ACM Research(ACMR) - 2024 Q2 - Quarterly Report

FORM 10-Q General Information This section identifies the document as ACM Research, Inc.'s Quarterly Report (FORM 10-Q) for the period ended June 30, 2024, detailing its NASDAQ listing and outstanding shares - The document is a Quarterly Report (FORM 10-Q) for ACM Research, Inc., covering the period ended June 30, 2024[2] - ACM Research, Inc. is a Delaware corporation, trading under the symbol ACMR on The NASDAQ Stock Market LLC[2][3] | Class | Number of Shares Outstanding (as of August 2, 2024) | | :---------------------------------- | :-------------------------------------------------- | | Class A Common Stock, $0.0001 par value | 57,449,013 shares | | Class B Common Stock, $0.0001 par value | 5,021,811 shares | Table of Contents This section outlines the report's structure, divided into PART I (Financial Information) and PART II (Other Information), detailing the contents of each part - The report is structured into two main parts: PART I. FINANCIAL INFORMATION and PART II. OTHER INFORMATION[6] - PART I includes Financial Statements, Management's Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures about Market Risks, and Controls and Procedures[6] - PART II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities and Use of Proceeds, Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information, and Exhibits[6] Forward-Looking Statements and Statistical Data This section highlights that the report contains forward-looking statements and statistical data, which are subject to risks and uncertainties and may not be updated - The report contains forward-looking statements regarding strategy, future operations, financial position, revenue, costs, prospects, plans, and objectives, which are subject to known and unknown risks and uncertainties[9] - Statistical data and estimates, including forecasts, are based on information from Gartner, Inc., and are subject to change without notice[10] - The company assumes no obligation to publicly update these statements, even if new information becomes available[11] PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements for ACM Research, Inc. and its subsidiaries for the quarter and six months ended June 30, 2024, along with detailed notes explaining significant accounting policies, financial instrument details, revenue recognition, and specific asset/liability movements Item 1. Financial Statements (unaudited) This chapter provides the core unaudited financial statements, including the balance sheets, statements of comprehensive income (loss), statements of changes in equity, and statements of cash flows, offering a snapshot of the company's financial health and performance for the reported periods Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing total assets, liabilities, and equity as of June 30, 2024, and December 31, 2023 | Metric | June 30, 2024 (Unaudited) (in thousands) | December 31, 2023 (in thousands) | Change (vs Dec 31, 2023) (in thousands) | | :-------------------------------- | :--------------------------------------- | :------------------------------- | :----------------------- | | Total Assets | $1,667,575 | $1,490,908 | +$176,667 | | Total Liabilities | $666,187 | $564,746 | +$101,441 | | Total Equity | $1,001,388 | $926,162 | +$75,226 | | Cash and cash equivalents | $324,031 | $182,090 | +$141,941 | | Inventories, net | $602,927 | $545,395 | +$57,532 | | Short-term borrowings | $54,439 | $31,335 | +$23,104 | | Long-term borrowings | $70,833 | $53,952 | +$16,881 | Condensed Consolidated Statements of Comprehensive Income (Loss) This section reports the company's financial performance, including revenue, gross profit, operating income, and net income per share for the three and six months ended June 30, 2024 and 2023 | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | $202,480 | $144,577 | $354,671 | $218,833 | | Gross profit | $96,784 | $68,639 | $175,905 | $108,625 | | Income from operations | $37,593 | $30,430 | $62,825 | $39,292 | | Net income attributable to ACM Research, Inc. | $24,210 | $26,825 | $41,643 | $33,970 | | Basic EPS | $0.39 | $0.45 | $0.67 | $0.57 | | Diluted EPS | $0.35 | $0.41 | $0.61 | $0.52 | Condensed Consolidated Statements of Changes in Equity (Six Months) This section details the changes in total equity for the six months ended June 30, 2024 and 2023, including contributions from net income and stock-based compensation - Total equity increased from $926,162 thousand at December 31, 2023, to $1,001,388 thousand at June 30, 2024[20] - Net income contributed $53,491 thousand to equity for the six months ended June 30, 2024[20] - Stock-based compensation added $28,911 thousand to additional paid-in capital for the six months ended June 30, 2024[20] Condensed Consolidated Statements of Changes in Equity (Three Months) This section details the changes in total equity for the three months ended June 30, 2024 and 2023, including net income and stock-based compensation - Total equity increased from $960,793 thousand at March 31, 2024, to $1,001,388 thousand at June 30, 2024[23] - Net income for the three months ended June 30, 2024, was $31,399 thousand[23] - Stock-based compensation for the three months ended June 30, 2024, was $14,342 thousand[23] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by operating activities | $51,942 | $(19,145) | | Net cash provided by investing activities | $31,889 | $41,546 | | Net cash provided by financing activities | $58,251 | $3,414 | | Net increase in cash, cash equivalents and restricted cash | $141,739 | $9,551 | | Cash, cash equivalents and restricted cash at end of period | $324,912 | $258,002 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and breakdowns for the figures presented in the condensed consolidated financial statements, covering accounting policies, specific asset and liability categories, revenue recognition, related party transactions, stock-based compensation, income taxes, and commitments, offering crucial context for financial analysis NOTE 1 – DESCRIPTION