solid orders and customer forecast during Q1.

To conclude, our solid results show that we are executing our strategy, we are participating in the growth of major new IC fabs.

We are ramping production at our new factory, and we continue to deliver innovative new products.

We remain committed to achieving our vision of becoming a major player in the semiconductor equipment market.

We look forward to continuing to deliver strong results in the balance of this year and beyond.

Let's now open the call for any question that you may have.

Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Suji Desilva from Roth Capital.

Congratulations on all the progress here.

So first question is on the inventory, you talked a bit about the dynamics there, the finished good came down but the overall inventory went up, and you're building for the second quarter.

Can you just elaborate on the dynamics there?

And what kind of pipeline backlog visibility you have given the non-finished goods inventory went up so much?

Is the second quarter expected to be an up sequential quarter based on the strong inventory build?

Second quarter, the reason that the inventory went up and then finished goods goes down is that in quarter 1, we have a lot of acceptance realized in quarter 1. And for the quarter 2, we are participating in the high demand for revenue as well as shipment.

Quarter 2, we forecast about revenue about $25 million?

And the shipment will be much higher.

Okay.

So shipments set to rebound nicely.

Okay.

That's helpful, Lisa.

And then I know, David, you covered this in detail on the prepared remarks, but I just want to ask it to be clear.

Given the macro environment, have any of the customer forecast or capacity plans changed versus 3 months ago perhaps across memory or logic?

Or are you just not seeing any changes as everything is kind of moving along with the customers you have?

Yes.

Actually, so far with our existing customer with order delivered time and almost no changing at this moment, as I mentioned even in the last phone call, and as 1 customer asking delay of 1 month.

So that was in early phone call.

And this year, I mean, looking at Q2, Q3, we are pretty much busy for our delivery tool and this moment, we don't see much changing right now from our existing customers.

So as I mentioned before, our customer is in a multiyear expansion plan, and we're looking for executing their plan and probably some customer looking for their production yield and some customer just expanding their capacity to their planned scale.

Okay.

Well, that's good news.

And then lastly, the new product, the Tahoe product.

I'm curious if the customers there, are they existing -- and the prospects, are they existing customer base or whether it's new ones?

And if it is -- is it -- I'm sorry, the same customer that are taking SAPS tools today.

And if so, is there a notion of an attach rate, David, of Tahoe tools and SAPS tools?

Is it 1:1?

Or is that how you think about how Tahoe ramps?

Okay.

Actually, the Tahoe, our first customer, take the innovation tool, Tahoe is our existing customer, right?

So there, we ship the tools and now the tool is in the customer site and for the initial testing and obviously, we're receiving also other existing customer, showed high interest.

And the same thing, we also show their gather attention from other potential customer show the interest for the Tahoe tool.

The reason for the Tahoe tool is because of the tremendous sulfuric acid savings in this performance.

And that's the fundamental demand or the -- I call it, the fundamental pressure, causing a gap (inaudible) concern, right?

So as we -- probably you read one of the news said that is probably of the chemistry used in their cleaning, I call it, the process, most of the chemistry can be neutralized.

However, only sulfuric acid, you cannot neutralize mostly have to go to the dump field, right, put it deep underground.

That's really a concern for our customer and has a tremendous pressure to deal with this kind of sulfuric acid treatment.

So as again, our -- we're expecting Tahoe will be tremendous reduction -- reduce the sulfuric acid usage.

That's what we think will be -- not just only reduce the cost, more importantly, reduce a lot of pressure for environment protection.

Yes, David, is there a notion of how many Tahoe tools with sulfur be SAPS tool?

Or is that not the way I think about it?

Actually, no, Tahoe, you look in that is -- our expectant market size roughly 20%.

And most -- which is about out of $3 billion.

So we're at the market size about almost like $600 million.

And most fabrications is post-CMP and also post-action clean, right?

So it's a big market, and this moment, we are paying actually very high expectation for the market to take it as a product.

Our next question comes from the line of Quinn Bolton from Needham.

I wanted to follow up on the Ultra-C Tahoe eval, wondering if you can give us some update, I think you delivered that tool in January.

Do you expect it to recognize revenue in Q3, Q4 of this year?

And then the second question you talked about interest from at least 3 other customers for Tahoe.

Will you be delivering additional eval tools here in the second quarter for Tahoe?

Good question.

And actually, there's a customer with his first tool shipping in January time line and a tool right now still in, I call it, initial testing right now.

So expecting those data will come out probably in Q3 time line.

And with that data be proving or gathering of data come out, and obviously, we'll do a more aggressive marketing to the other new customer.

So we are expecting probably either end of this year or maybe the next year, we can shipping additional Tahoe tool to give the new customer, or we ship the tool to the repeating -- tool to the existing customer.

So basically, in the year 2019, revenue will not come in too much, $100 million quarter projection.

But then we're expecting Tahoe will contribute next year's revenue and sales.

Great.

And then a similar question for the new electroplating tools.

You mentioned shipments 2 of the advanced packaging and 1 of the front-end tools.

Are those eval tools?

Or were those tools shipped for revenue in the March quarter?

Okay.

Great.

And actually, this -- I call that advanced packaging, right?

AP tool is repeat order.

So based on our revenue recognition, repeat order to the sales -- to the existing customer will be recognized revenue upon shipment.

So we recognize revenue upon shipment, which is this year definitely.

Then for our MAP, which is Ultra ECP for the front-end covering the interconnector application, this tool is our first tool and to our existing customer.

So this tool will basically go through evaluation process, the typical process evaluation for the first new tool or, I should say, probably 6 months to 1 year, sometimes even longer than 1 year with the new tool.

