Participants

Hui Wang; Chairman of the Board, President, Chief Executive Officer, Founder; ACM Research Inc

Mark Mckechnie; Chief Financial Officer, Treasurer, Secretary; ACM Research Inc

Presentation

Operator

Good day, ladies and gentlemen.
Thank you for standing by. Welcome to the ACM Research fiscal fourth quarter and fiscal year 2024 earnings conference call. Currently all participants on the list and only mode. Later we will conduct a question and answer session.
Instructions will apply 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 now turn the call to Mr. Steven Pelayo, Managing Director of the Blue Shirt Group. Steven, please go ahead.

Great, good day everyone.
Thank you for joining us to discuss fourth quarter and fiscal year 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's also a supplemental slide deck posted to the investors section of our website that we will reference during our prepared remarks. On the call with me today are our CEO, David Wang, our CFO, Mark McKechnie. And Lisa Feng, our CFO of our operating subsidiary ACM Shanghai.
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 materially.
Those 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-gap 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.
The IR section of our website and the slides 14 and 15. Also, unless otherwise noted, the following figures refer to the 4th quarter and full year of 2024, and comparisons are with the 4th quarter and full year of 2023. With that, I'll now turn the call over to David Wang. David.

Hui Wang

Thanks, Steven. Hello, everyone, and welcome to ACM Research. fourth quarter and the fiscal year 2024, earnings conference call.
Before I review the results, I will address recent regulatory update from US government.
On December second, the US Department of Commerce added 140 company to its entity list. Two of our subsidiary, ACM Shanghai and ACM Korea and other entity under their structure were added to the entity list. As we have noted, we are one of many that were added and we are not notified of any specific wrong doing.
To be clear, ACM Research Inc the US company, we were founded in California in 1998. It is our subsidiary that were added to the ended list and not ACM Research team.
Move on regarding the operation of ACM Shanghai in mainland China. The new regulation will make it difficult, if not impossible, to ACM Shanghai to obtain components from the US.
On that note, we have been working to localize our supply chain for some time. Events of the past few years, including the US restriction of 2022, have made it even more important for ACM Shanghai to localize its supply chain.
Thus we have reduced our US source components to just a small subset, and with our status on any list, we are working quickly to com complete the transition.
Bottom line, we remain committed to support our customer and comply with all global regulation regulations. We think the impact to their to our production is manageable and we do not expect a significant interruption of our business.
Regarding our global customer outside of mainland China, the new Department of commerce rule mainly restrict the US exports to ACM Shanghai and ACM Korea. They do not directly affect US company buying tools from us. We are therefore confident we can continue our effort to expand our business to global customers.
Now on to our business results. Please send to slide 3.
I'm pleased with our fourth quarter results, which cap with a strong year.
For the first quarter of 2024, we delivered $223 million in revenue of 31%. For the 2024 fiscal year, we delivered $782 million in revenue of 40%. Gross margin was 49.8% for the fourth quarter and 50.4% for the full year. Operating profit increased 46% in the fourth quarter and 63% for the full year.
We ended the year with $259 million of net cash and term deposit. Compared to the %212 million at the end of 2023. For shipment shipments for the first quarter was $264 million of 80%. Shipments for the full year were $973 million out of 63%. We believe the strong growth reflects ACM expanding market presence and the momentum gained from the new product cycle.
Now I will discuss the key growth drivers both for the market and specific to ACM research.
Tend to slide 4 for our product.
We now estimate our product portfolio address $18 billion global market opportunities. Our current business is a primary driven by three major product groups cleaning, plating, and advanced packaging.
We anticipate con continued growth in this category and look to incremental revenue contributions from our newer products, starting with the [Tahoe, SDM followed by track and the PCBD.]