OF BUSINESS This note describes ACM Research and its subsidiaries' core business of developing, manufacturing, and selling capital equipment to the global semiconductor industry - ACM Research and its subsidiaries develop, manufacture, and sell capital equipment to the global semiconductor industry[30] - ACM Research (Shanghai), Inc. is the principal operating subsidiary with an 82.0% effective interest as of June 30, 2024[31] - New subsidiaries formed in June 2023 include Yusheng Micro Semiconductor (Shanghai) Co., Ltd. and ACM-Wooil Microelectronics (Shanghai) Co., Ltd[31] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and policies applied in preparing the condensed consolidated financial statements Basis of Presentation and Principles of Consolidation This section explains the framework for financial statement presentation and the criteria for consolidating subsidiaries - The condensed consolidated financial statements include ACM and its subsidiaries where ACM controls a majority of the voting power[34] - All significant intercompany transactions and balances are eliminated upon consolidation[34] Use of Estimates This section highlights management's reliance on estimates and assumptions in financial reporting, which impact reported asset, liability, revenue, and expense amounts - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses[37] - Significant estimates include revenue recognition, valuation of investments, stock-based compensation, realization of deferred tax assets, and inventory valuation[37] Cash and Cash Equivalents This section defines cash and cash equivalents and provides a geographical breakdown of these balances, noting restrictions on transfers from mainland China - Cash and cash equivalents consist of cash on hand, bank deposits, and highly liquid investments with original maturities of three months or less[39] | Jurisdiction | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | | United States | $40,515 | $43,614 | | Mainland China | $87,733 | $70,418 | | China Hong Kong | $194,979 | $64,057 | | Korea | $737 | $3,934 | | Singapore | $0 | $67 | | Total | $324,031 | $182,090 | - Cash held in mainland China is subject to approval from the State Administration of Foreign Exchange (SAFE) for transfers out of the country[43] Time Deposits This section details the company's time deposits held in mainland China, including their terms, interest rates, and associated interest income - Time deposits are held with banks in mainland China with fixed terms and interest rates, subject to risk control regulatory standards[48] | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Total Time Deposits | $41,839 | $121,342 | | Interest income (3 months) | $622 | $937 | | Interest income (6 months) | $1,246 | $1,912 | Financial Instruments This section describes the classification and measurement of the company's equity investments, distinguishing between those with and without readily determinable fair values - Equity investments without readily determinable fair value are classified as long-term investments and measured at cost minus impairment or using the equity method[50] - Equity investments with readily determinable fair value are classified as short-term investments and recorded at fair market value[51] | Asset Category | June 30, 2024 (Level 1, in thousands) | December 31, 2023 (Level 1, in thousands) | | :------------------------ | :------------------------------------ | :---------------------------------------- | | Cash and Cash equivalents | $35,494 | $37,518 | | Short-term investments | $19,597 | $21,312 | | Total | $55,091 | $58,830 | Basic and Diluted Net Income per Share of Common Stock This section explains the calculation of basic and diluted net income per share using the two-class method for both Class A and Class B common stock - Basic and diluted net income per share of common stock are presented using the two-class method[64] | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.39 | $0.45 | $0.67 | $0.57 | | Diluted EPS | $0.35 | $0.41 | $0.61 | $0.52 | | Basic Weighted Average Shares Outstanding | 62,178,369 | 59,898,149 | 61,772,776 | 59,817,903 | | Diluted Weighted Average Shares Outstanding | 67,057,846 | 64,929,638 | 66,520,706 | 64,968,900 | - Class A and Class B common stock are presented on a combined basis as net income per share attributable to each class is the same[65] Concentration of Credit Risk This section addresses the company's exposure to credit risk, particularly concerning its revenue and accounts receivable from a concentrated customer base - The company is potentially subject to concentrations of credit risks in its revenue and accounts receivable[68] - For the three months ended June 30, 2024, four customers accounted for 57.9% of revenue, compared to three customers accounting for 52.1% in the prior year[68] - As of June 30, 2024, four customers accounted for 55.9% of the company's accounts receivables[69] Recently issued accounting pronouncements not yet adopted This section outlines new accounting standards, ASU No. 2023-07 and ASU No. 2023-09, that are not yet effective for the company - ASU No. 2023-07 (Improvements to Reportable Segment Disclosures) is effective for annual periods beginning after December 15, 2023, requiring disclosures of significant segment expenses and CODM information[69] - ASU No. 2023-09 (Improvements to Income Tax Disclosures) is effective for annual periods beginning after December 15, 2024, requiring disaggregated information about effective tax rate reconciliation and income taxes paid[70] NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS This note provides a detailed breakdown of the company's revenue by product category and geographic location for the reported periods | Product Category | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :---------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Single Wafer Cleaning, Tahoe and Semi-Critical Cleaning Equipment | $153,221 | $112,528 | $262,691 | $149,142 | | ECP (front-end and packaging), Furnace and Other