UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _________ to _____________
Commission file number: 001-38273
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (510 ) 445-3700
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| þ | Accelerated filer | o | |||||||||||||||
| Non-accelerated filer | o | Smaller reporting company | |||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class | Number of Shares Outstanding | |||||||
| Class A Common Stock, $0.0001 par value | ||||||||
| Class B Common Stock, $0.0001 par value | ||||||||
TABLE OF CONTENTS
| Item 5. | |||||||||||
ACM Research, Inc., or ACM Research, is a Delaware corporation founded in California in 1998 to supply capital equipment developed for the global semiconductor industry. Since 2005, ACM Research has conducted its business operations principally through its subsidiary ACM Research (Shanghai), Inc., or ACM Shanghai, a limited liability corporation formed by ACM Research in the People’s Republic of China, or mainland China, in 2005. Unless the context requires otherwise, references in this report to “our company,” “our,” “us,” “we” and similar terms refer to ACM Research, Inc. and its subsidiaries, including ACM Shanghai, collectively.
We conduct a substantial majority of our product development, manufacturing, support and services in mainland China through ACM Shanghai. We are not a mainland China operating company, and we do not conduct our operations in mainland China through the use of a variable interest entity or any other structure designed for the purpose of avoiding mainland China legal restrictions on direct foreign investments in mainland China-based companies. For a description of certain matters relating to our operations in mainland China, including our corporate structure, the movement of cash throughout our organization, certain audit and regulatory matters, and risks associated therewith, please see “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report, the disclosure at the forefront of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the Risk Factors included therein, as updated by the disclosure included in “Part II. Item 1A—Risk Factors” in this report.
For purposes of this report, certain amounts in Renminbi, or RMB, have been translated into U.S. dollars solely for the convenience of the reader. The translations have been made based on the conversion rates published by the State Administration of Foreign Exchange of the People’s Republic of China.
SAPS, TEBO, ULTRA C and ULTRA FURNACE are trademarks of ACM Research. For convenience, these trademarks appear in this report without ™ symbols, but that practice does not mean that ACM Research will not assert, to the fullest extent under applicable law, ACM Research’s rights to the trademarks. This report also contains other companies’ trademarks, registered marks and trade names, which are the property of those companies.
2
FORWARD-LOOKING STATEMENTS AND STATISTICAL DATA
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including uncertainties surrounding the COVID‑19 pandemic (including effects of related mainland China restrictions) and other factors described or incorporated by reference in “Item 1A. Risk Factors” of Part II of this report, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.
The information included under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” of Part I of this report contains statistical data and estimates, including forecasts, that are based on information provided by Gartner, Inc., or Gartner, in “Forecast: Semiconductor Wafer Fab Equipment, Worldwide, 4Q22 Update” (December 2022), or the Gartner Report. The Gartner Report represents research opinions or viewpoints that are published, as part of a syndicated subscription service, by Gartner and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this report), and the opinions expressed in the Gartner Report are subject to change without notice. While we are not aware of any misstatements regarding any of the data presented from the Gartner Report, estimates, and in particular forecasts, involve numerous assumptions and are subject to risks and uncertainties, as well as change based on various factors, that could cause results to differ materially from those expressed in the data presented below.
Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we assume no obligation to update these statements publicly or to update the reasons actual results could differ materially from those anticipated in these statements, even if new information becomes available in the future.
You should read this report, and the documents that we reference in this report and have filed as exhibits to this report, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACM RESEARCH, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
| September 30, 2023 | December 31, 2022 | ||||||||||
| Assets | (Unaudited) | ||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents (note 2) | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Short-term time deposits (note 2) | |||||||||||
Short-term investments (note 15) | |||||||||||
Accounts receivable, net (note 4) | |||||||||||
| Other receivables | |||||||||||
Inventories, net (note 5) | |||||||||||
| Advances to related party (note 16) | |||||||||||
| Prepaid expenses | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net (note 6) | |||||||||||
| Land use right, net (note 7) | |||||||||||
| Operating lease right-of-use assets, net (note 11) | |||||||||||
| Intangible assets, net | |||||||||||
| Long-term time deposits (note 2) | |||||||||||
| Deferred tax assets (note 19) | |||||||||||
| Long-term investments (note 14) | |||||||||||
| Other long-term assets (note 8) | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Other payables and accrued expenses (note 10) | |||||||||||
| Advances from customers | |||||||||||
Current portion of operating lease liabilities (note 11) | |||||||||||
| Deferred revenue | |||||||||||
| Short-term borrowings (note 9) | |||||||||||
| Current portion of long-term borrowings (note 12) | |||||||||||
| Income taxes payable (note 19) | |||||||||||
| FIN-48 payable (note 19) | |||||||||||
| Related party accounts payable (note 16) | |||||||||||
| Total current liabilities | |||||||||||
| Long-term borrowings (note 12) | |||||||||||
Long-term operating lease liabilities (note 11) | |||||||||||
| Other long-term liabilities (note 13) | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (note 20) | |||||||||||
| Equity: | |||||||||||
| Stockholders’ equity: | |||||||||||
| Class A Common stock (note 17) | |||||||||||
| Class B Common stock (note 17) | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Statutory surplus reserve (note 22) | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total ACM Research, Inc. stockholders’ equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ACM RESEARCH, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, 2023 | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue (note 3) | $ | $ | $ | $ | |||||||||||||||||||
Cost of revenue (note 16) | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Realized gain from sale of short-term investments | |||||||||||||||||||||||
Unrealized loss on short-term investments | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense), net | ( | ||||||||||||||||||||||
Income (loss) from equity method investments | ( | ||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense (note 19) | ( | ( | ( | ( | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: Net income attributable to non-controlling interests | |||||||||||||||||||||||
| Net income attributable to ACM Research, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Less: Comprehensive income (loss) attributable to non-controlling interests | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) attributable to ACM Research, Inc. | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net income attributable to ACM Research, Inc. per share of common stock (note 2): | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
Weighted average shares of common stock outstanding used in computing per share amounts (note 2): | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ACM RESEARCH, INC.