Third party Sources [Sin] that global semiconductor WFE grow by 4% in 2024 to $1.7 billion. Based on this global WFE, we now estimate that our product address.
Serve the available market or send about $18 billion in total. For mainland China, WFE industry analysts estimate the market growth by 12% to $38 billion.
Our growth rate, 40% revenue and a 63% shipment was much higher than China WFE growth. We attribute our stress to market share gain from the current product, new product cycle, and the new customer. We also had a good execution from our production and the service teams.
Our success start with our customers to slide 6.
For 2024, we had a full customer that individually.
Account for 10% or more of the revenue. [The Huahong Group] was our top customer at the 15% of the sales. SMIC was the second at the 14%. And 1 PC and the PXW were third and the fourth at 12%. Now I will provide the detail on product.
Please send to slide 7. Revenue from single wafer cleaning town ho and the semi-critical cleaning product grow 43% in the 2024 and we represent 74% of the total revenue.
Our growth was driven by a significant increase in ULTRA C v backside cleaning tool and good growth from our several tools. We also had a contribution from our Tahoe and the Bed tools.
Look ahead in cleaning, we expect to see several significant product cycles, including high temperature SDM Tahoe, and other tools from continued growth in the mainland China.
We offer a comprehensive top to bottom cleaning portfolio. We estimate the global total available market, or Ten for the cleaning is close to $6.5 billion, and our product support more than 90% of all cleaning process steps.
If we take $6.5 billion [ten].
And the ACM $579 million in cleaning revenue for 2024. The post ACM global market share of cleaning at about 9%.
We believe that all completed portfolio of cleaning tools including SAPS Tahoe and TEBO, Echer, and others put us in a strong position to take a more share in China and the global market.
Revenue from ECP Furnace and other technology grow 46% in 2024 and we represent 90% of the total revenue. In the fourth quarter, the segment achieved the record quarterly revenue of more than $50 million which contribute to more than $150 million for the year.
We continue to see momentum for our plating tool for both front end and back end application. We are excited about the initial response to our new horizontal plating tool for panel level packaging.
Where we believe our unique approach is opening the door to make to more global customers. In Q4, we announced that our thermal and the [plasma AD furnace] to have achieved the codification and the two mainland China semiconductor customers.
Chip maker increasing the rely on their The position of the high quality ultra thin film with excellent staff coverage. We believe ACM is the proprietary AID furnace design a different differentiate from the other supplier and enable us to address challenging facing the demand 3D structure manufacturing.
Our fur product cycle is also gaining traction with both memory and the logic customers. Overall, we had a 17 furnace customers in 2024, up from nine at the end of 2023. We expected the revenue continue contribution from furnace to accelerator in 2025 versus small amount for 2024.
Revenue from advanced packages which exclude ECP but include service and then spare parts grow 3% in 2024 and represent the 7% of revenue.
This gallery, including a range of packaging tools including Coulter, developers, scriber, PSweeper, and Web Acher and also service and spare parts. We believe ACM is one of the only company that offer a full set of web tools, cover printing tool, and the tool for advanced packaging.
We had a new notable development for this category in 2024, including orders for the four wafer level packaging tools which are on track to ship to USA in the first half of 2025 and we announced three panel level packaging tools including vacuum flux, Canadianing tool, or Chile.
Horizontal bleeding tool and the bevel edge tool which we see as essentially, especially relevant for packaging of GPU and high bandwidth memory HDF.
We are making good progress with our new track and the DCBT platform. Both of these products come with the ACM innovation innovative and differentiated platform design and allow for process flexibility and high throughput.
We have a solid list. Of ongoing demonstration and the evaluation for both track and the GCVD for track, we plan to deliver a [30 milm WPH] inline care data tool in the middle of 2025.
We expect some initial revenue contribution in later 2025 with more in 2026 and beyond. Next, let me provide an update on our production facility.