Technologies | $38,962 | $19,117 | $64,762 | $45,715 | | Advanced Packaging (excluding ECP), Services & Spares | $10,297 | $12,932 | $27,218 | $23,976 | | Total Revenue by Product Category | $202,480 | $144,577 | $354,671 | $218,833 | | Geographic Location | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :---------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Mainland China | $196,835 | $134,767 | $348,970 | $207,226 | | Other regions | $5,645 | $9,810 | $5,701 | $11,607 | | Total | $202,480 | $144,577 | $354,671 | $218,833 | - Advances from customers increased by $24.2 million during the six months ended June 30, 2024, due to increased payments for first tools under evaluation[75] NOTE 4 – ACCOUNTS RECEIVABLE This note details the changes in accounts receivable, net, and the allowance for credit losses for the period - Accounts receivable, net increased by $10.3 million for the first six months of 2024, corresponding to a $135.8 million increase in revenue[77] | Metric | June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------- | | Allowance for credit losses, before tax, as of December 31, 2023 | $(4,830) | | Provision for credit losses | $(1,954) | | Allowance for credit losses, before tax, as of June 30, 2024 | $(6,784) | NOTE 5 – INVENTORIES This note provides a breakdown of inventory by category and explains the reasons for changes in raw materials and finished goods | Inventory Category | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (vs Dec 31, 2023) (in thousands) | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------- | | Raw materials | $248,443 | $235,062 | +$13,381 | | Work-in-process | $75,569 | $81,438 | -$5,869 | | Finished goods | $278,915 | $228,895 | +$50,020 | | Total inventory, net | $602,927 | $545,395 | +$57,532 | - The increase in raw materials is due to additional purchases to support higher expected total shipments and reduce supply chain delays[83] - Finished goods inventory increased primarily due to a higher value of first-tools under evaluation by customers[83] NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET This note details the company's property, plant, and equipment, including construction in progress for the Lingang development and production center | Asset Category | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (vs Dec 31, 2023) (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------- | | Total cost | $113,550 | $112,911 | +$639 | | Accumulated depreciation and amortization | $(21,194) | $(17,503) | -$3,691 | | Construction in progress | $136,375 | $106,440 | +$29,935 | | Total property, plant and equipment, net | $228,731 | $201,848 | +$26,883 | - Construction in progress primarily reflects costs for ACM Shanghai's Lingang development and production center, scheduled for initial production in the second half of 2024[88] NOTE 7 – LAND USE RIGHT, NET This note provides information on the company's land use rights, including their net value and amortization schedule | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------- | :------------------------------- | :------------------------------- | | Land use right purchase amount | $8,939 | $8,996 | | Less: accumulated amortization | $(714) | $(629) | | Land use right, net | $8,225 | $8,367 | - Amortization for the six months ended June 30, 2024, was $85 thousand[89] | Year ending December 31, | Amount (in thousands) | | :----------------------- | :-------------------- | | remainder of 2024 | $90 | | 2025 | $179 | | 2026 | $179 | | 2027 | $179 | | 2028 | $179 | | 2029 and thereafter | $7,419 | | Total | $8,225 | NOTE 8 – OTHER LONG-TERM ASSETS This note details the composition and changes in other long-term assets, including prepayments for property, plant, and equipment | Asset Category | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (vs Dec 31, 2023) (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------- | | Prepayments for property, plant and equipment | $7,988 | $3,380 | +$4,608 | | Lease deposits | $884 | $834 | +$50 | | Security deposit for land use right | $692 | $696 | -$4 | | Others | $1,353 | $1,140 | +$213 | | Total other long-term assets | $10,917 | $6,050 | +$4,867 | NOTE 9 – SHORT-TERM BORROWINGS This note provides details on the company's short-term borrowings, including new lines of credit and associated interest expense - Total short-term borrowings increased from $31,335 thousand at December 31, 2023, to $54,439 thousand at June 30, 2024[97] - New short-term borrowings include a RMB 120,000 line of credit from Bank of China due March 2025 and several lines from China Merchants Bank due February/March 2025[97] - Interest expense related to short-term borrowings was $638 thousand for the six months ended June 30, 2024[97] NOTE 10 – OTHER PAYABLES AND ACCRUED EXPENSES This note details the various components of other payables and accrued expenses, including accrued commissions, warranties, and Lingang construction fees | Category | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (vs Dec 31, 2023) (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------- | | Accrued commissions | $17,814 | $15,572 | +$2,242 | | Accrued warranty | $11,273 | $9,834 | +$1,439 | | Accrued payroll | $13,062 | $14,840 | -$1,778 | | Accrued Lingang construction fees | $33,447 | $33,729 | -$282 | | Others | $30,639 | $20,508 | +$10,131 | | Total | $114,940 | $102,951 | +$11,989 | Warranties This section explains the company's warranty policy and the changes in its accrued warranty liability - The company provides standard warranties on its products, with liability based on historical spending and product reliability improvements[101] | Metric | Six Months Ended June 30, 2024 (in thousands) | | :----------------------- | :---------------------------------------------- | | Balance at beginning of period | $9,834 | | Additions | $5,098 | | Utilized | $(3,659) | | Balance at end of period | $11,273 | NOTE 11 – LEASES This note provides information on the company's lease costs, operating cash outflows from leases, and key lease