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2023 and 2022
(In thousands, except share and per share data)
(Unaudited)
| Common Stock Class A | Common Stock Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares (1) | Amount | Shares (1) | Amount | Additional Paid- in Capital | Retained Earnings | Statutory Surplus Reserve | Accumulated Other Comprehensive Income | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Class B common stock to Class A common stock | - | ( | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Class A | Common Stock Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid- in Capital | Retained Earnings | Statutory Surplus Reserve | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle under ASC 326, net of tax | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
ACM Shanghai dividend | - | - | - | - | - | - | - | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
6
ACM RESEARCH, INC.
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended September 30, 2023 and 2022
(In thousands, except share and per share data)
(Unaudited)
| Common Stock Class A | Common Stock Class B | Additional Paid- in Capital | Retained Earnings | Statutory Surplus Reserve | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Class A | Common Stock Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid- in Capital | Retained Earnings | Statutory Surplus Reserve | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | — | $ | $ | — | $ | ( | $ | — | $ | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||||
7
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ACM RESEARCH, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income from operations to net cash used in operating activities | |||||||||||
Non-cash operating lease cost | |||||||||||
| Depreciation and amortization | |||||||||||
Gain on disposals of property, plant and equipment | ( | ||||||||||
Realized gain on short-term investments | ( | ( | |||||||||
Income from equity method investments | ( | ( | |||||||||
Unrealized loss on short-term investments | |||||||||||
Inventory provision | |||||||||||
Provision for credit losses | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Net changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Other receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Advances to related party (note 16) | ( | ||||||||||
| Prepaid expenses | ( | ( | |||||||||
| Other long-term assets | |||||||||||
| Related party accounts payable (note 16) | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Advances from customers | |||||||||||
Deferred revenue | |||||||||||
| Income taxes payable | |||||||||||
| FIN-48 payable | ( | ( | |||||||||
| Other payables and accrued expenses | |||||||||||
| Other long-term liabilities | ( | ( | |||||||||
| Net cash flow used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Purchase of intangible assets | ( | ( | |||||||||
Purchase of long-term investments (note 14) | ( | ( | |||||||||
Purchase of equity investments | ( | ||||||||||
Purchase of time deposits | ( | ( | |||||||||
Proceeds from maturity of time deposits | |||||||||||
Proceeds from selling short-term investments | |||||||||||
Dividend from long-term investments (note 14) | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from short-term borrowings | |||||||||||
| Repayments of short-term borrowings | ( | ( | |||||||||
Proceeds from long-term borrowings | |||||||||||
| Repayments of long-term borrowings | ( | ( | |||||||||
ACM Shanghai dividends | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | $ | ( | $ | ( | |||||||
Net decrease in cash, cash equivalents and restricted cash | $ | ( | $ | ( | |||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid, net of capitalized interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows: | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||
Non-cash financing activities: | |||||||||||
| Conversion of Class B common stock to Class A common stock | $ | $ | |||||||||
| Cashless exercise of stock options | $ | $ | |||||||||
| Non-cash investing activities: | |||||||||||
| Transfer from inventory to property, plant and equipment | $ | $ | |||||||||
Purchase property, plant and equipment through accounts payable and other payable | $ | $ | |||||||||
Transfer of prepayment for property to property, plant and equipment | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
9
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
NOTE 1 – DESCRIPTION OF BUSINESS
ACM Research, Inc. (“ACM” or “ACM Research”) and its subsidiaries (collectively with ACM, the “Company”) develop, manufacture and sell single-wafer wet-cleaning equipment used to improve the manufacturing process and yield for advanced integrated chips. The Company markets and sells its single-wafer wet-cleaning equipment, under the brand name "Ultra C," which are based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”) and Timely Energized Bubble Oscillation (“TEBO”) technologies. These tools are designed to remove random defects from a wafer surface efficiently, without damaging the wafer or its features, even at increasingly advanced process nodes.
