ACM Research, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial amounts below are in U.S. dollars; statements generally present amounts in thousands. ACM develops, manufactures and sells semiconductor manufacturing equipment, with most operations in China. Comparisons are with Q1 2020 unless otherwise noted.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $43.7 million | $24.3 million; up 79.6% |
| Gross profit / gross margin | $18.0 million / 41.3% | $10.2 million / 42.0% |
| Operating income / margin | $3.5 million / 7.9% | $1.2 million / 5.0% |
| Net income | $5.8 million | $2.0 million |
| Net income attributable to ACM / diluted EPS | $5.5 million / $0.25 | $1.7 million / $0.08 |
| Operating cash flow / free cash flow | $10.7 million / $9.2 million | $3.8 million / $3.7 million |
| Adjusted EBITDA (non-GAAP) | $6.0 million | $2.9 million |
Revenue growth came from both front-end wet-cleaning and processing tools ($31.9 million, up 40%) and advanced packaging, other back-end tools, services and spares ($11.8 million, up 657%). Mainland China accounted for $43.7 million of revenue; other regions contributed $36,000. Gross margin declined 0.7 percentage points, which management attributed to product mix. Operating expenses rose 62% to $14.6 million, below the pace of revenue growth.
Net income included a $2.8 million income tax benefit, primarily from tax deductions related to stock-option exercises; Q1 2020 had a $0.3 million tax expense. Q1 2021 also included a $1.0 million unrealized loss on trading securities. Management’s non-GAAP adjusted EBITDA adds back that unrealized loss as well as specified other items.
At March 31, cash and cash equivalents were $78.8 million, trading securities $27.0 million, current assets $286.6 million and current liabilities $128.0 million, yielding working capital of $158.5 million. Total borrowings were $42.5 million, comprising $23.5 million short-term and $19.0 million long-term. Total assets were $371.8 million and total equity $215.2 million. Operating cash flow benefited from increased customer advances and payables, alongside net income, and was partly offset by increased inventory and receivables. Inventory was $103.2 million, up from $88.6 million at year-end.
Material changes and business developments
- Shipments, including first tools awaiting customer acceptance, were $74 million, versus $12 million in Q1 2020 and $67 million in Q4 2020. Shipments are not equivalent to recognized revenue; customer acceptance can affect whether and when revenue is recorded.
- ACM expanded its Shanghai production footprint by leasing an additional building that added 100,000 square feet. It is also pursuing a multi-year, approximately 1-million-square-foot Lingang development and production center.
- The company held a 91.7% interest in ACM Shanghai; non-controlling interests received $352,000 of Q1 net income.
Outlook, risks and contingencies
- Management expects gross margin of 40%–45% for the foreseeable future. The filing provides no specific revenue or earnings guidance.
- Management believes cash, operating cash flow and short-term bank borrowings will meet anticipated needs for at least 12 months. It may seek additional financing if those sources are insufficient. Most cash is held in the PRC, where restrictions apply to distributions by ACM Shanghai.
- The planned STAR Market listing and IPO of ACM Shanghai remain pending reassessment by the listing committee following allegations in a third-party report and the related securities lawsuit. Formal registration and regulatory review and approval also remain outstanding. Management proposed offering up to 10% of ACM Shanghai.
- A putative U.S. securities class action against ACM and three officers seeks unspecified damages. Management considers the claims without merit and intends to defend the case; the company cannot estimate the likelihood or range of loss.
- Lingang land covenants require minimum investment of RMB 450 million and specified sales or tax milestones within six years; failure may result in liquidated damages. The company reported $10.3 million invested in Lingang-related projects as of March 31 and $3.4 million in open capital commitments.
- COVID-19 had not significantly affected operations, capital resources or liquidity through quarter-end, but continuing travel and operating restrictions could disrupt business, customers, suppliers or projects. The filing also highlights audit-inspection and potential Nasdaq listing risks related to the PCAOB’s inability to inspect the company’s PRC-based auditor.
Important facts for investors to verify
- Whether shipment growth converts to recognized revenue as customers accept first tools, and how concentrated customer exposure remains. The three largest customers generated 60.1% of Q1 revenue and represented 77.3% of receivables at quarter-end.
- Whether the unusually large tax benefit recurs; assess earnings excluding the $2.8 million benefit and the $1.0 million securities loss.
- Whether margins remain within management’s 40%–45% expectation as product mix and manufacturing utilization change.
- Progress, funding and milestone compliance for the Lingang facility, and the status of the STAR listing review and proposed IPO.
- Developments in the securities class action and U.S. audit-inspection or listing requirements affecting PRC-linked issuers.