terms | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating lease cost | $2,004 | $1,740 | | Short-term lease cost | $673 | $592 | | Total lease cost | $2,677 | $2,332 | - Operating cash outflow from operating leases for the six months ended June 30, 2024, was $2,004 thousand[106] - As of June 30, 2024, the weighted average remaining lease term was 3.29 years, and the weighted average discount rate was 3.84%[108] NOTE 12 – LONG-TERM BORROWINGS This note details the company's long-term borrowings from various banks, including new loans, interest rates, and repayment schedules | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Loan from China Merchants Bank | $12,441 | $13,362 | | Loans from Bank of China | $17,370 | $5,013 | | Loan from Bank of Shanghai | $14,040 | $14,120 | | Loans from China CITIC Bank | $28,043 | $28,240 | | Loan from China Everbright Bank | $18,610 | $0 | | Less: Current portion | $(19,671) | $(6,783) | | Total | $70,833 | $53,952 | - A new loan from China Everbright Bank for general corporate expenses and working capital bears an annual floating interest rate of 2.60% and is payable in 6 installments, with the last due in June 2027[114] - The estimated fair value of long-term loans was $84,672 thousand at June 30, 2024, compared to a total carrying amount of $90,504 thousand[115] NOTE 13 – OTHER LONG-TERM LIABILITIES This note describes other long-term liabilities, primarily unearned government subsidies for technology development and commercialization - Other long-term liabilities represent unearned government subsidies received from mainland China governmental authorities for technology development and commercialization[118] | Category | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | | Subsidies commenced in 2020 and prior | $769 | $1,107 | | Subsidies to SW Lingang R&D development commenced in 2021 | $3,433 | $3,467 | | Other | $1,303 | $1,299 | | Total | $5,505 | $5,873 | NOTE 14 – LONG-TERM INVESTMENTS This note details the company's long-term investments, including new acquisitions and the impact of equity method accounting - ACM Shanghai made new long-term investments in Company C ($1,760 thousand), Company D ($4,230 thousand, accounted for under equity method), and Company E ($1,403 thousand) in early 2024[120] - Total long-term investments increased from $27,880 thousand at December 31, 2023, to $31,898 thousand at June 30, 2024[122] - Loss from equity method investments was $(1,215) thousand for the six months ended June 30, 2024, compared to income of $3,888 thousand in the prior year[123] NOTE 15 – SHORT-TERM INVESTMENTS This note provides information on the company's short-term investments, including new acquisitions and unrealized gains or losses - ACM Shanghai acquired shares of Syncrystalline Silicon Materials Co., Ltd. for RMB 10 million ($1,409 thousand) in February 2024, with shares restricted for sale for a minimum of twelve months[126] | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | | Short-term investments listed in Shanghai Stock Exchange (Cost) | $21,045 | $20,155 | | Short-term investments listed in Shanghai Stock Exchange (Market value) | $19,597 | $21,312 | - Unrealized loss on short-term investments was $(1,564) thousand for the six months ended June 30, 2024, an improvement from $(3,109) thousand in the prior year[131] NOTE 16 – RELATED PARTY BALANCES AND TRANSACTIONS This note details transactions and balances with related parties, including key suppliers Ninebell and Shengyi - Ninebell is the company's principal supplier of robotic delivery system subassemblies, and Shengyi is a component supplier in mainland China[133][134] | Related Party | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | | Advances to Ninebell | $2,756 | $2,432 | | Accounts payable (Ninebell) | $12,247 | $7,624 | | Accounts payable (Shengyi) | $5,765 | $3,783 | | Total Accounts Payable | $18,012 | $11,407 | - Purchases of materials from Ninebell and Shengyi totaled $31,271 thousand for the six months ended June 30, 2024[138] NOTE 17 – COMMON STOCK This note describes the company's authorized and outstanding Class A and Class B common stock, including shares issued from option exercises - ACM is authorized to issue 150,000,000 shares of Class A common stock (one vote per share) and 5,307,816 shares of Class B common stock (twenty votes per share)[139] - As of June 30, 2024, 57,402,253 Class A common stock shares and 5,021,811 Class B common stock shares were issued and outstanding[140] - 1,366,081 shares of Class A common stock were issued upon option exercises during the six months ended June 30, 2024[140] NOTE 18 – STOCK-BASED COMPENSATION This note details the company's stock-based compensation expense, broken down by functional area, and provides information on various stock option grants | Stock-Based Compensation Expense | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cost of revenue | $792 | $125 | $1,573 | $250 | | Sales and marketing expense | $3,024 | $431 | $6,051 | $862 | | Research and development expense | $4,206 | $709 | $8,709 | $1,410 | | General and administrative expense | $6,320 | $752 | $12,578 | $1,563 | | Total Stock-Based Compensation Expense | $14,342 | $2,017 | $28,911 | $4,085 | Employee Awards This section provides details on outstanding employee stock options, unrecognized compensation expense, and the intrinsic value of exercised options - As of June 30, 2024, 8,943,464 employee stock options were outstanding with a weighted average exercise price of $10.33[145] - Total unrecognized employee stock-based compensation expense was $25,217 thousand, expected to be recognized over a weighted-average period of 3.6 years[145] - The aggregate intrinsic value of options exercised in the six months ended June 30, 2024, was $29,077 thousand[146] Non-employee Awards This section provides details on outstanding non-employee stock options and the intrinsic value of exercised options - As of June 30, 2024, 1,007,464 non-employee stock options were outstanding and exercisable, with a weighted