ACM was incorporated in California in 1998, and it initially focused on developing tools for manufacturing process steps involving the integration of ultra low-K materials and copper. The Company’s early efforts focused on stress-free copper-polishing technology, and it sold tools based on that technology in the early 2000s.
In 2006, the Company established its operational center in Shanghai in the People’s Republic of China (“mainland China”), where it operates through ACM’s subsidiary, ACM Research (Shanghai), Inc. (“ACM Shanghai”). ACM Shanghai was formed to help establish and build relationships with integrated circuit manufacturers in mainland China, and the Company initially financed its Shanghai operations in part through sales of non-controlling equity interests in ACM Shanghai.
In 2007, the Company began to focus its development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. The Company introduced its SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process, in 2009. It introduced its TEBO technology, which can be applied at numerous steps during the fabrication of small node two-dimensional conventional and three-dimensional patterned wafers, in March 2016. The Company has designed its equipment models for SAPS and TEBO solutions using a modular configuration that enables it to create a wet-cleaning tool meeting the specific requirements of a customer, while using pre-existing designs for chamber, electrical, chemical delivery and other modules. In August 2018, the Company introduced its Ultra-C Tahoe wafer cleaning tool, which can deliver high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high-temperature single-wafer cleaning tools. Based on its electro-chemical plating (“ECP”) technology, the Company introduced in March 2019 its Ultra ECP AP, or “Advanced Packaging,” tool for bumping, or applying copper, tin and nickel to semiconductor wafers at the die-level, and its Ultra ECP MAP, or “Multi-Anode Partial Plating,” tool to deliver advanced electrochemical copper plating for copper interconnect applications in front-end wafer fabrication processes. In 2022, the Company added two major new product categories with the introduction of the Ultra Pmax™ PECVD and Ultra Track tools. The Company also offers a range of custom-made equipment, including cleaners, coaters and developers, to back-end wafer assembly and packaging factories, principally in mainland China.
In 2011, ACM Shanghai formed a wholly-owned subsidiary in mainland China, ACM Research (Wuxi), Inc. (“ACM Wuxi”), to manage sales and service operations.
In November 2016, ACM re-domesticated from California to Delaware pursuant to a merger in which ACM Research, Inc., a California corporation, was merged into a newly formed, wholly-owned Delaware subsidiary, also named ACM Research, Inc.
In June 2017, ACM formed a wholly-owned subsidiary in Hong Kong, CleanChip Technologies Limited (“CleanChip”), to act on the Company’s behalf in Asian markets outside mainland China by, for example, serving as a trading partner between ACM Shanghai and its customers, procuring raw materials and components, performing sales and marketing activities, and making strategic investments.
In August 2017, ACM purchased 18.77 % of ACM Shanghai’s equity interests held by Shanghai Science and Technology Venture Capital Co., Ltd. On November 8, 2017, ACM purchased the remaining 18.36 % of ACM Shanghai’s equity interests held by third parties, Shanghai Pudong High-Tech Investment Co., Ltd. and Shanghai Zhangjiang Science & Technology Venture Capital Co., Ltd. At December 31, 2017, ACM owned all of the outstanding equity interests of ACM Shanghai, and indirectly through ACM Shanghai, owned all of the outstanding equity interests of ACM Wuxi.
10
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
In December 2017, ACM formed a wholly-owned subsidiary in the Republic of Korea (“Korea”), ACM Research Korea CO., LTD. (“ACM Korea”), to serve customers based in Korea and perform sales and marketing and research and development (“R&D”) activities for new products and solutions.
In March 2019, ACM Shanghai formed a wholly-owned subsidiary in mainland China, ACM Research (Lingang), Inc. ("ACM Lingang") to manage activities related to the addition of future long-term production capacity. ACM Lingang is the English name referred to by its Chinese language name Shengwei Research (Shanghai), Inc. ("ACM Shengwei") in prior filings. ACM Shengwei and ACM Lingang refer to the same entity.
In June 2019, CleanChip formed a wholly-owned subsidiary in California, ACM Research (CA), Inc. (“ACM California”), to provide procurement services on behalf of ACM Shanghai. In June 2019, ACM Korea was reorganized as a wholly-owned subsidiary of CleanChip.