First, on [Liang], please turn to slide 8. In the first quarter of 2024, we had grand opening ceremony for our Lingang production and R&D center. I'm pleased to report that we have begun initial operation and the factor.
Site to play a key role in production development and the efficiency.
High volume manufacturing. We expect most of our production to shift from our trans these the facility to our company owning gang facility at the end of Q2.
We are proud of our 2,300 square meter plus 100 cleaning room which we expect will accelerate our product development speed and the in-house demonstration capability.
Next, our Oregon facility to slide 9. In October 2024, we complete the purchasing of a new 40,000 square foot Oregon facility. It includes a 5,200 square foot cleaning room, which will support advanced to demonstration and R&D.
The rest of the space will be for manufacturing for our global customers. We see this as a great opportunity to further expand our customer base in the US. Before I review our other, I want to share some thoughts regarding our ownership in ACM Shanghai stock.
We are very pleased by the success of ACM Shanghai team, which has now become a key supplier to the Asia semiconductor industry.
As in Shanghai has also proven to be greater source of capital to us in the form of a dividend. In 2023 and 2024, as the major shareholder in Shanghai, we received dividend net of tax of $19.2 million and $28.5 million respectively.
And we expect the dividend to continue. In fact, ACM Shanghai has formally announced its intention to pay a dividend of 25%-30% of net earning.
Over the next three years, subject to normal shareholder approval.
We are using dividends to accelerate our global business development.
ACM Shanghai stock, which is now treated at $6.3 billion market cap on the Shanghai stock market.
It is also a key strategic asset for us and our global shareholders. In fact, $181.5% ownership is now worth about $5.2 billion which is more than three times ACMR's current market cap of $1.5 billion.
Let's give us some unique advantage. In 2021, ACM Shanghai raised USD575 million in IPO, enabling us to scale our business and expand our product portfolio. ACM Shanghai is now in the process of another raising of up to USD600 million to make the company to the next level.
I will clarify a few points that might be helpful for the market to evaluate the options.
Our three year lockup on our ACM Shanghai stock expired last quarter and we now have additional flexibility to sell shares. We're very comfortable that ACM can sell some share of ACM Shanghai stock and the repatriate the cash back to the US.
The timing of any sale, of course, would depend on pricing, market condition, and our own cash needs and other factors. We believe the combination of ACM world class technology, and the customer supporting and access to their substantial capital market make us unique position to become a world class global WFE supplier.
Now I will provide our outlook for the full year 2025. Please turn to slide 10.
In early January, we introduced our 2025 revenue outlook in a range of $850 million to $950 million. This implies 15% of year over year growth at the middle point. We are irritating this outlook today.
I'm pleased to announce today that we have adjust our gross margin target upwards. We now target a range of 42% to 48% versus the prior range of 40% to 45%.
I'm proud of the strong growth our company has achieved since our foundational funding in California in 1998 and the establishment of ACM Shanghai in 2005. We have a builder global competitive business.
Our success has been built on innovation and differential technology, particularly in cleaning and electric plating, addressing evolving needs of a semiconductor manufacturing. So this foundation, we have expanded our market reach and gained international traction. We're building.
Strong partnership with the key industrial player in China. ACM is recognized as a leader in the advanced wafer cleaning and the front end electroplating solution and is preparing for a new product ramp in the furnace, track, and the PCBD outside China, we are engaging with the multiple customer with the operation in US, Europe, and Korea, Taiwan, and Singapore. The global interest is a broader base.
Across our entire product portfolio from the front end, the wafer fab to the back end advanced packaging, including our innovative cleaning and the plating offering for next generation panel level packaging.
Now let me turn the call over to the CFO Mark who will reveal detail of our fourth quarter.
A result, but please.