average exercise price of $1.44[151] - The aggregate intrinsic value of options exercised in the six months ended June 30, 2024, was $4,267 thousand[152] ACM Shanghai 2019 Option Grants This section provides details on outstanding ACM Shanghai 2019 stock options and the intrinsic value of exercised options - As of June 30, 2024, 2,596,421 ACM Shanghai 2019 stock options were outstanding and exercisable, with a weighted average exercise price of $1.85[154] - The aggregate intrinsic value of options exercised in the six months ended June 30, 2024, was $5,198 thousand[154] ACM Shanghai 2023 Option Grants This section provides details on outstanding ACM Shanghai 2023 stock options and their unrecognized compensation expense - As of June 30, 2024, 11,765,435 ACM Shanghai 2023 stock options were outstanding, with a weighted average exercise price of $7.00[157] - Total unrecognized stock-based compensation expense related to ACM Shanghai stock-based awards was $60,798 thousand, expected to be recognized over a weighted-average period of 1.7 years[159] - No options were exercised under the ACM Shanghai 2023 Subsidiary Stock Option Plan during the three and six months ended June 30, 2024[159] NOTE 19 – INCOME TAXES This note details the company's income tax expense and effective tax rate, including benefits from preferential tax rates in foreign jurisdictions - Income tax expense was $13,705 thousand for the six months ended June 30, 2024, compared to $10,517 thousand in the prior year[171] - The decrease in the effective income tax rate for the six months ended June 30, 2024, was primarily due to an increased benefit from certain permanent deductions in a foreign jurisdiction[168] - ACM Shanghai and ACM Lingang benefit from preferential income tax rates of 15% due to their certification as an 'advanced and new technology enterprise' and compliance with Lingang New Area policies, respectively[170] NOTE 20 – Commitments and Contingencies This note outlines the company's capital commitments, including construction contracts and investment commitments, and discusses the status of Lingang development milestones - As of June 30, 2024, the company had $16,293 thousand of open capital commitments to construction contracts and an additional $16,737 thousand of capital investment commitments to Ninebell[172] - ACM Lingang missed the Construction Completion Milestone (due January 9, 2024) for its R&D and production center but believes it will receive a refund without penalty[175] - The Production Start Milestone for ACM Lingang is now required by January 9, 2025, with potential contractual penalties for delays[172][272] NOTE 21 – SEGMENT INFORMATION This note explains the aggregation of operating segments into one reportable segment and provides a breakdown of long-lived assets by geographic region - The company's operating segments (ACM Research and ACM Shanghai) are aggregated into one reportable segment due to similar economic and qualitative characteristics[178] | Geographic Region | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------- | :------------------------------- | :------------------------------- | | Mainland China | $241,246 | $209,725 | | Korea | $11,631 | $12,190 | | United States | $1,248 | $1,276 | | Total | $254,125 | $223,191 | NOTE 22 – STATUTORY SURPLUS RESERVE This note describes the requirement for certain subsidiaries to appropriate funds to a statutory surplus reserve under mainland China GAAP - ACM Shanghai, ACM Lingang, and ACM Wuxi are required to make appropriations to a statutory surplus reserve based on after-tax net income under mainland China GAAP[181] - The balance of statutory surplus reserve was $30,060 thousand as of both June 30, 2024, and December 31, 2023[181] NOTE 23 - SUBSEQUENT EVENTS This note discloses significant events occurring after the reporting period, including the acquisition of a commercial facility in Hillsboro, Oregon - On July 30, 2024, the company entered into an agreement to acquire a commercial facility in Hillsboro, Oregon, for $7.75 million[182] - This acquisition is intended to expand ACM's R&D and demonstration capability in the U.S. market and is scheduled to close in the fourth quarter of 2024[182] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of the business, recent developments, critical accounting policies, and a detailed comparison of financial performance for the three and six months ended June 30, 2024 and 2023, along with an analysis of liquidity and capital resources Overview This section provides a general description of ACM Research's business, its role in the semiconductor industry, and its operational structure in mainland China - ACM Research supplies advanced capital equipment for the global semiconductor industry, focusing on wet-cleaning and front-end processing tools for foundry, logic, and memory chips[195] - The company conducts a substantial majority of its product development, manufacturing, support, and services in mainland China through ACM Shanghai[186] - ACM Research is not a mainland China operating company and does not use a variable interest entity (VIE) structure[187] Recent Developments This section highlights key recent events impacting the company, including a dividend from ACM Shanghai, a proposed private offering, and government R&D funding ACM Shanghai Dividend This section details ACM Shanghai's approved cash dividend and ACM Research's intended use of its share of the proceeds - In June 2024, ACM Shanghai approved a cash dividend of approximately RMB 273.2 million ($38.4 million) to its stockholders[197] - ACM Research owns 82.0% of ACM Shanghai's outstanding shares, and intends to use any net proceeds for working capital and general corporate purposes[197] ACM Shanghai Proposed Private Offering This section discusses ACM Shanghai's plan for a private offering of ordinary shares and its potential impact on ACM Research's equity interest - ACM Shanghai intends to offer up to 43.6 million ordinary shares in a private offering, potentially generating up to RMB 4.5 billion ($625 million)[198] - If consummated, this offering would reduce ACM Research's equity interest in ACM Shanghai from 82.0% to approximately 74.6%[199] - The proposed Private Offering has not been completed as of June 30, 2024[199] Mainland China Government Research and Development Funding This section outlines the government grants received by ACM Shanghai for technology development and its Lingang R&D and production center - ACM Shanghai has received various government grants since 2008 for technology development and the R&D and production center in Lingang Special Area[200] - For the six months ended June 30, 2024, government subsidies recognized as reductions of expenses were $0.6 million, and other subsidies recognized as other income were $1.8 million[201] Net Income Attributable to Non-Controlling Interests This section explains the allocation of net income to minority holders of ACM Shanghai shares due to changes in ACM Research's ownership - ACM Research's ownership in ACM Shanghai declined to 82.0% in June 2024 due to the exercise of stock options[202] - The portion of net income allocable to the minority holders of ACM Shanghai shares is reflected as net income attributable to non-controlling interests[202] Critical Accounting Policies and Estimates This section emphasizes the significant impact of management's assumptions and judgments on key financial metrics and asset/liability valuations - Management's assumptions, judgments, and estimates in applying accounting policies can significantly impact revenue, operating income, net income, and asset/liability values[203] - Critical accounting estimates include revenue recognition, valuation of investments, stock-based compensation, realization of deferred tax assets, and inventory valuation[204] Recent Accounting Pronouncements This section refers to Note 2 for a discussion of recently issued accounting pronouncements - A discussion of recent accounting pronouncements is included in Note 2 to the condensed consolidated financial statements[205] Results of Operations This section provides a comparative analysis of the company's financial performance for the three and six months ended June 30, 2024 and 2023 | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | 100.0% | 100.0% | 100.0% | 100.0% | | Gross margin | 47.8% | 47.5% | 49.6% | 49.6% | | Total operating expenses | 29.2% | 26.4% | 31.9% | 31.7% | | Net income attributable to ACM Research, Inc. | 12.0% | 18.6% | 11.9% | 15.6% | Comparison of Three Months Ended June 30, 2024 and 2023 This section analyzes the company's financial performance for the second quarter of 2024 compared to the same period in 2023 Revenue This section details the changes in total revenue and revenue by product category for the three months ended June 30, 2024 - Total revenue increased by 40.0% to $202,480 thousand for the three months ended June 30, 2024, from $144,577 thousand in the prior-year period[208] - Single wafer cleaning, Tahoe, and semi-critical cleaning equipment revenue increased by 36.2% (+$40,693 thousand)[208] - ECP (front-end and packaging), furnace, and other technologies revenue increased by 103.8% (+$19,845 thousand)[208] Cost of Revenue and Gross Margin This section analyzes the changes in cost of revenue, gross profit, and gross margin for the three months ended June 30, 2024 - Cost of revenue increased by 39.2% to $105,696 thousand for the three months ended June 30, 2024[211] - Gross profit increased by 41.0% to $96,784 thousand, with gross margin slightly up by 0.3% (32 bps) to 47.8%[211] - The increase in gross margin was primarily due to revenue mix between product categories and a favorable impact from RMB to U.S. dollar exchange rate fluctuations[211] Operating Expenses This section details the changes in total operating expenses, including sales and marketing, R&D, and general and administrative expenses, for the three months ended June 30, 2024 - Total operating expenses increased by 54.9% to $59,191 thousand for the three months ended June 30, 2024[212] - Sales and marketing expense increased by 49.8% (+$5,696 thousand), driven by personnel, commissions, travel, and stock-based compensation[212] - Research and development expense increased by 29.4% (+$5,904 thousand), mainly due to stock-based compensation, R&D personnel costs, and depreciation[215] - General and administrative expense increased by 139.9% (+$9,382 thousand), primarily due to stock-based compensation, personnel costs, and allowance for credit losses[217] Interest income, net, Other Income, net This section analyzes changes in net interest income and other income for the three months ended June 30, 2024 - Net interest income decreased by 14.6% to $1,449 thousand for the three months ended June 30, 2024[221] - Other income, net decreased by 63.6% to $1,357 thousand, primarily reflecting a gain from exchange rates on working capital ($1.3 million) compared to a loss in the prior year[222] Realized gain and unrealized loss from short-term investment, and income (loss) from equity investments This section details the realized and unrealized gains/losses from short-term investments and income/loss from equity investments for the three months ended June 30, 2024 - No realized gain from sale of short-term investments was recorded for Q2 2024, compared to $3,919 thousand in Q2 2023[223] - An unrealized gain on short-term investments of $1,031 thousand was recorded for Q2 2024, compared to an unrealized loss of $(2,455) thousand in Q2 2023[224] - Loss from equity method investments was $(695) thousand for Q2 2024, compared to income of $3,920 thousand in Q2 2023[224] Income Tax Expense This section analyzes the changes in income tax expense for the three months ended June 30, 2024, and the factors influencing the effective tax rate - Income tax expense increased to $(9,336) thousand for the three months ended June 30, 2024, from $(7,638) thousand in the prior-year period[225] - The increase was primarily due to the tax effect of an increase in the effective income tax rate applied to an