In June 2019, ACM announced plans to complete a listing (the “STAR Listing”) of shares of ACM Shanghai on the Shanghai Stock Exchange’s Sci-Tech Innovation Board, known as the STAR Market, and a concurrent initial public offering (the “STAR IPO”) of ACM Shanghai shares in mainland China. ACM Shanghai is currently ACM’s primary operating subsidiary, and at the time of announcement, was wholly-owned by ACM. To meet a STAR Listing requirement that it have multiple independent stockholders in mainland China, ACM Shanghai completed private placements of its shares in June and November 2019, following which, as of September 30, 2020, the private placement investors held a total of 8.3 % of the outstanding shares of ACM Shanghai and ACM Research held the remaining 91.7 %. As part of the STAR Listing process, in June 2020 the ownership interests held by the private investors were reclassified from redeemable non-controlling interests to non-controlling interests as the redemption feature was terminated.
In preparation for the STAR IPO, ACM completed a reorganization in December 2019 that included the sale of all of the shares of CleanChip by ACM to ACM Shanghai for $3,500 . The reorganization and sale had no impact on ACM’s consolidated financial statements.
In August 2021, ACM formed a wholly-owned subsidiary in Singapore, ACM Research (Singapore) PTE, Ltd. (“ACM Singapore”), to perform sales, marketing, and other business development activities.
In November 2021, ACM Shanghai completed its STAR Listing and STAR IPO and its shares began trading on the STAR Market. In the STAR IPO, ACM Shanghai issued 43,355,753 shares, representing 10 % of the total 433,557,100 shares outstanding after the issuance. The shares were issued at a public offering price of RMB 85.00 per share, and the net proceeds of the STAR IPO, after issuance costs, totaled $545,512 . Upon completion of the STAR IPO, ACM owned 82.5 % of the outstanding ACM Shanghai shares. However, in May 2023, ACM's ownership declined to 82.1 % due to the exercise of 2,150,309 stock options related to ACM Shanghai shares (note 18).
In February 2022, ACM Shanghai formed a wholly-owned subsidiary in mainland China, ACM Research (Beijing), Inc. (“ACM Beijing”) to perform sales, marketing and other business development activities.
In March 2022, ACM formed a wholly-owned subsidiary in Korea, Hanguk ACM CO., LTD, to perform business development and other related activities.
In March 2022, the Board of Directors of ACM declared a 3 -for-1 stock split of Class A and Class B common stock effected in the form of a stock dividend (the “Stock Split”). Each stockholder of record at the close of business on March 16, 2022, received a dividend of two additional shares of Class A common stock for each then-held share of Class A common stock and two additional shares of Class B common stock for each then-held share of Class B common stock, which were distributed after the close of trading on March 23, 2022. Unless otherwise indicated, all share numbers, per share amount, share prices, exercise prices and conversion rates set forth in these notes and the accompanying condensed consolidated financial statements reflect the Stock Split.
In June 2023, ACM Shanghai formed a wholly-owned subsidiary in mainland China, Yusheng Micro Semiconductor (Shanghai), Co., Ltd, ("Yusheng Micro") to perform business development activities.
11
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
In June 2023, Yusheng Micro together with Wooil Flucon Co. (note 14) and a private investor established ACM-Wooil Microelectronics (Shanghai) Co., Ltd, ("ACM-Wooil"), a partially owned subsidiary based in mainland China to develop and produce key components for the semiconductor equipment industry.
The Company has direct or indirect interests in the following subsidiaries:
| Effective interest held as at | |||||||||||
| Name of subsidiaries | Place and date of incorporation | September 30, 2023 | December 31, 2022 | ||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
| % | % | ||||||||||
(1)ACM Research (Lingang) Inc. is the English name referred to by its Chinese language name Shengwei Research (Shanghai), Inc. in prior filings. ACM Research (Lingang), Inc. and Shengwei Research (Shanghai), Inc. refer to the same entity.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements include the accounts of ACM and its subsidiaries. ACM’s subsidiaries are those entities in which ACM, directly or indirectly, controls a majority of the voting power. All significant intercompany transactions and balances have been eliminated upon consolidation.
The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 2022 included in ACM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The accompanying condensed consolidated financial statements are unaudited. In the opinion of management, these unaudited condensed consolidated financial statements of the Company reflect all adjustments that are necessary for a fair presentation of the Company’s financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of September 30, 2023 and the results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any future period.
12
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
Common Stock Split
Unless otherwise indicated, all prior period share and per share amounts, common stock, other capital information presented in the accompanying financial statements and these notes thereto reflect the impact of the Stock Split (Note 1). Proportional adjustments were also made to outstanding awards under the Company’s stock-based compensation plans.
