ACM Research, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Unless stated otherwise, amounts below are in U.S. dollars. ACM develops and sells semiconductor wafer-cleaning and other front- and back-end processing equipment, operating principally through its 82.5%-owned subsidiary in China. Share and per-share comparisons reflect the March 2022 three-for-one stock split.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $42.2 million | $43.7 million; down 3.5% |
| Gross profit / margin | $19.7 million / 46.7% | $18.0 million / 41.3% |
| Operating expenses | $29.0 million | $14.6 million; up 98.6% |
| Operating income (loss) | $(9.3) million | $3.5 million |
| Net income (loss) | $(7.4) million | $5.8 million |
| Net income (loss) attributable to ACM Research | $(5.8) million; $(0.10) basic EPS | $5.5 million; $0.10 basic EPS |
| Operating cash flow | $(27.7) million | $10.7 million |
| Free cash flow, company-defined | $(31.3) million | $9.2 million |
- Revenue from wet-cleaning and other front-end tools was $31.7 million, down 0.6%; advanced packaging, other back-end tools, services and spares contributed $10.5 million, down 11.4%. By product category, ECP, furnace and other technologies grew to $12.2 million from $5.6 million, while single-wafer cleaning, Tahoe and semi-critical cleaning declined to $26.0 million from $32.4 million.
- Gross margin improved 540 basis points, which management attributed to product mix. Operating expenses rose sharply, principally due to higher product-development, testing, personnel and new-product costs; R&D expense increased to $17.3 million from $5.5 million.
- Q1 net loss included a $3.9 million unrealized loss on trading securities, versus $1.0 million a year earlier, reflecting the market value of ACM Shanghai’s indirect SMIC investment. The company also recorded a $4.0 million income-tax benefit.
- At March 31, cash and cash equivalents were $380.3 million; short- and long-term time deposits totaled $152.8 million. Total borrowings were approximately $34.4 million, including current and long-term portions. Working capital was $758.2 million. Cash declined from $563.1 million at year-end, in part as the company placed funds in time deposits; investing cash outflow was $156.4 million.
- Inventory increased to $271.5 million from $218.1 million. It included $97.9 million of first-tool shipments awaiting customer acceptance or purchase, of which $79.4 million related to tools customers were contractually obligated to take upon acceptance.
Changes, outlook and risks
- Shipments, a company-defined measure that includes tools awaiting acceptance, were $67 million, compared with $74 million in Q1 2021. These shipments are not equivalent to recognized revenue.
- Management expects gross margin of 40%–45% for the foreseeable future. It stated that existing cash, operating cash flow and available short-term borrowing capacity should be sufficient for anticipated needs for at least 12 months. The filing does not provide specific full-year revenue or earnings guidance.
- Shanghai COVID-19 restrictions limited employee access, production and logistics in Q1 and impeded some customers’ ability to receive and install tools. ACM reported deferred shipments and expected disruptions could continue for several months, while cautioning that duration and financial impact were uncertain.
- Other risks include dependence on a concentrated customer base (the three largest customers generated 62.6% of quarterly revenue), supply-chain and transportation constraints, and exposure to PRC operations and regulation. The company was on the SEC’s conclusive HFCA Act identification list; a U.S. trading prohibition could occur as early as 2024 under then-current rules if audit-inspection requirements were not resolved.
- The Lingang production and R&D project carries investment, construction, production, sales and tax milestones; failure to meet specified conditions could trigger liquidated damages. Open capital commitments were $3.7 million. ACM reported no outstanding legal proceedings as of March 31, 2022.
- Management reported disclosure controls were effective as of quarter-end and no material change in internal control over financial reporting during the quarter. The filing also notes that new U.S. tax rules require capitalization and amortization of certain overseas R&D costs, affecting the effective tax rate.
Key facts for investors to verify
- Whether Shanghai lockdown-related production, customer acceptance and shipping delays continued after quarter-end, and how they affected later revenue and cash collection.
- Conversion of the elevated inventory and first-tool shipments into customer acceptance, revenue and cash; review the company’s shipment definition alongside GAAP revenue.
- Drivers and sustainability of the higher gross margin, alongside the substantial increase in R&D and total operating expenses.
- Cash generation and working-capital needs, including the distinction between cash, time deposits and trading securities, and the company’s debt maturities.
- Developments in PCAOB audit access and HFCA Act requirements, customer concentration, supply availability, and Lingang project milestones and potential penalties.