increase in operating profit, and increased capitalized R&D expenses in certain foreign jurisdictions[225] Net Income Attributable to Non-Controlling Interests This section details the increase in net income attributable to non-controlling interests for the three months ended June 30, 2024 - Net income attributable to non-controlling interests increased by 6.2% to $7,189 thousand for the three months ended June 30, 2024[229] Foreign currency translation adjustment This section discusses the foreign currency translation adjustment gain or loss for the three months ended June 30, 2024, driven by exchange rate fluctuations - A foreign currency translation adjustment gain of $116 thousand was recorded for the three months ended June 30, 2024, compared to a loss of $(35,269) thousand in the prior-year period[230] - This change is primarily based on the net effect of RMB to dollar exchange rate fluctuations[230] Comprehensive income attributable to non-controlling interests This section details the significant increase in comprehensive income attributable to non-controlling interests for the three months ended June 30, 2024 - Comprehensive income attributable to non-controlling interests increased by $6,558 thousand (1005.8%) to $7,210 thousand for the three months ended June 30, 2024[232] Comparison of Six Months Ended June 30, 2024 and 2023 This section analyzes the company's financial performance for the first half of 2024 compared to the same period in 2023 Revenue This section details the changes in total revenue and revenue by product category for the six months ended June 30, 2024 - Total revenue increased by 62.1% to $354,671 thousand for the six months ended June 30, 2024, from $218,833 thousand in the prior-year period[233] - Single wafer cleaning, Tahoe, and semi-critical cleaning equipment revenue increased by 76.1% (+$113,549 thousand)[233] - ECP (front-end and packaging), furnace, and other technologies revenue increased by 41.7% (+$19,047 thousand)[233] Cost of Revenue and Gross Margin This section analyzes the changes in cost of revenue, gross profit, and gross margin for the six months ended June 30, 2024 - Cost of revenue increased by 62.2% to $178,766 thousand for the six months ended June 30, 2024[234] - Gross profit increased by 61.9% to $175,905 thousand, with gross margin remaining consistent at 49.6% (a decrease of 4 bps)[234][235] Operating Expenses This section details the changes in total operating expenses, including sales and marketing, R&D, and general and administrative expenses, for the six months ended June 30, 2024 - Total operating expenses increased by 63.1% to $113,080 thousand for the six months ended June 30, 2024[236] - Sales and marketing expense increased by 50.7% (+$10,532 thousand), reflecting higher personnel, commissions, travel, and stock-based compensation costs[236] - Research and development expense increased by 46.3% (+$15,793 thousand), mainly due to stock-based compensation, R&D personnel costs, and component costs[237] - General and administrative expense increased by 120.5% (+$17,422 thousand), primarily due to stock-based compensation, allowance for credit losses, and personnel costs[238][240] Interest income, net, Other Income, net This section analyzes changes in net interest income and other income for the six months ended June 30, 2024 - Net interest income decreased by 12.5% to $2,440 thousand for the six months ended June 30, 2024[241] - Other income, net increased by 92.4% to $4,437 thousand, primarily reflecting a gain from exchange rates on working capital ($2.7 million) and government subsidies[242] Realized gain and unrealized loss from short-term investment, and income (loss) from equity investments This section details the realized and unrealized gains/losses from short-term investments and income/loss from equity investments for the six months ended June 30, 2024 - Realized gain from sale of short-term investments decreased by 96.5% to $273 thousand for H1 2024, from $7,913 thousand in H1 2023[243] - Unrealized loss on short-term investments decreased by 49.7% to $(1,564) thousand for H1 2024, from $(3,109) thousand in H1 2023[244] - Loss from equity method investments was $(1,215) thousand for H1 2024, compared to income of $3,888 thousand in H1 2023[244] Income Tax Expense This section analyzes the changes in income tax expense for the six months ended June 30, 2024, and the factors influencing the effective tax rate - Income tax expense increased by 30.3% to $(13,705) thousand for the six months ended June 30, 2024, from $(10,517) thousand in the prior-year period[246] - The increase was primarily due to the tax effect of an increase in the effective income tax rate applied to an increase in operating profit, and increased capitalized R&D expenses in certain foreign jurisdictions[246] Net Income Attributable to Non-Controlling Interests This section details the increase in net income attributable to non-controlling interests for the six months ended June 30, 2024 - Net income attributable to non-controlling interests increased by 37.9% to $11,848 thousand for the six months ended June 30, 2024[247] Foreign currency translation adjustment This section discusses the foreign currency translation adjustment loss for the six months ended June 30, 2024, influenced by exchange rate fluctuations - A foreign currency translation adjustment loss of $(6,713) thousand was recorded for the six months ended June 30, 2024, an improvement from a loss of $(25,846) thousand in the prior-year period[248] Comprehensive income attributable to non-controlling interests This section details the significant increase in comprehensive income attributable to non-controlling interests for the six months ended June 30, 2024 - Comprehensive income attributable to non-controlling interests increased by $6,502 thousand (158.0%) to $10,616 thousand for the six months ended June 30, 2024[251] Liquidity and Capital Resources This section analyzes the company's ability to meet its financial obligations, including cash flow, capital