Recent Restrictions by U.S. Department of Commerce, Japan and Netherlands for Mainland China-based Semiconductor Producers
Substantially all of ACM Shanghai’s customers and a significant portion of its operations are based in mainland China. In 2022, Shanghai Huali Microelectronics Corporation, together with Huahong Semiconductor Ltd., collectively known as The Shanghai Huahong (Group) Company, Ltd., or The Huali Huahong Group, a leading mainland China-based foundry, accounted for 18.2 % of our revenue; Semiconductor Manufacturing International Corporation, or SMIC, a leading mainland China-based foundry, accounted for 15.6 % of our revenue; and Yangtze Memory Technologies Co., Ltd., or YMTC, a leading mainland China-based memory chip company, together with one of its subsidiaries, accounted for 10.0 % of our revenue.
In early October 2022 the U.S. government enacted new rules aimed at restricting U.S. support for mainland China’s ability to manufacture advanced semiconductors. The rules include new export license requirements for exports, re-exports or transfers to or within mainland China of additional types of semiconductor manufacturing items, items for use in manufacturing designated types of semiconductor manufacturing equipment in mainland China, and semiconductor manufacturing equipment for use at certain IC manufacturing and development facilities in mainland China. In addition, the U.S. government imposed new restrictions by which U.S. persons anywhere in the world are effectively barred from engaging in certain activities related to the development and production of certain semiconductors at mainland China fabrication facilities meeting specified criteria, even if no items subject to the U.S. Export Administration Regulations (EAR) are involved. These restrictions were later updated to extend to Macau
In October 2023, the U.S. government revised and expanded the October 2022 controls with the release of additional rules. While the release primarily clarified the October 2022 regulations, certain changes have the potential to be more significant. In particular, the U.S. government expanded license requirements on additional types of semiconductors, semiconductor manufacturing items, and items for use in manufacturing certain types of semiconductor manufacturing equipment, and also expanded the scope to include additional countries beyond mainland China and Macau.
ACM Shanghai has determined that several of its customers have mainland China-based facilities that meet the restricted criteria set out in the October 2022 and October 2023 rules, and has also determined that several of its products, and/or components for its products, may meet the parameters of export control classification numbers, or ECCNs, affected by the restrictions. ACM and ACM Shanghai have implemented modifications to their existing business policies and practices in response to the October 2022 restrictions, including by imposing limitations on the activities of their U.S. persons and undertaking measures in connection with their supply chains more broadly to comply with the new regulations. ACM Shanghai is continuing to assess the impact of the October 2023 changes, together with the October 2022 rules, and will further modify its policies and practices as required to comply with the updates. Based on our ongoing review, we believe these regulations may directly impact ACM Shanghai’s ability to meet its future production plans, or indirectly impact the spending plans of ACM Shanghai’s customer base. ACM may not be able to import, or may face substantial restrictions in importing, certain parts from the United States or parts subject to U.S. export controls from outside the United States to support tool shipments to such facilities, or to be embedded into tools defined by affected ECCNs.
ACM and ACM Shanghai believe that as a result of the October 2022 restrictions, several ACM Shanghai customers have significantly reduced production and related capital spending at facilities meeting the restricted advanced node capabilities. In addition, ACM Shanghai has experienced challenges as the companies in its supply chain adapt their policies to the new
13
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
regulations. These factors had an adverse impact on ACM Shanghai’s shipments and sales for the three and nine months ended September 30, 2023.
During the nine months ended September 30, 2023, two prominent exporters of advanced semiconductor manufacturing equipment, the Netherlands and Japan, announced and began to implement plans to join the United States in imposing semiconductor-focused export controls.
On May 23, 2023, the Japanese government issued the final amendment to an ordinance implementing new export controls to require licensing for export of certain advanced semiconductor manufacturing equipment, effective as of July 23, 2023. The amendment expands the scope of export controls to prohibit (1) exporting twenty-three additional categories of items relating to semiconductor manufacturing and (2) providing technology relating to manufacturing, development or use of these categories of items, in both cases, without an advance license. While the expanded export controls apply to exports to any jurisdiction, exports to certain jurisdictions, such as the United States, are expected to be permitted by certain types of broad general licenses. However, it remains to be seen whether the Japanese government will authorize any exports of these items to mainland China by a limited general license or specific license, if at all.
On June 30, 2023, the Government of the Netherlands published additional export control measures for advanced semiconductor manufacturing equipment. The Regulation on Advanced Semiconductor Manufacturing Equipment took effect on September 1, 2023. From that point on, the export of certain advanced semiconductor manufacturing equipment, as specified in the Annex to the Regulation, has been subject to a national export license authorization requirement by the Dutch Central Import and Export Service.
As a result of the new restrictions imposed by the Japanese and Dutch governments, ACM Shanghai and/or several of its customers in mainland China may be impacted by, and required to reduce their production capabilities due to, the lack of, or reduced, ability to source items relating to semiconductor manufacturing from Japan and the Netherlands.
