ACM Research, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted. ACM develops and sells semiconductor manufacturing equipment, principally through its Shanghai subsidiary. Most operations and revenue are in mainland China.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $67.0 | $47.7 | $164.6 | $111.1 |
| Gross profit / margin | $29.7 / 44.3% | $20.3 / 42.7% | $69.4 / 42.2% | $49.9 / 45.0% |
| Operating income | $11.8 | $7.5 | $19.6 | $16.1 |
| Net income attributable to ACM | $10.2 | $8.6 | $22.2 | $10.3 |
| Diluted EPS | $0.46 | $0.40 | $1.02 | $0.48 |
- Revenue grew 40.6% year over year in Q3 and 48.2% for the first nine months. Growth came from both wet-cleaning/front-end tools and advanced packaging, other tools, services and spares.
- For nine months, operating expenses rose 47.2% to $49.8 million, including higher sales and marketing and R&D spending. Operating income rose 21.9%; nine-month gross margin declined 2.8 percentage points, attributed to product mix.
- Q3 gross margin improved 1.5 percentage points year over year. ACM said margins fluctuate with utilization, order timing and product mix.
- Nine-month adjusted EBITDA, a non-GAAP measure, was $25.3 million versus $20.8 million. Nine-month operating cash flow was negative $3.8 million; free cash flow, as defined by ACM, was negative $9.3 million versus negative $35.7 million.
Liquidity, debt and balance sheet
- At September 30, cash and cash equivalents were $65.0 million, trading securities $30.2 million, current assets $377.3 million and current liabilities $195.2 million. Cash declined $6.7 million from year-end 2020.
- Total borrowings were approximately $40.6 million, comprising $15.2 million short-term borrowings, $2.4 million current long-term debt and $23.1 million long-term debt. Total liabilities were $227.0 million.
- Accounts receivable increased to $84.8 million from $56.4 million at year-end; inventory doubled to $176.6 million from $88.6 million. The company reported $81.9 million of finished goods, including tools awaiting customer acceptance or purchase.
- Management said existing cash, operating cash flow and short-term bank borrowing should be sufficient for anticipated needs for at least the next 12 months. ACM reported $5.5 million in capital expenditures in the first nine months.
Changes, outlook and notable items
- Q3 shipments were $99 million, versus $59 million a year earlier and $82 million in Q2. Shipments include first tools that may not generate revenue unless customers accept or elect to purchase them.
- Management expects gross margin of 40%–45% for the foreseeable future. The filing provides no specific revenue or earnings guidance.
- PRC government grants reduced relevant expenses by $7.1 million in the first nine months, compared with $0.8 million in the prior-year period; ACM also received $4.2 million in grant cash payments. Grant amounts and timing are uncertain.
- Trading securities generated a $0.9 million unrealized loss in Q3 and a $1.8 million unrealized gain for the nine months. These market-value changes affected reported results but were not operating revenue.
- After the reporting period, ACM Shanghai priced a proposed STAR IPO at RMB 85 per share, with expected gross proceeds of about $575 million. The proposed issuance represented 10% of ACM Shanghai after the offering; ACM Research expected to retain approximately 82.5%. Proceeds were intended for the Lingang facility, product development and working capital.
- Risk factors include customer concentration (the three largest customers represented 77.1% of Q3 revenue and 73.8% of receivables), concentration of operations and revenue in China, COVID-related disruption, and the execution and investment requirements of the Lingang production center. A securities class action remained pending; defendants’ motion to dismiss the amended complaint was scheduled for December 2, 2021, and the company said loss could not be estimated.
Key facts for investors to verify
- Whether shipped first tools are accepted and converted into recognized revenue, and how the elevated finished-goods inventory develops.
- Collections on receivables, inventory growth, and operating cash flow as sales expand.
- Gross-margin trends, product mix, and the extent to which government grants support reported expenses and R&D.
- Completion, proceeds and ownership effects of the proposed STAR IPO, and progress against Lingang investment and operating milestones.
- Developments in the securities lawsuit and the effects of customer, geographic and supply-chain concentration.