expenditures, and funding sources - The company's future working capital needs depend on business growth, customer payment schedules, capital expenditures, and R&D/sales & marketing investments[253] - Existing cash, cash equivalents, time deposits, operating cash flow, and bank borrowings are expected to be sufficient for anticipated cash needs[253] - ACM Shanghai is subject to mainland China restrictions on distributions to equity holders, and the use of STAR Market IPO proceeds is limited to specific purposes[256][257] Cash Flow Provided by (used in) Operating Activities This section details the net cash generated from or used in operating activities, highlighting significant sources and uses of cash - Net cash provided by operating activities was $51.9 million for the six months ended June 30, 2024, a significant improvement from $(19.1) million used in the prior year[260] - Significant uses of cash included increases in inventories ($64.9 million), accounts receivable ($14.8 million), and other receivables ($11.7 million)[260] - Sources of cash included a $26.3 million increase in customer advances and a $6.8 million increase in other payables and accrued expenses[260] Cash Flow Used in Investing Activities This section details the net cash used in investing activities, primarily for purchases of property, intangible assets, and investments - Net cash used in investing activities (excluding time deposits) was $(48.4) million for the six months ended June 30, 2024[261] - This primarily consisted of purchases of property and intangible assets ($(39.7) million), long-term investments ($(7.4) million), and short-term investments ($(1.4) million)[261] Cash Flow Provided by Financing Activities This section details the net cash generated from financing activities, including proceeds from borrowings and stock option exercises - Net cash provided by financing activities was $58.3 million for the six months ended June 30, 2024, up from $3.4 million in the prior year[261] - This included $32.3 million proceeds from long-term borrowings, $23.9 million proceeds from short-term borrowings, and $6.4 million proceeds from exercise of stock options[261] - Repayments of short-term and long-term borrowings totaled $(4.4) million[261] Contractual Obligations This section outlines the company's contractual commitments, particularly regarding land use rights and performance milestones for the Lingang R&D and production center - ACM Lingang obtained land use rights for 50 years in July 2020, with performance milestones for construction and production[267][268] - The Construction Start Milestone was achieved, but the Construction Completion Milestone (due January 9, 2024) was not met, though ACM Lingang expects a refund without penalty[269] - The Production Start Milestone for ACM Lingang is now required by January 9, 2025, with potential contractual penalties for delays[272] How We Evaluate Our Operations (Non-GAAP Metrics) This section explains the non-GAAP financial measures used by management to evaluate operational performance, including shipments, Adjusted EBITDA, Free Cash Flow, and Adjusted Operating Income Shipments This section defines shipments and provides a breakdown of total and first-time tool shipments for the reported periods - Shipments include repeat tool shipments (revenue recognized upon delivery) and first-time tool shipments (revenue recognized upon customer acceptance)[280] - Total shipments for the six months ended June 30, 2024, totaled $448.1 million, up from $242.6 million for the same period in 2023[281] - First tool shipments increased to $217.7 million in H1 2024 from $142.3 million in H1 2023[281] Adjusted EBITDA This section defines Adjusted EBITDA as a non-GAAP metric and presents its calculation and change for the six months ended June 30, 2024 - Adjusted EBITDA is defined as net income excluding interest expense (net), income tax benefit (expense), depreciation and amortization, unrealized (gain) loss on short-term investments, and stock-based compensation[276] | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | % Change 2024 v 2023 | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | | Net Income | $53,491 | $42,560 | 25.7% | | Stock based compensation | $28,911 | $4,085 | 607.7% | | Adjusted EBITDA | $99,915 | $61,439 | 62.6% | - The increase in adjusted EBITDA reflects a $10.9 million increase in net income and a $24.8 million increase in stock-based compensation[286] Free Cash Flow This section defines Free Cash Flow as a non-GAAP metric and presents its calculation and change for the six months ended June 30, 2024 - Free cash flow is defined as net cash provided by operating activities less purchases of property and equipment (net of disposals) and purchase of short-term and long-term investments[277] | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | % Change 2024 v 2023 | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | | Net cash provided by (used in) operating activities | $51,942 | $(19,145) | (371.3%) | | Purchase of property and equipment | $(38,512) | $(21,633) | 78.0% | | Purchase of short-term and long-term investments | $(8,769) | $(1,453) | 503.5% | | Free cash flow | $4,661 | $(42,231) | (111.0%) | Adjusted Operating Income This section defines Adjusted Operating Income as a non-GAAP metric and presents its calculation and change for the six months ended June 30, 2024 - Adjusted operating income excludes stock-based compensation from income from operations[277][291] | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Income (loss) from operations (GAAP) | $62,825 | $39,292 | | Stock-based compensation (SBC) | $(28,911) | $(4,085) | | Adjusted (Non-GAAP) Income from operations | $91,736 | $43,377 | - Adjusted operating income increased by $48.3 million for the six months ended June 30, 2024, compared to the prior year, due to a $23.5 million increase in income from operations and a $24.8 million increase in stock-based compensation expense[294] [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=70&type=section&id=I