See “Part II. Item 1A – Risk Factors – Regulatory Risks – Our ability to sell our tools to customers in mainland China has been impacted, and will likely continue to be materially and adversely impacted, by export license requirements, other regulatory changes, or other actions taken by the U.S. or other governmental agencies” for more information.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported revenues and expenses during the reported period in the condensed consolidated financial statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for revenue recognition and deferred revenue, the valuation and recognition of fair value of certain short-term investments, stock-based compensation arrangements, realization of deferred tax assets, assessment for impairment of long-lived assets and long-term investments, allowance for credit losses, inventory valuation, useful lives of property, plant and equipment and useful lives of intangible assets.
Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates and assumptions.
Revenue Recognition
The Company derives revenue principally from the sale of semiconductor capital equipment, or tools, used for the fabrication of integrated semiconductor circuits. The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process:
1.Identify the contract(s) with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
14
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
5. Recognize revenue when, or as, a performance obligation is satisfied.
Identify the contract(s) with a customer. The Company generally considers written documentation including, but not limited to, signed purchase orders, master agreements, and sales orders as contracts, provided it has approval and commitment from the customer, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collection is probable. Collectability is assessed based on management’s assessment of the customer’s creditworthiness, historical payment experience, as well as other relevant factors.
Identify the performance obligations in the contract. Performance obligations are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the good or service is distinct in the context of the contract. The Company’s performance obligations generally include sales of tools and spare parts. In addition, customer contracts can contain provisions for installation, training, software updates, most-favored pricing for spare parts, and other items which have been deemed immaterial in the context of the contract.
Determine the transaction price. The transaction price for the Company’s contracts with customers may include fixed and variable consideration. The Company includes variable consideration in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur in the future based on the Company’s historical experience with similar arrangements.
Allocate the transaction price to the performance obligations in the contract. For contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis. The Company defers revenue associated with spare parts, sold together with its tools, based on its stand-alone observable selling prices or using an expected cost-plus-margin approach when a stand-alone selling price is not directly observable, and recognizes revenue upon subsequent delivery.
Recognize revenue when, or as, a performance obligation is satisfied. The Company recognizes revenue from tools and spare parts at a point in time, when the Company has satisfied its performance obligation. The Company’s sales arrangements do not include a general right of return. For shipments made to a customer that has not previously accepted a specific type of tool (“first tools”), revenues are recognized when the goods are accepted by the customer. For shipments made to a customer that has previously accepted a specific type of tool, revenues are recognized upon shipment or delivery because the Company can objectively demonstrate that the goods meet all the required customer specifications.
The Company’s warranties provide assurance that its products will function as expected and in accordance with certain specifications. The Company’s warranties are intended to safeguard the customer against existing defects and do not provide any incremental service to the customer. They are not separate performance obligations and are accounted for under ASC 460, Guarantees.
Contract liabilities include payments received from customers prior to the transfer of control of certain goods which are recorded as advances from customers, and spare parts sold together with its tools which are recorded as deferred revenue. The Company does not have contract assets.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, bank deposits that are unrestricted as to withdrawal and use, and highly liquid investments with an original maturity date of three months or less at the date of purchase. At times, cash deposits may exceed government-insured limits.
15
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
The following table presents cash and cash equivalents, according to jurisdiction as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | ||||||||||
| United States | $ | $ | |||||||||
| Mainland China | |||||||||||
| China Hong Kong | |||||||||||
Korea | |||||||||||
| Singapore | |||||||||||
| Total | $ | $ | |||||||||
The amounts in mainland China do not include short-term and long-term time deposits which totaled $118,834 and $172,448 at September 30, 2023 and December 31, 2022, respectively.
Cash held in the U.S. exceeds the Federal Deposit Insurance Corporation insurance limits and is subject to risk of loss. No losses have been experienced to date.
Cash amounts held in mainland China are subject to a series of risk control regulatory standards from mainland China bank regulatory authorities. ACM’s subsidiaries in mainland China are required to obtain approval from the State Administration of Foreign Exchange (“SAFE”) to transfer funds into or out of mainland China. SAFE requires a valid agreement to approve the transfers, which are processed through a bank. Other than these mainland China foreign exchange restrictions, ACM’s subsidiaries in mainland China are not subject to any restrictions and limitations on its ability to transfer funds to ACM or among our other subsidiaries. However, cash held in mainland China does exceed applicable insurance limits and is subject to risk of loss, although no such losses have been experienced to date.
ACM California periodically procures goods and services on behalf of ACM Shanghai. For these transactions, ACM Shanghai makes cash payments to ACM California in accordance with applicable transfer pricing arrangements. For the three and nine months ended September 30, 2023, cash payments from ACM Shanghai to ACM California for the procurement of goods and services were $10,724 and $35,195 , respectively. For the three and nine months ended September 30, 2022, cash payments from ACM Shanghai to ACM California for the procurement of goods and services were $12,682 and $24,631 , respectively. ACM California periodically borrows funds for working capital advances from its direct parent, CleanChip. ACM California repays or renews these intercompany loans in accordance with their terms.