Mark Mckechnie

Thank you, David. Good day everyone. Please turn to slide 11. Unless I note otherwise, I'll refer to non-GAAP financial measures which excludes stock-based compensation, unrealized gain loss on short-term investments.
Reconciliation of these non-gap measures to comparable GAAP measures is included in our earnings reliefs. Unless also unless otherwise noted, the following figures refer to the 4th quarter and full year of 2024. Comparisons are with the fourth quarter and full year of 2023.
I'll not provide financial highlights. Revenue is $223.5 million for the fourth quarter, up 31.2%. For the full year 2024, revenue was $782.1 million.
Up 40.2%. Revenue for single wafer cleaning, Tahoe, and semi-critical cleaning was $155.2 million, up 26.9%. For the full year 2024, this category grew by 43.3%. Revenue for ECP fronted packaging, furnace, and other technologies is $51.7 million, up 60.9%.
For the full year 2024, this category grew by 46.2%, and revenue for advanced packaging, excluding ACP services and spares of $16.6 million, up 4.2%. For the full year 2024, this category grew by 3.3%.
Total shipments for $264 million for the fourth quarter versus $140 million in Q4 of 2023. For the full year 2024, shipments were $973 million up 63.1%. Gross margin was 49.8% for the fourth quarter versus 46.8%, but the full year 2024 gross margin was 50.4% versus 49.8% in 2023.
We have updated our long-term business model to a gross margin target range of 42% to 48% versus the prior range of 40% to 45%. We do expect our 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 $58.4 million for the fourth quarter, up 34%. For the full year 2024, operating expenses were $193.4 million, up 25.2%. Revenue grew faster than OpEx for the year, demonstrating a solid operating leverage in our model.
We invested in research and development to expand our product line, and we invested in sales and marketing to reach new customers around the world. For 2025, we planned for research and development in the 12% to 13% range, sales and marketing in the 7% to 8% range, and GNA in the 5% to 6% range.
Operating income was $52.8 million for the fourth quarter, up 46.4%. operating margin increased to 23.6% to 21.2%. For the full year 2024, operating margin increased to 25.6% from 22.1%. Income tax expense was $17.3 million for the fourth quarter versus $8.1 million.
For the full year 2024, Income tax expense was $35 million versus $19.4 million in 2023. For 2025, we expect their effective tax rate in the 12% to 15% range. Net income attributable to ACM research was $37.7 million for the fourth quarter versus $28.7 million. For the full year 2024, net income attributable to ACM research is $152.2 million versus $107.4 million in 2023.
Net income for diluted share was $0.56 for the fourth quarter versus $0.43 for the full year 2024, net income per diluted share was $2.26 versus $1.63. Our non-gap net non-GAAP net income excluded $8.8 million in stock-based compensation expense for the fourth quarter and $49.6 million for the full year.
For the full year 2025, we expect stock-based compensation to be in the $35 million range. It will now review selected balance sheet and cash flow items, cash cash equivalents, restricted cash and time deposits for $441.9 million at year end versus $369.1 million at the end of the third quarter of 2024.
Net cash which excludes the short term and long term debt was $259.1 million versus $198.5 million at the end of the third quarter of 2024. Total inventory at year end was $598.0 million versus $628.7 million at the end of the third quarter of 2024.
This included raw materials and work of process, $304.9 million and finished goods inventory of $293.1 million. Finished goods inventory primarily consists of tools under evaluation at our customer sites together with finished goods located at ACM's facilities. Cash flow from operations was $88 million for the fourth quarter and $152 million for the full year 2024.
Capital expenditures for $12.3 million for the fourth quarter, $85.3 million for the full year 2024. For the full year 2025, we expect to spend about 65 to $75 million in capital expenditures.
That does conclude our prepared remarks. Now let's open up the call for any questions that you may have, operator, please open up the floor for questions.

Question and Answer Session

Operator

(Operator Instructions)
Now first question coming from the lineup. Charles with Needham & Company. Your line is now open.

Hello. Yeah, the line cut off a little bit. Just want to make sure it's my turn. So maybe the first question that you you guys reiterated the the fiscal '25 revenue outlook, it's the same outlook you provided. In January, low point at the low end, 9% young year growth at the high end at 21% young year growth.
Can you provide a little bit of color, what goes into the assumptions to the low end versus the high end and what are the scena scenarios, I think the press release you did the Mention that the various spending scenarios by your customers this year are baked into the range of the guidance. I want to get a little bit more color on that. Thanks.

Hui Wang

Okay, Charles, actually, this.
Prediction of the revenue is really based on the last year or shipment which is some of them were record revenue, this year. Obviously we can see their customer PO customer their you know their expansion plan, probably this the moment I can say about Q2 Q3 and there's still some Q4, we cannot say that, right? So that's the.
That's why really from their in early time of the year to give the this low end and high end projection right so couple of the detail assumption there I cannot elaborate too much detail but anyway there's a range of put it so maybe the time go to the Q2 we can look for Q4 and that moment made more clear in Q4 we can, readjust to our revenue projection.
So, that's a typical process, we did every year.

Got it. Maybe a quick followup sounds like, you're saying, you have good visibility, at least through the third quarter, this year it's only like Q4, a little unclear at this point. Is that correct?

Hui Wang

Yeah, when you say some Q3 was still, maybe add more right this moment still early of the year, but definitely we see the Q3, but the Q4 was still, I said not clear, right? So that will be waiting say maybe Q2 timeline or end of the, Q2, we can see that more clear in the Q4 timeline.

Mark Mckechnie

Yeah, Charles, and that's that's pretty much normal visibility at this time of the year. We go through our year-end planning process and then come back early in the year and kind of, test that. And of course we took a look at it before we reported here on the quarter.
So it's pretty standard visibility going into the year, as David noted, it's based on the POs that we have in hand. It's based on also kind of the forecast of POs that we still would probably get as we move through the year and then the timing of some of the customer acceptances from first tools last year.