So for the, I call it, MAP electroplating, we'll not probably reckon a revenue until year 2020.

Okay.

Great.

And then you talked about some of the current order strengths you saw through the first quarter ordering.

You noted a nice uptick in shipments in Q2.

Wondering if you could just sort of talk by end market, is that demand really coming more from capacity expansions at your 3D NAND, DRAM customers?

Or are you seeing participation also from the foundry side of your business in that order strength?

Great.

Actually, no, the order we received in Q1 and most of this tool are going to ship within Q2 and Q3 time line.

And put this way, including tool order we received even after Q1 until last month or this month, we are pretty very highly busy on the Q2, Q3 time manufacture slots.

And also this tool, they're pretty balanced, right, like (inaudible) customer in DRAM, 3D NAND and foundry.

It's pretty much balanced out for the -- our -- in portfolio or the customer divide.

Great.

And then the last question for me, just the new electroplating tools.

When you look at the gross margin of those tools, how does that compare with the clean side of the business?

Is it sort of in line with the corporate average?

Or can you give us some sense how to be thinking about the margins on the electroplating tools?

Okay.

You look at our copper plating tool, you have 2 application, one for the advanced packaging side, which is I call AP.

And that margin I should say is anyway early production, it's within our regular margin range.

And with also our advanced copper plating for copper interconnectors, MAP, that's for the front-end application, actually in the high end of forecasted gross margin.

So it's pretty -- we're expecting they'd give us a good margin as continuing improving our deploy scale and more customer acceptance.

So anyway, both the technology innovative tool.

Our next question comes from the line of Mark Miller from Benchmark.

I just wonder if you can tell me where you stand on the current evaluations in terms of customers.

Any new customers and tools?

Well, in the -- obviously, you'll see that we talked about the previous phone -- I mean, this answer Tahoe has been mentioned, and that's in evaluation.

And also we have copper plating tool, right?

That's the tool especially advanced packaging tool, it's a repeat order.

But for this copper interconnector, mapping tool is evaluation.

And also there is some other small packaging tool we're also shipping out in the Q1 time line.

Some of those tools in the evaluation mode, too.

Yes.

I mean we're keeping as I recognize new -- revenue recognize procedure as the new tool and to their existing customer or all the tool -- mature tool for the new customer, we'll consider as evaluation tool.

So we're also expecting this kind of evaluation tool to continue to be in the Q3, Q4 time line.

What about the new factory in terms of factory absorption overhead?

Does that help or hurt margins?

And I'm just more curious how that factor place in, in terms of your margins?

Okay.

Actually, new factory, obviously we had a much wider spacing and more efficient area right now, most of which are fully clean room final assembly, so will give a better quality and also give us more convenient, high efficiency and also wider spacing for our assembly guy to work on their tool.

And as come to the margin increasing, and I should say, really depends on how much we load -- loaded this capacity, and we're loading more of tool and also will increase the manufacturing efficiency that will increase our margin in terms of gross margin.

Mark, Mark McKechnie here.

I might just add something on the margin front.

We're not -- throughout the year, we're still talking 40% to 45% on the gross margin.

I think our product mix can have a bigger impact certainly in the near term.

And of course, if you look out longer term, we'd hope for our margins to drift up both from scale absorption and some better margin on some of the newer products.

(Operator Instructions) Our next question comes from the line of Christian Schwab from Craig-Hallum Capital.

Congratulations, guys, on a great start to the year.

I have just 2 quick follow-ups.

David, can you tell us how many tools the Ultra-C Tahoe would be in a fab either by 50,000 or 100,000 wafer starts however the math is easiest?

Okay.

So let's take our example of the DRAM fab, right?

It was 100,000 wafer per month a fab.

Typically we talk about the load of the tool anywhere between 20 to 30 tool.

That's the number, overall number we estimate.

Perfect.

And can you remind us what the typical ASP for that product would be?

Well, I mean, obviously, even this product has different chemistry.

As you'll see a different chemistry, combination and other than sulfuric acid, you also add (inaudible) -- so depending on real configuration, so pricing range, I think we're probably talking about range up there about $5 million to $6 million range.

Perfect.

And then lastly, just a little bit more clarity on your comment about improved visibility.

I know it's been asked a couple of different ways.

Any other further details you could give there, whether it's increased visibility during the quarter from Hynix or YMTC, or any type of clarity that you can give about your improved visibility would be appreciated.

Yes.

Obviously, the -- compared with last earning call, right?

We -- that time, we have some appeal has been receiving, but some of the appeal is still under kind of (inaudible) or customer verbally told us.

But after the Q1, at this moment, a lot of deal has materialized, we received real material deal.

And also we are more clear delivery time to -- and most -- as mentioned before, Q2, Q3.

So we are very busy -- obviously Q1 is kind of busy quarter, and Q2, Q3 even busier.

And this moment is fully slot up there.

And there are some -- still some open slot in Q4.

But based on our forecast and also our tool has been shipped last year, which is some of them were recognized revenue this year, so we are fully confident about $100 million revenue in 2019.

(Operator Instructions) There are no further questions at this time.

I'll now hand the call back to David.

Please continue.

Thank you, operator, and thank you all for participating on today's call and for your support.

Before we close, Gary is going to mention upcoming Investor Relations events.

Gary, please.

Thanks, David.

On May 29, we'll host an event with the Craig-Hallum Institutional Investor Conference in Minneapolis.

In addition, on June 10, we will host one-on-one meeting at the Stifel Cross Sector Insight Conference in Boston.

Attendance of these conferences is invitation-only, so please contact your respective sales representative if you want to attend your scheduled one-on-one meetings with us.

Thank you all again.

This concludes the call, and you may now disconnect.