For sales through CleanChip and ACM Research, a certain amount of sales or advanced payments from customers is repatriated back to ACM Shanghai in accordance with applicable transfer pricing arrangements in the ordinary course of business. ACM Research provides services to certain customers located in the U.S., Europe and other regions outside of mainland China to support the evaluation of first tools and provide support for tools under warranty on behalf of ACM Shanghai. For these transactions, ACM Shanghai makes cash payments to ACM Research in accordance with applicable transfer pricing arrangements.
Subsequent to June 30, 2020, with the exception of sales and services-related transfer-pricing payments in the ordinary course of business, and dividends paid by ACM Shanghai to ACM Research, no cash transfers or other payments or distributions have been made between ACM Research and ACM Shanghai. ACM Research intends to retain any future earnings to finance the operations and expenses of the business, and does not expect to distribute earnings or declare or pay any dividends to holders of ACM Research Class A common stock in the foreseeable future.
Amounts held in Korea exceed the Korea Deposit Insurance Corporation insurance limits and is subject to risk of loss. No losses have been experienced to date.
There is no additional restriction for the transfer of cash from bank accounts in the U.S., Korea, Singapore and Hong Kong.
For the three and nine months ended September 30, 2023 and 2022, with the exception of sales and services-related transfer-pricing payments in the ordinary course of business, and dividends paid by ACM Shanghai to ACM Research, no
16
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
At September 30, 2023 and December 31, 2022, time deposits consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
Deposit in China Merchant Bank which matured on January 29, 2023 with an annual interest rate of | $ | $ | ||||||
Deposit in China Everbright Bank which matured on January 29, 2023 with an annual interest rate of | $ | $ | ||||||
Deposit in China Everbright Bank which matured on May 22, 2023 with an annual interest rate of | $ | $ | ||||||
Deposit in China Industrial Bank which matured on January 30, 2023 with an annual interest rate of | $ | $ | ||||||
Deposit in China Merchant Bank which matures on January 29, 2024 with an annual interest rate of | $ | $ | ||||||
Deposit in Bank of Ningbo which matures on February 17, 2024 with an annual interest rate of | $ | $ | ||||||
Deposit in Shanghai Pudong Development Bank which matures on October 20, 2025 with an annual interest rate of | $ | $ | ||||||
Deposit in Shanghai Pudong Development Bank which matures on November 14, 2025 with an annual interest rate of | $ | $ | ||||||
Deposit in Shanghai Pudong Development Bank which matures on December 8, 2025 with an annual interest rate of | $ | $ | ||||||
Deposit in Shanghai Pudong Development Bank which matures on December 15, 2025 with an annual interest rate of | $ | $ | ||||||
Deposit in Shanghai Pudong Development Bank which matures on December 30, 2025 with an annual interest rate of | $ | $ | ||||||
Deposit in China Industrial Bank which matures on January 30, 2026 with an annual interest rate of | $ | $ | ||||||
Deposit in China Everbright Bank which matures on November 22, 2023 with an annual interest rate of | $ | $ | ||||||
Deposit in China Everbright Bank which matures on January 5, 2024 with an annual interest rate of | $ | $ | ||||||
| $ | $ | |||||||
For the three months ended September 30, 2023 and 2022, interest income related to time deposits was $867 and $929 , respectively. For the nine months ended September 30, 2023 and 2022, interest income related to time deposits was $2,779 and $2,468 , respectively.
17
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
The Company periodically invests in equity securities, and maintains an investment portfolio of various holdings, types, and maturities. For equity investments that do not have a readily determinable fair value, the Company classified them as long-term investments, and records them using either: 1) the measurement alternative which measures the equity investments at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes; or 2) the equity method whereby the Company recognizes its proportional share of the income or loss from the equity method investment. The equity method is utilized when the equity investments are common stock or in substance common stock, and the Company does not have the ability to control the investee but is deemed to have the ability to exercise significant influence over the investee’s operating or financial policies. For equity investments that have a readily determinable fair value, the Company classified them as short-term investments, and records them at fair market value on a recurring basis based upon quoted market prices. Realized and unrealized gains and losses resulting from application of the measurement alternative, the impact of the application of the equity method to the Company’s equity investments, and recognition of changes in fair market value, as applicable, are recognized as non-operating income (expenses), net in the condensed consolidated statements of operations and comprehensive income (loss).
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. The level of an asset or liability in the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities with sufficient volume and frequency of transactions.
Level 2: Valuations based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active for identical assets or liabilities, or model-derived valuations techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuations based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities and based on non-binding, broker-provided price quotes and may not have been corroborated by observable market data.