Hui Wang

Yeah, but our average, our manufacturer time is about six months right now, five to six, so that's will be the right part of their projection, for their, looking in their two quarter, right, yeah.

Got it. The other question, I think, usually, before Chinese New Year, there's a little bit of, I would call information black hole about the outlook for the new year, but now we are coming out of that and especially in light of the recent export control.
By the US and obviously a few of your customers were added to entity list and it's getting a little bit hard to predict what would be the impact of export control because we did see YMTC which was added in 2022, it came back to To your 10% customer list but there's another customer on your 2024 10% customer list that got recently added.
So maybe we can get a little bit sense based on what you're seeing right now, the export control rules, do they have an impact, positive or negative?
Your customers spending plan in 2025 and any sort of a movement you're seeing a little bit the micro level, customer to customer level, if anything, you can provide that'd be great.
Thank you.

Hui Wang

Well, I mean, this is a very broad question, real customer is different, right? And they.
I want to say definitely some customer get an impact right because they put on any list and some customer, we still see the expansion so it's really hard to give you the, general description right this moment we're also working with the customer to figure out how much impact, we're still on the process to access and the evaluation this kind of impact.

Got it. So maybe the last question, looks like the plating furnace, product line, you have 3 segments in your reporting that particular segment, has done pretty well and probably growing even faster than the we clean product line.
I think you just mentioned plating, you become a leading supplier in China and, especially for the front end. I was kind of curious, like, what do you see in the market share of the plating. And especially in the front end and versus packaging, can you give a little bit of color on that front end versus back end for plating and where the she is and where do you think the trend is going for ACM.
Thank you.

Hui Wang

Yeah, I think our market share is about 30% to 35%.
And it it actually both in the front and the back end, right? It's almost like the same. So we're still in the 30% to 35% of the market share in China.

Got it, thank you.

Hui Wang

Okay, thank you, Charles. Thanks, Charles.

Operator

Thank you.
(Operator Instructions)
Our next question coming from the line of Mark Miller with the benchmark Company. Your line is now open.

Once again, congratulations on a very nice quarter. I'm just wondering, a number of equipment firms, some equipment firms are projecting strong growth in their AP related sales for 2025.
What are you thinking about in terms of the AP sales you're expecting this year?

Mark Mckechnie

Oh, the packaging you're talking about.

Hui Wang

Right? I see, okay.
Well, yes, I think we do the see the advanced packaging and growing and, obviously, all this kind of a 2.5% and the 3D in the puzzle as one thing and. There are certain, other, I want to say. Advanced packaging, going on here. So we see that expansion, basically.
And I think this year probably was better than last year in terms of the packaging.

Mark Mckechnie

I'd point out it's a little tricky because some of our our ECP group includes both the front end and the the back end packaging, right? So and then then our our advanced packaging group is everything but the ECP so it's.
When at some point we'll we can give some more detail when that becomes a bigger percentage of overall revenue, but at this point it's hard to kind of see that our back end packaging group.

Hui Wang

Also I want to add that is the markets also the panel packaging start to play, right? So we do have three products, in the market, we see that it will start contributing to our revenue, in the [20,252.]
So that's another, new field or new part of the technology will work on.

Yeah, I was just wondering if you can give us some sort of estimate how your sales breakdown related to say memory, logic and electric vehicles. What percent of your sales are related to each of those three areas.

Mark Mckechnie

Yeah, Mark, it's tough. We don't generally break that out. I think you can you can look at our 10% customers and kind of take a guess, right? So we've got four of them that were a little over 50% of our business and so yeah, we generally don't look at it by those in markets like that and we haven't broken them out.
We get that request though so we could look into perhaps updating you on that in the future, but at this point we don't have the detailed breakdown.

Okay, you said that four customers accounted for roughly 50% of your or over 50% of your business, is that correct?

Mark Mckechnie

I think that's right, yeah, it's over 52% for the four customers, yeah.
Thank you.
Yeah.

Operator

Thank you again, (Operator Instructions)I will now turn it back to Mr. David Wang for any closing remarks.

Hui Wang

Okay, thank you, operator, and thank you all for participating on today's call and for your support. Before we close, Steven is going to mention our upcoming investor relation events. Steven, please.

Great, thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences on March 17th, we will present at the 37th annual Roth Conference in Dana Point, California.
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. With that, this concludes the call, and you may now disconnect. Take care.