The Company’s primary financial instruments include its cash, cash equivalents, short term and long term deposits, restricted cash, short-term and long-term investments, accounts receivable, accounts payable, and short-term and long-term borrowings. The estimated fair value of cash and cash equivalents, short-term time deposits, accounts receivable, other receivable, accounts payable, and short-term borrowings approximates their carrying value due to the short period of time to their maturities.
18
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
| Quoted Prices in Active Markets for Identical Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||
| As of September 30, 2023: | ||||||||||||||
| Assets | ||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | ||||||||||
Short-term investments | ||||||||||||||
| $ | $ | $ | $ | |||||||||||
| As of December 31, 2022: | ||||||||||||||
| Assets | ||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | ||||||||||
Short-term investments | ||||||||||||||
| $ | $ | $ | $ | |||||||||||
The Company did not have any assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2023 and December 30, 2022.
Refer to Note 12 for fair value information related to the Company’s outstanding long-term borrowings as of September 30, 2023 and December 31, 2022.
19
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
Basic and Diluted Net Income per Share of Common Stock
Basic and diluted net income per share of common stock are calculated as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||
| Less: Net income attributable to non-controlling interests | |||||||||||||||||
| Net income available to common stockholders, basic | $ | $ | $ | $ | |||||||||||||
| Less: Dilutive effect arising from stock-based awards by ACM Shanghai | |||||||||||||||||
| Net income available to common stockholders, diluted | $ | $ | $ | $ | |||||||||||||
| Weighted average shares outstanding, basic | |||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||
| Weighted average shares outstanding, diluted | |||||||||||||||||
| Net income per share of common stock: | |||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||
ACM Research has been authorized to issue Class A and Class B common stock since redomesticating in Delaware in November 2016. The two classes of common stock are substantially identical in all material respects, except for voting rights. Since ACM Research did not declare any cash dividends during the three and nine months ended September 30, 2023 or 2022, the net income per share of common stock attributable to each class is the same under the “two-class” method. As such, the two classes of common stock have been presented on a combined basis in the condensed consolidated statements of operations and comprehensive income (loss) and in the above computation of net income per share of common stock.
Diluted net income per share of common stock reflects the potential dilution from securities, such as stock options that could share in ACM Research’s earnings. Certain potential dilutive securities were excluded from the net income per share calculation because the impact would be anti-dilutive. ACM Research’s potential dilutive securities consist of 1,757,605 and 4,099,228 stock options for the three and nine months ended September 30, 2023 and 1,993,050 and 1,897,050 stock options for the three and nine months ended September 30, 2022.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, time deposits, and accounts receivable. The Company deposits and invests its cash and cash equivalents and time deposits with financial institutions that management believes are creditworthy.
The Company is potentially subject to concentrations of credit risks in its accounts receivable and revenue. For the three months ended September 30, 2023 and 2022, two customers accounted for 53.2 % and three customers accounted for 61.4 % of revenue, respectively. For the nine months ended September 30, 2023 and 2022, three customers accounted for 48.8 % and three customers accounted for 50.1 % of revenue, respectively.
20
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASC 326 replaced the pre-existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASC 326 requires use of a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments.
In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. ASU 2019-10 defers the effective date of ASU 2016-13 for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company was eligible to be a SRC based on its SRC determination as of November 15, 2019 (which was the issuance date of ASU 2019-10) in accordance with SEC regulations, the Company adopted amendments in ASC 326 for the year beginning January 1, 2023. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The cumulative-effect adjustment, net of tax impact, to retained earnings as of January 1, 2023 was $(1,769 ).
In June 2022, the FASB issued ASU 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”) which clarifies how the fair values of equity securities subject to contractual sale restrictions is determined (Topic 820). The amendment clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires certain qualitative and quantitative disclosures related to equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for the Company for fiscal year beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2022-03 in the third quarter of 2023, and the adoption did not have a material impact on the Company’s financial position, results of operations and cash flows.
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the related businesses. The following tables present disaggregated revenue information:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Single wafer cleaning, Tahoe and semi-critical cleaning equipment | $ | $ | $ | $ | |||||||||||||||||||
| ECP (front-end and packaging), furnace and other technologies | |||||||||||||||||||||||
| Advanced packaging (excluding ECP), services & spares | |||||||||||||||||||||||
| Total Revenue By Product Category | $ | $ | $ | $ | |||||||||||||||||||
21
ACM RESEARCH, INC.
Notes to the Condensed Consolidated Financial Statements
(In thousands, except share, percentage and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Mainland China | $ | $ | $ | $ | ||||||||||||||||
Other regions | ||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||
Below are the accounts receivables and contract liabilities balances as of:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Accounts receivable | $ | ||||||||||